As filed with the Securities and Exchange Commission on September 2, 2011

Registration No. 333-175108

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

North American Financial Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	6021	27-1454759
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

9350 South Dixie Highway

Miami, Florida 33156

(305) 670-0200

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Christopher G. Marshall

Chief Financial Officer

9350 South Dixie Highway

Miami, Florida 33156

(305) 670-0200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

David E. Shapiro, Esq. Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Telephone: (212) 403-1000 Facsimile: (212) 403-2000 Lee A. Meyerson, Esq. Lesley Peng, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 Telephone: (212) 455-2000 Facsimile: (212) 455-2502

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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

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

The Registrant hereby amends this Registration Statement on such date as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated September 2, 2011

PROSPECTUS

             Shares

North American Financial Holdings, Inc.

Class A Common Stock

This prospectus relates to the initial public offering of our Class A common stock. We are offering              shares of our Class A common stock. This prospectus also relates to the offer and sale of up to              shares of our Class A common stock that are held by the selling stockholders identified in this prospectus. We will not receive any of the proceeds from the sale of shares by the selling stockholders.

Prior to this offering, there has been no public market for our Class A common stock. We estimate that the public offering price per share of our Class A common stock will be between $             and $             per share. We intend to apply to list our Class A common stock on The Nasdaq Global Select Market under the symbol “        .”

See “Risk Factors” on page 16 to read about factors you should consider before buying our Class A common stock.

The shares of our Class A common stock that you purchase in this offering will not be savings accounts, deposits or other obligations of any of our bank or non-bank subsidiaries and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

	Per Share	Total
Initial public offering price	$	$
Underwriting discounts	$	$
Proceeds, before expenses, to us	$	$
Proceeds, before expenses, to the selling stockholders	$	$

To the extent that the underwriters sell more than              shares of Class A common stock, the underwriters have the option to purchase up to an additional              shares from us and the selling stockholders at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares of our Class A common stock against payment in New York, New York on                     , 2011.

Credit Suisse BofA Merrill Lynch Goldman, Sachs & Co.

Prospectus dated                     , 2011

TABLE OF CONTENTS

	Page
PROSPECTUS SUMMARY		1
RISK FACTORS		16
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		42
USE OF PROCEEDS		43
DIVIDEND POLICY		44
CAPITALIZATION		45
DILUTION		46
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION		48
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION		52
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		62
BUSINESS		120
SUPERVISION AND REGULATION		135
MANAGEMENT		150
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND SELLING STOCKHOLDERS		166
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS		169
DESCRIPTION OF CAPITAL STOCK		172
SHARES ELIGIBLE FOR FUTURE SALE		176
MATERIAL U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS		177
CERTAIN ERISA CONSIDERATIONS		180
UNDERWRITING		181
ADDITIONAL INFORMATION		186
WHERE YOU CAN FIND MORE INFORMATION		186
INDEX TO FINANCIAL STATEMENTS		F-1

In this prospectus, unless the context suggests otherwise, references to “NAFH,” “we,” “our,” “us,” and the “Company” for all periods prior and subsequent to the acquisitions described in this prospectus refer to North American Financial Holdings, Inc., a Delaware corporation, and its consolidated subsidiaries, which includes Capital Bank, N.A. (formerly known as NAFH National Bank, a national banking association) (which we refer to as “Capital Bank”), TIB Financial Corp. (which we refer to as “TIB Financial”) and Capital Bank Corporation (which we refer to as “Capital Bank Corp.”). In addition, references to “Green Bankshares” refer to Green Bankshares, Inc. References to the “Failed Banks” refer to First National Bank of the South in Spartanburg, South Carolina (which we refer to as “First National Bank”), Metro Bank of Dade County in Miami, Florida (which we refer to as “Metro Bank”) and Turnberry Bank in Aventura, Florida (which we refer to as “Turnberry Bank”). References to “common stock” refer together to our Class A common stock, par value $0.01 per share, and Class B non-voting common stock, par value $0.01 per share.

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About this Prospectus

You should rely only on the information contained in this prospectus. We, the selling stockholders and the underwriters have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of Class A common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our Class A common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

No action is being taken in any jurisdiction outside the United States to permit a public offering of our Class A common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about, and to observe, any restrictions as to the offering and the distribution of this prospectus applicable to those jurisdictions.

Unless otherwise expressly stated or the context otherwise requires, all information in this prospectus assumes that the underwriters will not exercise their option to purchase additional shares of Class A common stock to cover over-allotments, if any.

Market Data

Market data used in this prospectus has been obtained from independent industry sources and publications, such as SNL Financial and Case-Shiller. We have not independently verified the data obtained from these sources. Forward-looking information obtained from these sources is subject to the same qualifications and the additional uncertainties regarding the other forward-looking statements in this prospectus.

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PROSPECTUS SUMMARY

The following is a summary of selected information contained elsewhere in this prospectus. It does not contain all of the information that you should consider before deciding to purchase shares of Class A common stock. You should read this entire prospectus carefully, especially the “Risk Factors” immediately following this Prospectus Summary, the historical and pro forma financial statements and the related notes thereto and management’s discussion and analysis thereof included elsewhere in this prospectus, before making an investment decision to purchase our Class A common stock.

Background

We are a bank holding company incorporated in late 2009 with the goal of creating a regional banking franchise in the southeastern region of the United States through organic growth and acquisitions of other banks, including failed, underperforming and undercapitalized banks. In December 2009 and January 2010, we raised approximately $900 million to make acquisitions through a series of private placements of our common stock. Since then, we have acquired five depository institutions, including the assets and certain deposits of three failed banks from the Federal Deposit Insurance Corporation (which we refer to as the “FDIC”). As of June 30, 2011, we operated 82 branches in Florida, North Carolina and South Carolina. We expect to complete the acquisition of a sixth depository institution owned by Green Bankshares, Inc., in the third quarter of 2011. Upon completion of our transaction with Green Bankshares, we will operate 146 branches in Tennessee, Florida, North Carolina, South Carolina and Virginia. Through our branches, we offer a wide range of commercial and consumer loans and deposits, as well as ancillary financial services.

We were founded by a group of experienced bankers with a multi-decade record of leading, operating, acquiring and integrating financial institutions. Our executive management team is led by our Chief Executive Officer, R. Eugene Taylor. Mr. Taylor is the former Vice Chairman of Bank of America Corp., where his career spanned 38 years, including tenure as President of the Consumer and Commercial Bank. He also has extensive experience executing and overseeing bank acquisitions, including NationsBank Corp.’s acquisition and integration of Bank of America, Maryland National Bank and Barnett Banks, Inc. Our Chief Financial Officer, Christopher G. Marshall, has over 23 years of financial and managerial experience, including service as the Chief Financial Officer of Fifth Third Bancorp and as the Chief Operations Executive for Bank of America’s Global Consumer and Small Business Bank. Our Chief Risk Officer, R. Bruce Singletary, has over 32 years of experience, including 19 years of experience managing credit risk. He has served as Head of Credit for NationsBank Corp. for the Mid-Atlantic region and as Senior Risk Manager for commercial banking for Bank of America’s Florida Bank. Kenneth A. Posner serves as our Chief of Investment Analytics and Research. Mr. Posner spent 13 years as an equity research analyst at Morgan Stanley focusing on a wide range of financial services firms.

After giving pro forma effect to our pending transaction with Green Bankshares, as of June 30, 2011, we had approximately $7.1 billion in total assets, $4.4 billion in loans, $5.4 billion in deposits and $982.6 million in shareholders’ equity.

Our Acquisitions

Our banking operations commenced on July 16, 2010, when we purchased approximately $1.2 billion of assets and assumed approximately $960.1 million of deposits of three failed banks from the FDIC: First National Bank of the South in Spartanburg, South Carolina, Metro Bank of Dade County in Miami, Florida and Turnberry Bank in Aventura, Florida. The acquired bank’s assets included loans with an estimated fair value of $768.6 million at the acquisition date. These transactions gave us an initial market presence in Miami, which we targeted because of its size and concentrated business activity, and South Carolina, which we targeted because of its attractive demographic growth trends. In connection with these acquisitions, we entered into loss sharing arrangements with the FDIC covering approximately $796.1 million of loans and real estate owned of the Failed Banks that we acquired.

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On September 30, 2010, we invested approximately $175.0 million in TIB Financial Corp., a publicly held bank holding company headquartered in Naples, Florida with approximately $1.7 billion in assets at the acquisition date, and, after giving effect to a subsequent rights offering to legacy TIB Financial shareholders, we acquired approximately 94% of TIB Financial’s common stock. The acquired bank’s assets included loans with an estimated fair value of $1.0 billion at the acquisition date. This acquisition expanded our geographic reach in Florida to include markets that we believe have particularly attractive deposit customer characteristics and provided a platform to support our future growth.

On January 28, 2011, we invested approximately $181.1 million in Capital Bank Corp., a publicly held bank holding company headquartered in Raleigh, North Carolina with approximately $1.7 billion in assets at the acquisition date and, after giving effect to a subsequent rights offering to legacy Capital Bank Corp. shareholders, we acquired approximately 83% of Capital Bank Corp.’s common stock. The acquired bank’s assets included loans with an estimated fair value of $1.1 billion at the acquisition date. This transaction gave us a strong presence in fast-growing North Carolina markets, including the Raleigh metropolitan area, which, according to data derived from the U.S. Census, is the third fastest growing metropolitan area in the country by population.

On May 5, 2011, we agreed to invest approximately $217.0 million in Green Bankshares, a publicly held bank holding company headquartered in Greeneville, Tennessee with approximately $2.3 billion in assets reported as of June 30, 2011. Our investment in Green Bankshares is subject to stockholder approval, regulatory approvals and other customary closing conditions, and is expected to be completed in the third quarter of 2011. If completed, we expect to own approximately 90.0% of Green Bankshares’ common stock. Total assets as of June 30, 2011 included $1.6 billion of gross loans. This transaction will extend our market area in the fast-growing Tennessee metropolitan areas of Nashville and Knoxville.

Within a 12-month period, we have integrated and centralized the underwriting, risk and pricing functions of each of our acquired institutions and combined them all onto a single information processing system.

In this prospectus, we refer to our five completed acquisitions and our pending transaction with Green Bankshares collectively as the “acquisitions.”

Reorganization

Prior to the completion of this offering, and assuming the completion of our Green Bankshares investment, we intend to merge GreenBank, the wholly owned bank subsidiary of Green Bankshares, with and into Capital Bank, N.A. (formerly known as NAFH National Bank). In addition, concurrent with the completion of this offering, we intend to merge each of our majority-held bank holding company subsidiaries (TIB Financial, Capital Bank Corp. and, assuming the completion of our Green Bankshares investment, Green Bankshares) with the Company. In connection with the mergers of our majority-held subsidiaries, we expect that existing third-party stockholders of these subsidiaries will receive shares of Class A common stock (we refer to these mergers collectively as the “reorganization”) in exchange for their minority existing shares. Following the completion of this offering and the reorganization, we will be a publicly traded bank holding company with a single directly and wholly owned bank subsidiary, Capital Bank, N.A. We estimate that we will issue approximately            shares of Class A common stock to the other shareholders of our bank holding company subsidiaries that will be merged with the Company in the reorganization. Following the completion of this offering and the reorganization, we will be a publicly traded bank holding company with a single directly and wholly owned bank subsidiary, Capital Bank, N.A.

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The following diagrams illustrate our ownership structure, including our principal subsidiaries, assuming the completion of the Green Bankshares investment, as of the date of this prospectus and immediately after the completion of this offering and the reorganization:

⁽¹⁾  On April 29, 2011, we combined TIB Financial’s banking subsidiary, TIB Bank, with NAFH National Bank in an all-stock transaction (see “Business—Our Acquisitions—TIB Financial Corp.”), and, on June 30, 2011, we combined Capital Bank Corp.’s banking subsidiary, Capital Bank, with NAFH National Bank in an all-stock transaction and, simultaneously with the consummation of the transaction, changed the name of NAFH National Bank to Capital Bank, N.A. (see “Business—Our Acquisitions—Capital Bank Corporation”).

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Our Business Strategy

Our business strategy is to build a mid-size regional bank by operating, integrating and growing our existing operations as well as to acquire other banks, including failed, underperforming and undercapitalized banks and other complementary assets. We believe recent and continuing dislocations in the southeastern U.S. banking industry have created an opportunity for us to create a mid-sized regional bank that will be able to realize greater economies of scale compared to smaller community banks while still providing more personalized, local service than large-sized banks.

Operating Strategy

Our operating strategy emphasizes relationship banking focused on commercial and consumer lending and deposit gathering. We have organized operations under a line of business operating model, under which we have appointed experienced bankers to oversee loan and deposit production in each of our markets, while centralizing credit, finance, technology and operations functions. Our management team possesses significant executive-level leadership experience at Fortune 500 financial services companies and we believe this experience is an important advantage in executing this regional, more focused, bank business model.

Organic Loan and Deposit Growth

The primary components of our operating strategy are to originate high-quality loans and low-cost customer deposits. Our executive management team has developed a hands-on operating culture focused on performance and accountability, with frequent and detailed oversight by executive management of key performance indicators. We have implemented a sales management system for our branches that is focused on growing loans and core deposits in each of our markets. We believe that this system holds loan officers and branch managers accountable for achieving loan production goals, which are subject to the conservative credit standards and disciplined underwriting practices that we have implemented as well as compliance, profitability and other standards that we monitor. We also believe that accountability is crucial to our results. Our executive management monitors production, credit quality and profitability measures on a quarterly, monthly, weekly and, in some cases, daily basis and provides ongoing feedback to our business unit leaders. During the first half of 2011, we originated $354.1 million of new commercial and consumer loans, and we grew our core deposits by $181.5 million (or 26.2% annualized growth).

The current market conditions have forced many banks to focus internally, which we believe creates an opportunity for organic growth by strongly capitalized banks such as ourselves. We seek to grow our loan portfolio by offering personalized customer service, local market knowledge and a long-term perspective. We have selectively hired experienced loan officers with local market knowledge and existing client relationships. Additionally, our executive management team takes an active role in soliciting, developing and maintaining client relationships.

Efficiency and Cost Savings

Another key element of our strategy is to operate efficiently by carefully managing our cost structure and taking advantage of economies of scale afforded by our acquisitions to control operating costs. We have been able to reduce headcount by consolidating duplicative operations of the acquired banks and streamlining management. We expect to recognize additional cost savings once we have integrated Green Bankshares, if acquired, onto our core processing platform. We plan to further improve efficiency by boosting the productivity of our sales force through our focus on accountability and employee incentives and through selective hiring of experienced loan officers with existing books of business.

To evaluate and control operating costs, we monitor certain performance metrics including our efficiency ratio, which equals total non-interest expenses divided by net revenues (net interest income plus non-interest

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income). Our efficiency ratio has been and is expected to continue to be significantly impacted by certain costs that follow acquisitions of financial institutions. Our efficiency ratio for the six months ended June 30, 2011 was 85.9%, which was impacted by $4.7 million of conversion expenses due to integration of the acquired banks and $2.8 million of foreclosed asset related expense from the resolution of legacy problem assets. Excluding the impact of these items, our adjusted efficiency ratio for the six months ended June 30, 2011 was 76.9%.

Acquisition and Integration Strategy

We seek acquisition opportunities consistent with our business strategy that we believe will produce attractive returns for our stockholders. We plan to pursue acquisitions that position us in southeastern U.S. markets with attractive demographics and business growth trends, expand our branch network in existing markets, increase our earnings power or enhance our suite of products. Our future acquisitions may include distressed assets sold by the FDIC or another seller where our operations, underwriting and servicing capabilities or management experience give us an advantage in evaluating and resolving the assets.

Our acquisition process begins with detailed research of target institutions and the markets they serve. We then draw on our management team’s extensive experience and network of industry contacts in the southeastern region of the United States. Our research and analytics team, led by our Chief of Investment Analytics and Research, maintains lists of priority targets for each of our markets. The team analyzes financial, accounting, tax, regulatory, demographic, transaction structures and competitive considerations for each target and prepares acquisition projections for review by our executive management team and Board of Directors.

As part of our diligence process in connection with potential acquisitions, we undertake a detailed portfolio- and loan-level analysis conducted by a team of experienced credit analysts led by our Chief Risk Officer. In addition, our executive management team engages the target management teams in active dialogue and personally conducts extensive on-site diligence at target branches.

Our executive management team has demonstrated success not only in acquiring financial institutions and combining them onto a common platform, but also in managing the integration of those financial institutions. Our management team develops integration plans prior to the closing of a given transaction that allows us to (1) reorganize the acquired institution’s management team under our line of business model immediately after closing; (2) implement our credit, risk and interest rate risk management, liquidity and compliance and governance policies and procedures; and (3) integrate our target’s technology and processing systems rapidly. Using our procedures, we have already integrated credit and operational policies across each of our acquisitions. We reorganized the management of the Failed Banks within three months of closing, and we merged their core processing systems with TIB Financial’s platform within six months. We also fully integrated Capital Bank Corp. in July 2011.

Sound Risk Management

Sound risk management is an important element of our commercial/retail bank business model and is overseen by our Chief Risk Officer, Bruce Singletary, who has over 19 years of experience managing credit risk. Our credit risk policy, which has been implemented across our organization, establishes prudent underwriting guidelines, limits portfolio concentrations by geography and loan type and incorporates an independent loan review function. Mr. Singletary has created a special assets division with 38 employees to work out or dispose of legacy problem assets using a detailed process taking into account a borrower’s repayment capacity, available guarantees, collateral value, interest accrual and other factors. We believe our risk management policies establish conservative regulatory capital ratios, robust liquidity (including contingency planning), limitations on wholesale funding (including brokered CDs, holding company debt and advances from the Federal Home Loan Bank of Atlanta (which we refer to as the “FHLB”)) and restrictions on interest rate risk.

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Our Competitive Strengths

• Experienced and Respected Management Team with a Successful Track Record. Members of our executive management team and Board of Directors have served in executive leadership roles at Fortune 500 financial services companies, including Bank of America, Fifth Third Bancorp and Morgan Stanley. The executive management team has extensive experience overseeing commercial and consumer banking, mergers and acquisitions, systems integrations, technology, operations, credit and regulatory compliance. Many members of our executive management team are from the southeastern region of the United States and have an extensive network of contacts with banking executives, existing and potential customers, and business and civic leaders throughout the region. We believe our executive management team’s reputation and track record give us an advantage in negotiating acquisitions and hiring and retaining experienced bankers.

• Growth-Oriented Business Model. Our executive management team seeks to foster a strong sales culture with a focus on developing key client relationships, including direct participation in sales calls, and through regular reporting and accountability while emphasizing risk management. Our executive management and line of business executives monitor performance on a quarterly, monthly, weekly and in some cases daily basis, and our compensation plans reward core deposit and responsible commercial loan growth, subject to credit quality, compliance and profitability standards. We have an integrated, scalable core processing platform and centralized credit, finance and technology operations that we believe will support future growth. Our business model contributed to our $354.1 million of commercial and consumer loan originations and $181.5 million in net core deposit growth in the first half of 2011.

• Highly Skilled and Disciplined Acquirer. Including our pending transaction with Green Bankshares, we will have executed six acquisitions in just 12 months. We integrated our first four investments into a common core processing platform within six months and integrated the fifth in July 2011. We believe our track record of completing and integrating transactions quickly has helped us negotiate transactions on more economically favorable terms. We have conducted due diligence on more than 50 financial institutions, many of which our diligence process indicated would not meet our strategic objectives.

• Reduced-Risk Legacy Portfolio. Our acquired loan portfolios have been marked-to-market with the application of the acquisition method of accounting, meaning that the carrying value of these assets at the time of their acquisitions reflected our estimate of lifetime credit losses. In addition, as of June 30, 2011, approximately 21% of our loan portfolio was covered by the loss sharing agreements we entered into with the FDIC, resulting in limited credit risk exposure for these assets.

• Excess Capital and Liquidity. As a result of our private placements and the disciplined deployment of capital, we have ample capital with which to make acquisitions. As of June 30, 2011, we had an 18.1% tangible common equity ratio (which is not a measure recognized under U.S. generally accepted accounting principles (which we refer to as “GAAP”)), but is used by regulators, financial analysts and others to measure core capital strength, and a 17.7% Tier 1 leverage ratio, which provides us with $363.2 million in excess capital relative to the 10% Tier 1 leverage standard required under Capital Bank’s operating agreement with the Office of the Comptroller of the Currency (which we refer to as the “OCC”). As of June 30, 2011, Capital Bank had a 10.5% Tier 1 leverage ratio, a 17.0% Tier 1 risk-based ratio and a 17.5% total risk-based capital ratio. As of June 30, 2011, we had cash and securities equal to 28.5% of total assets, representing $657.2 million of liquidity in excess of our target of 15%, which provides ample liquidity to support our existing banking franchises. Further, our investment portfolio consists primarily of U.S. agency-guaranteed mortgage-backed securities, which have limited credit or liquidity risk. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for a discussion of the use of the tangible common equity ratio in our business and the reconciliation of tangible common equity ratio.

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• Scalable Back-Office Systems. As of July 2011, all of our acquired institutions were operating on a single information processing system, which is also the same system used by Green Bankshares. Our systems are designed to accommodate all of our projected future growth and allow us to offer our customers virtually all of the services currently offered by the nation’s largest financial institutions, including state-of-the-art online banking. Enhancements made to our systems are intended to improve our commercial and consumer loan origination, electronic banking and direct response marketing processes, as well as enhance cash management, streamlined reporting, reconciliation support and sales support.

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Our Market Area

We view our market area as the southeastern region of the United States. Our six acquisitions (including our pending Green Bankshares investment) have established a footprint defined by the Miami-Raleigh-Nashville triangle, which includes the Carolinas, Southwest Florida (Naples and the Keys) and Southeast Florida (Miami-Dade). These markets include a combination of large and fast-growing metropolitan areas that we believe will offer us opportunities for organic loan and deposit growth. According to SNL Financial, the Raleigh metropolitan statistical area (which we refer to as “MSA”) has the third highest projected population growth rate in the nation, with over 19% growth projected between 2010 and 2015. Similarly, the Nashville MSA is projected to grow by 10%. The Miami MSA is already considered a large metropolitan area with a population in excess of 5 million. Similar to other markets, even though recent data show a seasonal improvement in home prices, these MSAs have been impacted by the recent economic recession and downturns in home prices, employment and income. Home prices in Charlotte and Miami rose by 2.0% and 0.6%, respectively (as measured by S&P/Case-Shiller Home Prices Indices), in the month of June 2011. However, home prices are still down in both cities compared to June 2010 (4.1% decline in Charlotte and 5.1% decline in Miami). Approximately 46% of our current branches are located in our target MSAs. The following table highlights key demographics of our target market areas:

Target Metropolitan Statistical Area	Number of Branches		June 30, 2011 Total Deposits(1)		2010 Total Population(2)		2010-15 Projected Pop. Growth			2010 Median Household Income		2010-15 Projected Household Income Growth
Miami-Ft. Lauderdale-Pompano Beach-Homestead, FL		12		$865,234		5,513		1.4	%	$	51,835		13.5	%
Charlotte-Gastonia-Rock Hill, NC-SC		1		26,394		1,793		14.8			62,215		13.2
Nashville-Davidson-Murfreesboro-Franklin, TN		21		716,389		1,608		9.6			58,639		11.3
Raleigh-Cary, NC		13		380,797		1,162		19.4			68,373		15.4
Columbia, SC		6		122,642		758		8.2			52,348		11.9
Knoxville, TN		10		261,901		703		6.4			48,593		13.8
Durham-Chapel Hill, NC		2		78,441		505		8.8			55,185		13.2
Spartanburg, SC		3		176,517		290		7.7			48,476		10.1
Target MSAs(3)		68		2,628,315		12,333		9.1			56,504		12.8
NAFH Consolidated(3)		148		5,395,811		18,119		6.3			62,213		12.7
National						311,213		3.9			54,442		12.4

Source: SNL Financial.

⁽¹⁾  Total deposits as of June 30, 2011 are pro forma giving effect to our pending acquisition of Green Bankshares.

⁽²⁾  Population in thousands.

⁽³⁾  Population growth and median household income metrics are deposit weighted by MSA.

Risk Factors

For a discussion of certain risk factors you should consider before making an investment, see “Risk Factors” beginning on page 16.

Additional Information

Our principal executive offices are located at 9350 South Dixie Highway, Miami, Florida 33156 and our telephone number is (305) 670-0200.

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The Offering

Common stock offered by us             shares of Class A common stock.

Common stock offered by the selling stockholders             shares of Class A common stock.

Over-allotment option             shares of Class A common stock from the Company.

            shares of Class A common stock from the selling stockholders.

Common stock to be outstanding immediately after this offering and the reorganization             shares of Class A common stock and             shares of Class B non-voting common stock.⁽¹⁾

Use of proceeds We estimate that the net proceeds to us from the sale of our Class A common stock in this offering will be approximately $        million, or approximately $        million if the underwriters’ over-allotment option is exercised in full, assuming an initial public offering price of $         per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses.

We intend to use the net proceeds from this offering for general corporate purposes, including the acquisition of depository institutions through traditional open bank and FDIC failed bank acquisitions, as well as through selective acquisitions of financial services companies or of assets, deposits and branches that we believe present attractive risk-adjusted returns and provide a strategic benefit to our growth strategy. We will not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders. See “Use of Proceeds.”

Voting rights The Class A common stock possesses all of the voting power for all matters requiring action by holders of our common stock, with certain limited exceptions.

Regulatory ownership restrictions We are a bank holding company. A holder of shares of common stock (or group of holders acting in concert) that directly or indirectly owns, controls or has the power to vote 10% or more of any class of our voting securities (more than 5% if the holder is a bank holding company) or is otherwise deemed to “control” us under applicable regulatory standards, may be subject to restrictions and notice or approval requirements.

For a further discussion of regulatory ownership restrictions see “Supervision and Regulation.”

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Dividend policy We have never paid cash dividends to holders of our common stock. We do not expect to declare or pay any cash or other dividends on our common stock in the foreseeable future after the completion of this offering.

Listing We intend to apply to list our Class A common stock on The Nasdaq Global Select Market (which we refer to as “Nasdaq”) under the trading symbol “            .”

Risk factors Please read the section entitled “Risk Factors” beginning on page 16 for a discussion of some of the factors you should consider before buying our Class A common stock.

⁽¹⁾  Based on 20,851,549 shares of Class A common stock and 25,298,449 shares of Class B non-voting common stock issued and outstanding as of June 30, 2011, and includes 1,029,823 shares of restricted stock issued under the NAFH 2010 Equity Incentive Plan. As of June 30, 2011, there were 95 holders of our Class A common stock and 28 holders of our Class B non-voting common stock. Unless otherwise indicated, information contained in this prospectus regarding the number of shares of our common stock outstanding after this offering does not include an aggregate of up to             shares of Class A common stock comprised of:

• up to             shares of Class A common stock which may be issued by us pursuant to the underwriters’ option to purchase additional shares;

• 2,236,251 shares of Class A common stock issuable upon exercise of outstanding stock options with a weighted average exercise price of $20.00 per share, of which no shares were vested as of June 30, 2011; and

• 1,029,823 shares of Class A common stock reserved for issuance under the NAFH 2010 Equity Incentive Plan.

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Summary Historical Consolidated and Unaudited Pro Forma Condensed Combined Financial Data

The following tables set forth our summary historical consolidated and unaudited pro forma condensed combined financial data. You should read this information in conjunction with “Selected Historical Consolidated Financial Data,” “Unaudited Pro Forma Condensed Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The summary historical consolidated financial information set forth below as of and for the year ended December 31, 2010 and for the period from November 30, 2009 (date of inception) through December 31, 2010 is derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary historical consolidated financial information set forth below as of and for the six months ended June 30, 2011 and 2010 has been derived from our unaudited consolidated financial statements included elsewhere in this prospectus.

On July 16, 2010, we purchased certain assets and assumed certain liabilities, including substantially all of the deposits of First National Bank, Metro Bank and Turnberry Bank from the FDIC, as receiver. On September 30, 2010 and January 28, 2011, we consummated controlling investments in TIB Financial and Capital Bank Corp., respectively. On May 5, 2011, we agreed to make a controlling investment in Green Bankshares. Our investment in Green Bankshares is subject to the approval of Green Bankshares’ shareholders, regulatory approval, and other customary closing conditions, and is expected to be completed in the third quarter of 2011. Although we were formed in November 2009, our activities prior to our first acquisition consisted solely of organizational, capital raising and related activities and activities related to identifying and analyzing potential acquisition candidates. We did not engage in any substantive operations (including banking operations) prior to our first acquisition.

The summary historical consolidated financial information in the following tables as of and for the year ended December 31, 2010, includes the results of the Company, including First National Bank, Metro Bank and Turnberry Bank subsequent to July 16, 2010 and TIB Financial subsequent to September 30, 2010. The summary historical consolidated financial information as of and for the six months ended June 30, 2011 includes the results of the Company, including First National Bank, Metro Bank, Turnberry Bank and TIB Financial as well as the results of Capital Bank Corp. subsequent to January 28, 2011. The summary unaudited pro forma condensed combined balance sheet information set forth below as of and for the six months ended June 30, 2011 has been derived from NAFH’s, Capital Bank Corp.’s and Green Bankshares’ historical unaudited financial statements as of and for the six months ended June 30, 2011, and the summary unaudited pro forma condensed combined results of operation set forth below as of and for the year ended December 31, 2010 has been derived from NAFH’s, TIB Financial’s, Capital Bank Corp.’s and Green Bankshares’ historical audited financial statements as of and for the year ended December 31, 2010. The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial condition of the combined companies had the companies actually been combined on June 30, 2011 or operating results of the combined companies had they been combined on January 1, 2010.

The unaudited pro forma condensed combined financial information gives effect to and shows the pro forma impact on our historical financial statements of (1) the completion of our investments in TIB Financial, Capital Bank Corp. and Green Bankshares, as applicable, (2) the sale of              shares of Class A common stock in this offering at an assumed initial public offering price of $              per share, the midpoint of the range set forth on the cover page of this prospectus, and (3) the issuance of approximately              shares of Class A common stock to minority stockholders of TIB Financial, Capital Bank Corp. and, assuming the completion of the Green Bankshares investment, Green Bankshares, each of which will be merged with the Company in the reorganization.

Because substantially all of our business is composed of acquired operations and because the operations of each acquired business were substantially changed in connection with its acquisition, our results of operations

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reflect different operations in different periods (or portions of periods) and therefore cannot be meaningfully compared. In addition, results of operations for these periods reflect, among other things, the acquisition method of accounting. Under the acquisition method of accounting, all of the assets acquired and liabilities assumed were initially recorded on our consolidated balance sheet at their estimated fair values as of the dates of acquisition. These estimated fair values differed substantially from the carrying amounts of the assets acquired and liabilities assumed as reflected in the financial statements of the Failed Banks, TIB Financial and Capital Bank Corp. immediately prior to the respective acquisitions.

	Pro Forma														As of December 31, 2009 and for the Period From November 30 Through December 31, 2009
(Dollars in thousands, other than per share data)	As of and for the Six Months Ended June 30, 2011			As of and for the Year Ended December 31, 2010			As of and for the Six Months Ended June 30, 2011		As of and for the Six Months Ended June 30, 2010			As of and for the Year Ended December 31, 2010
	(Unaudited)
Summary Results of Operations
Interest income	$	147,384		$	296,096		$	88,298	$	1,556		$	42,745		$	72
Interest expense		28,596			69,387			16,325		–			6,234			–
Net interest income		118,788			226,709			71,973		1,556			36,511			72
Provision for loan losses		38,232			160,102			9,963		–			753			–
Net interest income after provision for loan losses		80,556			66,607			62,010		1,556			35,758			72
Non-interest income		29,096			68,637			12,400		–			19,659			–
Non-interest expense		124,242			274,950			72,480		5,715			44,421			214
Income (loss) before income taxes		(14,590	)		(139,706	)		1,930		(4,159	)		10,996			(142	)
Income tax expense (benefit)		(5,685	)		(58,308	)		592		(1,756	)		(1,041	)		(50	)
Net income (loss) before attribution of noncontrolling interests		(8,905	)		(81,398	)		1,338		(2,403	)		12,037			(92	)
Net income (loss) attributable to noncontrolling interests		–			–			218		–			7			–
Net income (loss) attributable to NAFH.	$	(8,905	)	$	(81,398	)	$	1,120	$	(2,403	)	$	12,030		$	(92	)
Per Share Data
Earnings
Basic	$			$			$	0.02	$	(0.08	)	$	0.31		$	(0.01	)
Diluted	$			$			$	0.02	$	(0.08	)	$	0.31		$	(0.01	)
Tangible book value(1)	$			$			$	17.96	$	18.79		$	18.39		$	18.86
Weighted average shares outstanding
Basic								45,120,175		31,608,372			38,205,677			8,243,830
Diluted								45,270,175		31,608,372			38,205,677			8,243,830
Common shares outstanding								46,149,998		32,094,240			45,120,175			27,906,524

⁽¹⁾  We calculate tangible book value, which is a non-GAAP measure but which we believe is helpful to investors in understanding our business. Tangible book value is equal to book value less goodwill and core deposit intangibles, net of related deferred tax liabilities. The following table sets forth a reconciliation of tangible book value to book value, which is the most directly comparable GAAP measure:

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	Pro Forma				As of June  30, 2011		As of June  30, 2010		As of December  31, 2010		As of December  31, 2009
(Dollars in millions)	As of June 30, 2011		As of December 31, 2010
Total shareholders’ equity		$		$		$951,692		$603,111		$881,236		$526,320
Less: Noncontrolling interest						48,670		–		5,933		–
Less: NAFH Inc. proportional share of goodwill(*)						63,672		–		36,226		–
Less: NAFH Inc. proportional share of core deposit intangibles, net of taxes(*)						10,366		–		9,217		–
Tangible Book Value		$		$		$828,984		$603,111		$829,860		$526,320
Book Value Per Share		$		$		$19.57		$18.79		$19.40		$18.86
Tangible Book Value Per Share		$		$		$17.96		$18.79		$18.39		$18.86

(*) Proportional share is calculated based upon our ownership percentage of TIB Financial and Capital Bank Corp at each respective period.

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	Pro Forma												As of December  31, 2009 and for the Period From November 30 Through December 31, 2009
(Dollars in thousands, except per share data)	As of and for the Six Months Ended June 30, 2011			As of and for the Six Months Ended June 30, 2011			As of and for the Six Months Ended June 30, 2010			As of and for the Year Ended December 31, 2010
				(Unaudited)
Summary Balance Sheet Data
Cash and cash equivalents	$			$	526,131		$	602,327		$	886,925		$	526,711
Investment securities		1,079,641			862,085			–			479,716			–
Loans held for sale		5,330			4,713						–			–
Loans receivable:
Not covered under FDIC loss sharing agreements		3,776,812			2,377,309			–			1,046,463			–
Covered under FDIC loss sharing agreements		621,931			621,931			–			696,284			–
Allowance for loan losses		(7,689	)		(7,689	)		–			(753	)		–
Net loans		4,391,054			2,991,551			–			1,741,994			–
Other real estate owned		141,577			77,887			–			70,817			–
FDIC indemnification asset		72,747			72,747			–			91,467			–
Receivable from FDIC		22,652			22,652			–			46,585			–
Goodwill and intangible assets, net		136,527			87,786			–			51,770			–
Other assets		432,398			227,613			1,526			127,717			50
Total assets	$			$	4,873,165		$	603,853		$	3,496,991		$	526,761
Deposits	$	5,395,811		$	3,501,423		$	–		$	2,260,097		$	–
Advances from FHLB		411,798			244,939			–			243,067			–
Borrowings		218,885			133,510			742			84,856			–
Other liabilities		64,748			41,601			742			27,735			441
Total liabilities		6,091,242			3,921,473			742			2,615,755			441
Shareholders’ equity					951,692			603,111			881,236			526,320
Total liabilities and shareholders’ equity	$			$	4,873,165		$	603,853		$	3,496,991		$	526,761
Performance Ratios
Return on average assets					0.06	%		(0.77	)%		0.76	%		(0.71	)%
Return on average equity					0.29	%		(0.80	)%		1.67	%		(0.71	)%
Net interest margin					3.53	%		0.50	%		2.51	%		0.55	%
Interest rate spread					3.32	%		0.50	%		2.14	%		0.55	%
Efficiency ratio(1)					85.90	%		NM			79.08	%		NM
Average interest-earning assets to average interest-bearing liabilities					127.10	%		NA			186.42	%		NA
Average loans receivable to average deposits					83.06	%		NA			79.40	%		NA
Cost of interest-bearing liabilities					1.01	%		NA			0.80	%		NA
Asset Quality
Nonperforming loans to loans receivable(2)
Not covered under loss sharing agreements with the FDIC					7.71	%		NA			5.40	%		NA
Covered under loss sharing agreements with the FDIC					21.19	%		NA			19.71	%		NA
Nonperforming assets to total assets
Not covered under loss sharing agreements with the FDIC					5.06	%		NA			2.98	%		NA
Covered under loss sharing agreements with the FDIC					26.89	%		NA			24.60	%		NA
Allowance for loan losses to nonperforming loans
Not covered under loss sharing agreements with the FDIC					2.65	%		NA			1.33	%		NA
Covered under loss sharing agreements with the FDIC					2.14	%		NA			–			NA
Capital Ratios
Average equity to average total assets					20.02	%		96.19	%		45.51	%		99.79	%
Tangible common equity(3)					18.05	%		99.88	%		24.08	%		99.92	%
Tier 1 leverage					17.66	%		NM			24.30	%		NM
Tier 1 risk-based capital					30.17	%		NM			41.80	%		NM
Total risk-based capital					30.61	%		NM			41.90	%		NM

⁽¹⁾ Non-interest expense divided by sum of net interest income and non-interest income.

⁽²⁾ Non-performing loans include non-accrual loans and loans past due over 90 days that retain accrual status due to accretion of income on purchased credit impaired loans.

⁽³⁾ See “Selected Historical Financial Information” for a discussion of the use of the tangible common equity in our business and the reconciliation of tangible common equity for each period of historical consolidated financial information presented above.

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as all of the other information contained in this prospectus including our consolidated financial statements and the related notes thereto, before deciding to invest in our Class A common stock. The occurrence of any of the following risks could materially and adversely affect our business, prospects, financial condition, results of operations and cash flow. In such case, the trading price of our Class A common stock could decline and you could lose all or part of your investment.

Risks Relating to Our Banking Operations

We have recently completed five acquisitions and have a limited operating history from which investors can evaluate our profitability and prospects.

We were organized in November 2009 and acquired certain of the assets and assumed certain liabilities of the three Failed Banks in July 2010. We also completed controlling investments in TIB Financial in September 2010 and in Capital Bank Corp. in January 2011. Because our banking operations began in 2010, we do not have a meaningful operating history upon which investors can evaluate our operational performance or compare our recent performance to historical performance. Although we acquired certain assets and assumed certain liabilities or made investments in five depository institutions which had operated for longer periods of time than we have, their business models and experiences are not reflective of our plans. Accordingly, our limited time running these companies’ operations may make it difficult to predict our future prospects and financial performance based on the prior performance of such depository institutions. Moreover, because a material portion of the loans and other real estate we acquired in the acquisitions are covered by the loss sharing agreements and other loans and real estate we acquired were marked to fair value in connection with our acquisition of the Failed Banks’ businesses, the historical financial results of the acquired banks are less important to an understanding of our future operations. Certain other factors may also make it difficult to predict our future financial and operating performance, including, among others:

• our current asset mix, loan quality and allowances are not representative of our anticipated future asset mix, loan quality and allowances, which may change materially as we undertake organic loan origination and banking activities and grow through future acquisitions;

• a material portion of the loans and other real estate of the Failed Banks that we acquired are covered by the loss sharing agreements with the FDIC, which reimburse 80% of losses experienced on these assets and, thus, we may face higher losses once the FDIC loss sharing expires;

• the income we report from certain acquired assets due to discount accretion and the amortization of the FDIC indemnification asset does not reflect the same amount of cash inflows to us and, if we are unable to replace these acquired assets with new performing loans and other performing assets, we may be unable to generate sufficient cash flows;

• our significant cash reserves and liquid securities portfolio, which result in large part from the proceeds of our 2009 and 2010 private placement financings and cash payments from the FDIC in connection with our acquisition of the Failed Banks subject to loss sharing agreements, are not necessarily representative of our future cash position;

• our cost structure and capital expenditure requirements during the transitional periods for which financial information is available are not reflective of our anticipated cost structure and capital spending as we integrate future acquisitions and continue to grow our organic banking platform; and

• our regulatory capital ratios, which are required by agreements we have reached with our regulators and which result in part from the proceeds of our 2009 and 2010 private placement financings and cash payments from the FDIC in connection with our acquisition of the Failed Banks subject to loss sharing agreements, are not necessarily representative of our future regulatory capital ratios.

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Our acquisition history may not be indicative of our ability to execute our growth strategy.

Our prior acquisitions should be viewed in the context of the recent opportunities available to us as a result of the confluence of our access to capital at a time when market dislocations of historical proportions resulted in attractive asset acquisition opportunities. As conditions change, we may prove to be unable to execute our growth strategy, which could impact our future earnings, reputation and results of operations. We have recently completed the process of integrating all of the acquired banking platforms into a single unified operating. See “—Risks Relating to Our Growth Strategy.”

Continued or worsening general business and economic conditions could have a material adverse effect on our business, financial position, results of operations and cash flows.

Our business and operations are sensitive to general business and economic conditions in the United States. If the U.S. economy is unable to steadily emerge from the recent recession that began in 2007 or we experience worsening economic conditions, such as a so-called “double-dip” recession, our growth and profitability could be adversely affected. Weak economic conditions may be characterized by deflation, fluctuations in debt and equity capital markets, including a lack of liquidity and/or depressed prices in the secondary market for mortgage loans, increased delinquencies on mortgage, consumer and commercial loans, residential and commercial real estate price declines and lower home sales and commercial activity. All of these factors would be detrimental to our business. On August 5, 2011, Standard & Poor’s lowered the long-term sovereign credit rating of U.S. Government debt obligations from AAA to AA+. On August 8, 2011, S&P also downgraded the long-term credit ratings of U.S. government-sponsored enterprises. These actions initially have had an adverse effect on financial markets and although we are unable to predict the longer-term impact on such markets and the participants therein, it may be material and adverse.

Our business is also significantly affected by monetary and related policies of the U.S. federal government, its agencies and government-sponsored entities. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control, are difficult to predict and could have a material adverse effect on our business, financial position, results of operations and cash flows.

The geographic concentration of our markets in the southeastern region of the United States makes our business highly susceptible to downturns in the local economies and depressed banking markets, which could be detrimental to our financial condition.

Unlike larger financial institutions that are more geographically diversified, we are a regional banking franchise concentrated in southeastern region of the United States. We operate branches located in Florida, North Carolina, South Carolina and, upon completion of our transaction with Green Bankshares, Tennessee and Virginia. As of June 30, 2011, 46% of our loans were in Florida, 38% were in North Carolina and 16% were in South Carolina. A deterioration in local economic conditions in the loan market or in the residential, commercial or industrial real estate market could have a material adverse effect on the quality of our portfolio, the demand for our products and services, the ability of borrowers to timely repay loans and the value of the collateral securing loans. In addition, if the population or income growth in the region is slower than projected, income levels, deposits and real estate development could be adversely affected and could result in the curtailment of our expansion, growth and profitability. If any of these developments were to result in losses that materially and adversely affected Capital Bank’s capital, we and Capital Bank might be subject to regulatory restrictions on operations and growth and to a requirement to raise additional capital. See “Supervision and Regulation.”

We depend on our executive officers and key personnel to continue the implementation of our long-term business strategy and could be harmed by the loss of their services.

We believe that our continued growth and future success will depend in large part on the skills of our management team and our ability to motivate and retain these individuals and other key personnel. In particular, we rely on the leadership and experience in the banking industry of our Chief Executive Officer R. Eugene

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Taylor. Mr. Taylor is the former Vice Chairman of Bank of America and has extensive experience executing and overseeing bank acquisitions, including NationsBank Corp.’s acquisition and integration of Bank of America, Maryland National Bank and Barnett Banks. The loss of service of Mr. Taylor or one or more of our other executive officers or key personnel could reduce our ability to successfully implement our long-term business strategy, our business could suffer and the value of our common stock could be materially adversely affected. Leadership changes will occur from time to time and we cannot predict whether significant resignations will occur or whether we will be able to recruit additional qualified personnel. We believe our management team possesses valuable knowledge about the banking industry and that their knowledge and relationships would be very difficult to replicate. Although R. Eugene Taylor has entered into an employment agreement with us and we expect that, prior to the completion of this offering, Christopher G. Marshall, R. Bruce Singletary and Kenneth A. Posner will have entered into employment agreements with us, it is possible that they may not complete the term of their employment agreements or renew them upon expiration. Our success also depends on the experience of our branch managers and lending officers and on their relationships with the customers and communities they serve. The loss of these key personnel could negatively impact our banking operations. The loss of key personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition or operating results.

Our loss sharing agreements impose restrictions on the operation of our business; failure to comply with the terms of our loss sharing agreements with the FDIC or other regulatory agreements or orders may result in significant losses or regulatory sanctions, and we are exposed to unrecoverable losses on the Failed Banks’ assets that we acquired.

In July 2010, we purchased substantially all of the assets and assumed all of the deposits and certain other liabilities of the Failed Banks in FDIC-assisted transactions, and a material portion of our revenue is derived from such assets. Certain of the purchased assets are covered by the loss sharing agreements with the FDIC, which provide that the FDIC will bear 80% of losses on the covered loan assets we acquired in our acquisition of the Failed Banks. We are subject to audit by the FDIC at its discretion to ensure we are in compliance with the terms of these agreements. We may experience difficulties in complying with the requirements of the loss sharing agreements, the terms of which are extensive and failure to comply with any of the terms could result in a specific asset or group of assets losing their loss sharing coverage.

The FDIC has the right to refuse or delay payment partially or in full for such loan losses if we fail to comply with the terms of the loss sharing agreements, which are extensive. Additionally, the loss sharing agreements are limited in duration. Therefore, any losses that we experience after the terms of the loss sharing agreements have ended will not be recoverable from the FDIC and would negatively impact our net income. See “Business—Our Acquisitions—Loss Sharing Agreements” for a description of the loss sharing arrangements with the FDIC.

Our loss sharing agreements also impose limitations on how we manage loans covered by loss sharing. For example, under the loss sharing agreements, we are not permitted to sell a covered loan even if in the ordinary course of our business we determine that taking such action would be advantageous for us. These restrictions could impair our ability to manage problem loans and extend the amount of time that such loans remain on our balance sheet and could negatively impact our business, financial condition, liquidity and results of operations.

In addition to the loss sharing agreements, in August 2010, Capital Bank entered into an Operating Agreement with the OCC (which we refer to as the “OCC Operating Agreement”), in connection with our acquisition of the Failed Banks, Capital Bank (and, with respect to certain provisions, the Company) is also subject to an Order of the FDIC, dated July 16, 2010 (which we refer to as the “FDIC Order”) issued in connection with the FDIC’s approval of our deposit insurance applications for the Failed Banks. The OCC Operating Agreement and the FDIC Order require that Capital Bank maintain various financial and capital ratios and require prior regulatory notice and consent to take certain actions in connection with operating the business and may restrict Capital Bank’s ability to pay dividends to us and to make changes to its capital structure. A failure by us or Capital Bank to comply with the requirements of the OCC Operating Agreement or the FDIC

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Order could subject us to regulatory sanctions; and failure to comply, or the objection, or imposition of additional conditions, by the OCC or the FDIC, in connection with any materials or information submitted thereunder, could prevent us from executing our business strategy and negatively impact our business, financial condition, liquidity and results of operations.

Any requested or required changes in how we determine the impact of loss share accounting on our financial information could have a material adverse effect on our reported results.

A material portion of our financial results is based on loss share accounting, which is subject to assumptions and judgments made by us, our accountants and the regulatory agencies to whom we report such information. Loss share accounting is a complex accounting methodology. If these assumptions are incorrect or our accountants or the regulatory agencies to whom we report require that we change or modify our assumptions, such change or modification could have a material adverse effect on our financial condition, operations or our previously reported results. As such, any financial information generated through the use of loss share accounting is subject to modification or change. Any significant modification or change in such information could have a material adverse effect on our results of operations and our previously reported results.

Our financial information reflects the application of the acquisition method of accounting. Any change in the assumptions used in such methodology could have an adverse effect on our results of operations.

As a result of our recent acquisitions, our financial results are heavily influenced by the application of the acquisition method of accounting. The acquisition method of accounting requires management to make assumptions regarding the assets purchased and liabilities assumed to determine their fair market value. Our interest income, interest expense and net interest margin (which were equal to $88.3 million, $16.3 million and 3.53%, respectively, in the first half of 2011) reflect the impact of accretion of the fair value adjustments made to the carrying amounts of interest earning assets and interest bearing liabilities and our non-interest income (which totaled $12.4 million in the first half of 2011) for periods subsequent to the acquisitions includes the effects of discount accretion and amortization of the FDIC indemnification asset. In addition, the balances of non-performing assets were significantly reduced by the adjustments to fair value recorded in conjunction with the relevant acquisition. If our assumptions are incorrect or the regulatory agencies to whom we report require that we change or modify our assumptions, such change or modification could have a material adverse effect on our financial condition or results of operations or our previously reported results. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Accounting for Acquired Loans” for additional information on the impact of acquisition method of accounting to our financial operations.

Our business is highly susceptible to credit risk.

As a lender, we are exposed to the risk that our customers will be unable to repay their loans according to their terms and that the collateral (if any) securing the payment of their loans may not be sufficient to assure repayment. The risks inherent in making any loan include risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting and guidelines, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers and risks resulting from uncertainties as to the future value of collateral. The credit standards, procedures and policies that we have established for borrowers may not prevent us from incurring substantial credit losses.

Although we do not have a long enough operating history to have restructured many of our loans for borrowers in financial difficulty, in the future, we may restructure originated or acquired loans if we believe the borrowers have a viable business plan to fully pay off all obligations. However, for our originated loans, if interest rates or other terms are modified upon extension of credit or if terms of an existing loan are renewed in such a situation and a concession is granted, we may be required to classify such action as a troubled debt restructuring (which we refer to as a “TDR”). We would classify loans as TDRs when certain modifications are

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made to the loan terms and concessions are granted to the borrowers due to their financial difficulty. Generally, these loans would be restructured to provide the borrower additional time to execute its business plan. With respect to restructured loans, we may grant concessions by (1) reduction of the stated interest rate for the remaining original life of the debt or (2) extension of the maturity date at a stated interest rate lower than the current market rate for new debt with similar risk. In situations where a TDR is unsuccessful and the borrower is unable to satisfy the terms of the restructured agreement, the loan would be placed on nonaccrual status and written down to the underlying collateral value.

Recent economic and market developments and the potential for continued economic disruption present considerable risks to us and it is difficult to determine the depth and duration of the economic and financial market problems and the many ways in which they may impact our business in general. Any failure to manage such credit risks may materially adversely affect our business and our consolidated results of operations and financial condition.

A significant portion of our loan portfolio is secured by real estate, and events that negatively impact the real estate market could hurt our business.

A significant portion of our loan portfolio is secured by real estate. As of June 30, 2011, approximately 87% of our loans had real estate as a primary or secondary component of collateral. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. A continued weakening of the real estate market in our primary market areas could continue to result in an increase in the number of borrowers who default on their loans and a reduction in the value of the collateral securing their loans, which in turn could have an adverse effect on our profitability and asset quality. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, our earnings and shareholders’ equity could be adversely affected. For example, the housing market has been in a four-year recession. Home prices declined by 4.2% (as measured by the S&P/Case-Shiller Home Price Indices) in the first quarter of 2011 (representing a decline of 5.1% versus the first quarter of 2010) and increased by 3.6% in the second quarter of 2011 (representing a decline of 5.9% versus the second quarter of 2010). Further declines in home prices coupled with a deepened economic recession and continued rises in unemployment levels could drive losses beyond the level that is provided for in our allowance for loan losses. In that event, our earnings could be adversely affected.

Additionally, recent weakness in the secondary market for residential lending could have an adverse impact on our profitability. Significant ongoing disruptions in the secondary market for residential mortgage loans have limited the market for and liquidity of most mortgage loans other than conforming Fannie Mae and Freddie Mac loans. The effects of ongoing mortgage market challenges, combined with the ongoing correction in residential real estate market prices and reduced levels of home sales, could result in further price reductions in single family home values, adversely affecting the value of collateral securing mortgage loans held, any future mortgage loan originations and gains on sale of mortgage loans. Continued declines in real estate values and home sales volumes and financial stress on borrowers as a result of job losses or other factors could have further adverse effects on borrowers that result in higher delinquencies and charge-offs in future periods, which could adversely affect our financial position and results of operations.

Our construction and land development loans are based upon estimates of costs and the values of the complete projects.

While we intend to focus on originating loans other than non-owner occupied commercial real estate loans, our portfolio includes construction and land development loans (which we refer to as “C&D loans”) extended to builders and developers, primarily for the construction and/or development of properties. These loans have been extended on a presold and speculative basis and they include loans for both residential and commercial purposes.

In general, C&D lending involves additional risks because of the inherent difficulty in estimating a property’s value both before and at completion of the project. Construction costs may exceed original estimates

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as a result of increased materials, labor or other costs. In addition, because of current uncertainties in the residential and commercial real estate markets, property values have become more difficult to determine than they have been historically. The repayment of construction and land acquisition and development loans is often dependent, in part, on the ability of the borrower to sell or lease the property. These loans also require ongoing monitoring. In addition, speculative construction loans to a residential builder are often associated with homes that are not presold and, thus, pose a greater potential risk than construction loans to individuals on their personal residences. Slowing housing sales have been a contributing factor to an increase in non-performing loans as well as an increase in delinquencies.

As of June 30, 2011, C&D loans totaled $362.9 million (or 12% of our total loan portfolio), of which $72.3 million was for construction and/or development of residential properties and $290.6 million was for construction/development of commercial properties. As of June 30, 2011, nonperforming C&D loans covered under FDIC loss share agreements totaled $41.4 million and nonperforming C&D loans not covered under FDIC loss share agreements totaled $63.4 million.

Our non-owner occupied commercial real estate loans may be dependent on factors outside the control of our borrowers.

While we intend to focus on originating loans other than non-owner occupied commercial real estate loans, in the acquisitions we acquired non-owner occupied commercial real estate loans for individuals and businesses for various purposes, which are secured by commercial properties. These loans typically involve repayment dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service. This may be adversely affected by changes in the economy or local market conditions. Non-owner occupied commercial real estate loans expose a lender to greater credit risk than loans secured by residential real estate because the collateral securing these loans typically cannot be liquidated as easily as residential real estate. In such cases, we may be compelled to modify the terms of the loan or engage in other potentially expensive work-out techniques. If we foreclose on a non-owner occupied commercial real estate loan, our holding period for the collateral typically is longer than a 1-4 family residential property because there are fewer potential purchasers of the collateral. Additionally, non-owner occupied commercial real estate loans generally have relatively large balances to single borrowers or related groups of borrowers. Accordingly, charge-offs on non-owner occupied commercial real estate loans may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.

As of June 30, 2011, our non-owner occupied commercial real estate loans totaled $730.1 million (or 24% of our total loan portfolio). As of June 30, 2011, nonperforming non-owner occupied commercial real estate loans covered under FDIC loss share agreements totaled $30.0 million and nonperforming non-owner occupied commercial real estate loans not covered under FDIC loss share agreements totaled $45.0 million.

Repayment of our commercial business loans is dependent on the cash flows of borrowers, which may be unpredictable, and the collateral securing these loans may fluctuate in value.

Our business plan focuses on originating different types of commercial business loans. We classify types of commercial loans offered are owner-occupied term real estate loans, business lines of credit and term equipment financing. Commercial business lending involves risks that are different from those associated with non-owner occupied commercial real estate lending. Our commercial business loans are primarily underwritten based on the cash flow of the borrower and secondarily on the underlying collateral, including real estate. The borrowers’ cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. Some of our commercial business loans are collateralized by equipment, inventory, accounts receivable or other business assets, and the liquidation of collateral in the event of default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories may be obsolete or of limited use.

As of June 30, 2011, our commercial business loans totaled $892.7 million (or 30% of our total loan portfolio). Of this amount, $628.9 million was secured by owner-occupied real estate and $263.7 million was

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secured by business assets. As of June 30, 2011, nonperforming commercial business loans covered under FDIC loss share agreements totaled $17.7 million and nonperforming commercial business loans not covered under FDIC loss share agreements totaled $52.8 million.

Our allowance for loan losses and fair value adjustments may prove to be insufficient to absorb losses for loans that we originate.

Lending money is a substantial part of our business and each loan carries a certain risk that it will not be repaid in accordance with its terms or that any underlying collateral will not be sufficient to assure repayment. This risk is affected by, among other things:

• cash flow of the borrower and/or the project being financed;

• the changes and uncertainties as to the future value of the collateral, in the case of a collateralized loan;

• the duration of the loan;

• the discount on the loan at the time of acquisition;

• the credit history of a particular borrower; and

• changes in economic and industry conditions.

Non-performing loans covered under loss share agreements with the FDIC totaled $131.8 million, and non-performing loans not covered under loss share agreements with the FDIC totaled $183.3 million as of June 30, 2011. We maintain an allowance for loan losses with respect to loans we originate, which is a reserve established through a provision for loan losses charged to expense, which we believe is appropriate to provide for probable losses in our loan portfolio. The amount of this allowance is determined by our management team through periodic reviews. As of June 30, 2011, the allowance on loans covered by loss share agreements with the FDIC was $2.8 million, and the allowance on loans not covered by loss share agreements with the FDIC was $4.9 million. As of June 30, 2011, the ratio of our allowance for loan losses to nonperforming loans covered by loss share agreements with the FDIC was 2.1%, and the ratio of our allowance for loan losses to non-performing loans not covered by loss share agreements with the FDIC was 2.7%.

The application of the acquisition method of accounting to our completed acquisitions impacted our allowance for loan losses. Under the acquisition method of accounting, all loans were recorded in our financial statements at their fair value at the time of their acquisition and the related allowance for loan loss was eliminated because the fair value at the time was determined by the net present value of the expected cash flows taking into consideration estimated credit quality. We may in the future determine that our estimates of fair value are too high, in which case we would provide for additional loan losses associated with the acquired loans. As of June 30, 2011, the allowance for loan losses on purchased credit-impaired loan pools totaled $3.5 million, of which $2.8 million was related to loan pools covered by loss share agreements with the FDIC and $0.7 million was related to loan pools not covered by loss share agreements with the FDIC.

The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans that we originate, identification of additional problem loans originated by us and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. If current trends in the real estate markets continue, we expect that we will continue to experience increased delinquencies and credit losses, particularly with respect to construction, land development and land loans. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for probable loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. In addition, if charge-offs in future periods exceed the allowance for loan losses, we will need additional provisions to increase the allowance for loan losses. Any increases in the allowance for loan losses will result in a decrease in net income and, possibly, capital and may have a material adverse effect on our financial condition and results of operations.

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We continue to hold and acquire other real estate, which has led to increased operating expenses and vulnerability to additional declines in real property values.

We foreclose on and take title to the real estate serving as collateral for many of our loans as part of our business. Real estate owned by us and not used in the ordinary course of its operations is referred to as “other real estate owned” or “OREO” property. At June 30, 2011, we had $77.9 million of OREO. Increased OREO balances have led to greater expenses as we incur costs to manage and dispose of the properties. We expect that our earnings will continue to be negatively affected by various expenses associated with OREO, including personnel costs, insurance and taxes, completion and repair costs, valuation adjustments and other expenses associated with property ownership, as well as by the funding costs associated with assets that are tied up in OREO. Any further decrease in real estate market prices may lead to additional OREO write-downs, with a corresponding expense in our statement of operations. We evaluate OREO properties periodically and write down the carrying value of the properties if the results of our evaluation require it. The expenses associated with OREO and any further property write-downs could have a material adverse effect on our financial condition and results of operations.

We are subject to environmental liability risk associated with lending activities.

A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on nonresidential real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.

Legislative action regarding foreclosures or bankruptcy laws may negatively impact our business.

Recent laws delay the initiation or completion of foreclosure proceedings on specified types of residential mortgage loans (some for a limited period of time), or otherwise limit the ability of residential loan servicers to take actions that may be essential to preserve the value of the mortgage loans. Any such limitations are likely to cause delayed or reduced collections from mortgagors and generally increased servicing costs. As a servicer of mortgage loans, any restriction on our ability to foreclose on a loan, any requirement that we forego a portion of the amount otherwise due on a loan or any requirement that we modify any original loan terms will in some instances require us to advance principal, interest, tax and insurance payments, which may negatively impact our business, financial condition, liquidity and results of operations.

Delinquencies and defaults in residential mortgages have increased, creating a backlog in courts and an increase in industry scrutiny by regulators, as well as proposed new laws and regulations governing foreclosures. Such laws and regulations might restrict or delay our ability to foreclose and collect payments for single family residential loans under the loss sharing agreements.

For the single family residential loans covered by the loss sharing agreements, we cannot collect loss share payments until we liquidate the properties securing those loans. These loss share payments could be delayed by an extended foreclosure process, including delays resulting from a court backlog, local or national foreclosure moratoriums or other delays, and these delays could have a material adverse effect on our results of operations. New homeowner protection laws and regulations may also delay the initiation or completion of foreclosure proceedings on specified types of residential mortgage loans. Any such limitations are likely to cause delayed or

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reduced collections from mortgagors. Any restriction on our ability to foreclose on a loan, any requirement that we forgo a portion of the amount otherwise due on a loan or any requirement that we modify any original loan terms will in some instances require us to advance principal, interest, tax and insurance payments, which is likely to negatively impact our business, financial condition, liquidity and results of operations.

Like other financial services institutions, our asset and liability structures are monetary in nature. Such structures are affected by a variety of factors, including changes in interest rates, which can impact the value of financial instruments held by us.

Like other financial services institutions, we have asset and liability structures that are essentially monetary in nature and are directly affected by many factors, including domestic and international economic and political conditions, broad trends in business and finance, legislation and regulation affecting the national and international business and financial communities, monetary and fiscal policies, inflation, currency values, market conditions, the availability and cost of short-term or long-term funding and capital, the credit capacity or perceived creditworthiness of customers and counterparties and the level and volatility of trading markets. Such factors can impact customers and counterparties of a financial services institution and may impact the value of financial instruments held by a financial services institution.

Our earnings and cash flows largely depend upon the level of our net interest income, which is the difference between the interest income we earn on loans, investments and other interest earning assets, and the interest we pay on interest bearing liabilities, such as deposits and borrowings. Because different types of assets and liabilities may react differently and at different times to market interest rate changes, changes in interest rates can increase or decrease our net interest income. When interest-bearing liabilities mature or reprice more quickly than interest earning assets in a period, an increase in interest rates could reduce net interest income. Similarly, when interest earning assets mature or reprice more quickly, and because the magnitude of repricing of interest earning assets is often greater than interest bearing liabilities, falling interest rates could reduce net interest income.

Additionally, an increase in interest rates may, among other things, reduce the demand for loans and our ability to originate loans and decrease loan repayment rates, while a decrease in the general level of interest rates may adversely affect the fair value of our financial assets and liabilities and our ability to realize gains on the sale of assets. A decrease in the general level of interest rates may affect us through, among other things, increased prepayments on our loan and mortgage-backed securities portfolios and increased competition for deposits.

Accordingly, changes in the level of market interest rates affect our net yield on interest earning assets, loan origination volume, loan and mortgage-backed securities portfolios and our overall results. Changes in interest rates may also have a significant impact on any future mortgage loan origination revenues. Historically, there has been an inverse correlation between the demand for mortgage loans and interest rates. Mortgage origination volume and revenues usually decline during periods of rising or high interest rates and increase during periods of declining or low interest rates. Changes in interest rates also have a significant impact on the carrying value of a significant percentage of the assets on our balance sheet. Interest rates are highly sensitive to many factors beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, particularly the Board of Governors of the Federal Reserve System (which we refer to as the “Federal Reserve”). We cannot predict the nature and timing of the Federal Reserve’s interest rate policies or other changes in monetary policies and economic conditions, which could negatively impact our financial performance.

We have benefited in recent periods from a favorable interest rate environment, but we believe that this environment cannot be sustained indefinitely and interest rates would be expected to rise as the economy recovers. A strengthening U.S. economy would be expected to cause the Board of Governors of the Federal Reserve to increase short-term interest rates, which would increase our borrowing costs.

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The fair value of our investment securities can fluctuate due to market conditions out of our control.

As of June 30, 2011, approximately 99% of our investment securities portfolio was comprised of U.S. government agency and sponsored enterprises obligations, U.S. government agency and sponsored enterprises mortgage-backed securities and securities of municipalities. As of June 30, 2011, the fair value of our investment securities portfolio was approximately $862.1 million. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency downgrades of the securities, defaults by the issuer or with respect to the underlying securities, changes in market interest rates and continued instability in the credit markets. In addition, we have historically taken a conservative investment posture, concentrating on government issuances of short duration. In the future, we may seek to increase yields through more aggressive investment strategies, which may include a greater percentage of corporate issuances and structured credit products. Any of these mentioned factors, among others, could cause other-than-temporary impairments in future periods and result in a realized loss, which could have a material adverse effect on our business. The process for determining whether impairment is other-than-temporary usually requires complex, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security. Because of changing economic and market conditions affecting issuers and the performance of the underlying collateral, we may recognize realized and/or unrealized losses in future periods, which could have an adverse effect on our financial condition and results of operations.

We have a significant deferred tax asset that may not be fully realized in the future.

Our net deferred tax asset totaled $64.9 million as of June 30, 2011. The ultimate realization of a deferred tax asset is dependent upon the generation of future taxable income during the periods prior to the expiration of the related net operating losses. If our estimates and assumptions about future taxable income are not accurate, the value of our deferred tax asset may not be recoverable and may result in a valuation allowance that would impact our earnings.

Recent market disruptions have caused increased liquidity risks and, if we are unable to maintain sufficient liquidity, we may not be able to meet the cash flow requirements of our depositors and borrowers.

The recent disruption and illiquidity in the credit markets have generally made potential funding sources more difficult to access, less reliable and more expensive. Our liquidity is generally used to make loans and to repay deposit liabilities as they become due or are demanded by customers, and further deterioration in the credit markets or a prolonged period without improvement of market liquidity could present significant challenges in the management of our liquidity and could adversely affect our business, results of operations and prospects. For example, if as a result of a sudden decline in depositor confidence resulting from negative market conditions, a substantial number of bank customers tried to withdraw their bank deposits simultaneously, our reserves may not be able to cover the withdrawals.

Furthermore, an inability to increase our deposit base at all or at attractive rates would impede our ability to fund our continued growth, which could have an adverse effect on our business, results of operations and financial condition. Collateralized borrowings such as advances from the FHLB are an important potential source of liquidity. Our borrowing capacity is generally dependent on the value of the collateral pledged to the FHLB. An adverse regulatory change could reduce our borrowing capacity or eliminate certain types of collateral and could otherwise modify or even eliminate our access to FHLB advances, Federal Fund line borrowings and discount window advances. Liquidity may also be adversely impacted by bank supervisory and regulatory authorities mandating changes in the composition of our balance sheet to asset classes that are less liquid. Any such change or termination may have an adverse effect on our liquidity.

Our access to other funding sources could be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial

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services industry in light of recent turmoil faced by banking organizations and the unstable credit markets. We may need to incur additional debt in the future to achieve our business objectives, in connection with future acquisitions or for other reasons. Any borrowings, if sought, may not be available to us or, if available, may not be on favorable terms. Without sufficient liquidity, we may not be able to meet the cash flow requirements of our depositors and borrowers, which could have a material adverse effect on our financial condition and results of operations.

We may not be able to retain or develop a strong core deposit base or other low-cost funding sources.

We expect to depend on checking, savings and money market deposit account balances and other forms of customer deposits as our primary source of funding for our lending activities. Our future growth will largely depend on our ability to retain and grow a strong deposit base. Because 55% of our deposits as of June 30, 2011 were time deposits, it may prove harder to maintain and grow our deposit base than would otherwise be the case. We are also working to transition certain of our customers to lower cost traditional banking services as higher cost funding sources, such as high interest certificates of deposit, mature. There may be competitive pressures to pay higher interest rates on deposits, which could increase funding costs and compress net interest margins. Customers may not transition to lower yielding savings or investment products or continue their business with us, which could adversely affect our operations. In addition, with recent concerns about bank failures, customers have become concerned about the extent to which their deposits are insured by the FDIC, particularly customers that may maintain deposits in excess of insured limits. Customers may withdraw deposits in an effort to ensure that the amount that they have on deposit with us is fully insured and may place them in other institutions or make investments that are perceived as being more secure. Further, even if we are able to grow and maintain our deposit base, the account and deposit balances can decrease when customers perceive alternative investments, such as the stock market, as providing a better risk/return tradeoff. If customers move money out of bank deposits and into other investments (or similar products at other institutions that may provide a higher rate of return), we could lose a relatively low cost source of funds, increasing our funding costs and reducing our net interest income and net income. Additionally, any such loss of funds could result in lower loan originations, which could materially negatively impact our growth strategy and results of operations.

We operate in a highly competitive industry and face significant competition from other financial institutions and financial services providers, which may decrease our growth or profits.

Consumer and commercial banking is highly competitive. Our market contains not only a large number of community and regional banks, but also a significant presence of the country’s largest commercial banks. We compete with other state and national financial institutions as well as savings and loan associations, savings banks and credit unions for deposits and loans. In addition, we compete with financial intermediaries, such as consumer finance companies, mortgage banking companies, insurance companies, securities firms, mutual funds and several government agencies as well as major retailers, all actively engaged in providing various types of loans and other financial services. Some of these competitors may have a long history of successful operations in our markets, greater ties to local businesses and more expansive banking relationships, as well as better established depositor bases. Competitors with greater resources may possess an advantage by being capable of maintaining numerous banking locations in more convenient sites, operating more ATMs and conducting extensive promotional and advertising campaigns or operating a more developed Internet platform.

The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Increased competition among financial services companies due to the recent consolidation of certain competing financial institutions may adversely affect our ability to market our products and services. Also, technology has lowered barriers to entry and made it possible for banks to compete in our market without a retail footprint by offering competitive rates, as well as non-banks to offer products and services traditionally provided by banks.

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Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may offer a broader range of products and services as well as better pricing for certain products and services than we can.

Our ability to compete successfully depends on a number of factors, including:

• the ability to develop, maintain and build upon long-term customer relationships based on quality service and high ethical standards;

• the ability to attract and retain qualified employees to operate our business effectively;

• the ability to expand our market position;

• the scope, relevance and pricing of products and services offered to meet customer needs and demands;

• the rate at which we introduce new products and services relative to our competitors;

• customer satisfaction with our level of service; and

• industry and general economic trends.

Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could harm our business, financial condition and results of operations.

We are subject to losses due to the errors or fraudulent behavior of employees or third parties.

We are exposed to many types of operational risk, including the risk of fraud by employees and outsiders, clerical recordkeeping errors and transactional errors. Our business is dependent on our employees as well as third-party service providers to process a large number of increasingly complex transactions. We could be materially adversely affected if one of our employees causes a significant operational breakdown or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems. When we originate loans, we rely upon information supplied by loan applicants and third parties, including the information contained in the loan application, property appraisal and title information, if applicable, and employment and income documentation provided by third parties. If any of this information is misrepresented and such misrepresentation is not detected prior to loan funding, we generally bear the risk of loss associated with the misrepresentation. Any of these occurrences could result in a diminished ability of us to operate our business, potential liability to customers, reputational damage and regulatory intervention, which could negatively impact our business, financial condition and results of operations.

We are dependent on our information technology and telecommunications systems and third-party servicers, and systems failures, interruptions or breaches of security could have an adverse effect on our financial condition and results of operations.

Our business is highly dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party servicers. We outsource many of our major systems, such as data processing, loan servicing and deposit processing systems. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If sustained or repeated, a system failure or service denial could result in a deterioration of our ability to process new and renewal loans, gather deposits and provide customer service, compromise our ability to operate effectively, damage our reputation, result in a loss of customer business and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

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In addition, we provide our customers the ability to bank remotely, including online over the Internet. The secure transmission of confidential information is a critical element of remote banking. Our network could be vulnerable to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches. We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses. To the extent that our activities or the activities of our customers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, litigation and other possible liabilities. Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in our systems and could adversely affect our reputation, results of operations and ability to attract and maintain customers and businesses. In addition, a security breach could also subject us to additional regulatory scrutiny, expose us to civil litigation and possible financial liability and cause reputational damage.

As a public company, we will be required to meet periodic reporting requirements under the rules and regulations of the United States Securities and Exchange Commission. Complying with federal securities laws as a public company is expensive, and we will incur significant time and expense enhancing, documenting, testing and certifying our internal control over financial reporting. Any deficiencies in our financial reporting or internal controls could adversely affect our business and the trading price of our Class A common stock.

Prior to becoming a public company, we have not been required to comply with Securities and Exchange Commission (which we refer to as the “SEC”) requirements to have our financial statements completed and reviewed or audited within a specified time. As a publicly traded company following completion of this offering and the reorganization, we will be required to file periodic reports containing our financial statements with the SEC within a specified time following the completion of quarterly and annual periods. We will also be required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 concerning internal controls over financial reporting commencing in the 2012 fiscal year. We may experience difficulty in meeting the SEC’s reporting requirements. Any failure by us to file our periodic reports with the SEC in a timely manner could harm our reputation and reduce the trading price of our Class A common stock.

As a public company, we will incur significant legal, accounting, insurance and other expenses. Compliance with other rules of the SEC and the rules of Nasdaq will increase our legal and financial compliance costs and make some activities more time consuming and costly. Beginning with our Annual Report on Form 10-K for our fiscal year ending December 31, 2012, SEC rules will require that our Chief Executive Officer and Chief Financial Officer periodically certify the existence and effectiveness of our internal controls over financial reporting. Our independent registered public accounting firm will be required to attest to our assessment of our internal controls over financial reporting. This process will require significant documentation of policies, procedures and systems, review of that documentation by our internal auditing staff and our outside auditors and testing of our internal controls over financial reporting by our internal auditing and accounting staff and our outside independent registered public accounting firm. This process will involve considerable time and expense, may strain our internal resources and have an adverse impact on our operating costs. We may experience higher than anticipated operating expenses and outside auditor fees during the implementation of these changes and thereafter.

During the course of our testing, we may identify deficiencies that would have to be remediated to satisfy the SEC rules for certification of our internal controls over financial reporting. As a consequence, we may have to disclose in periodic reports we file with the SEC material weaknesses in our system of internal controls. The existence of a material weakness would preclude management from concluding that our internal controls over financial reporting are effective and would preclude our independent auditors from issuing an unqualified opinion that our internal controls over financial reporting are effective. In addition, disclosures of this type in our SEC reports could cause investors to lose confidence in our financial reporting and may negatively affect the trading price of our Class A common stock. Moreover, effective internal controls are necessary to produce reliable financial reports and to prevent fraud. If we have deficiencies in our disclosure controls and procedures

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or internal controls over financial reporting, it may negatively impact our business, results of operations and reputation. As of December 31, 2010, Green Bankshares reported a material weakness in its internal control over financial reporting. Failure to remediate such material weakness could have an adverse effect on us following the completion of the Green Bankshares investment. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Material Trends and Developments” for information regarding actions we intend to take to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act with respect to the Green Bankshares investment.

Hurricanes or other adverse weather events would negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business or results of operations.

Our market areas in the southeastern region of the United States are susceptible to natural disasters, such as hurricanes, tornadoes, tropical storms, other severe weather events and related flooding and wind damage, and manmade disasters, such as the 2010 oil spill in the Gulf of Mexico. Our market areas in Tennessee are susceptible to natural disasters, such as tornadoes and floods. These natural disasters could negatively impact regional economic conditions, cause a decline in the value or destruction of mortgaged properties and an increase in the risk of delinquencies, foreclosures or loss on loans originated by us, damage our banking facilities and offices and negatively impact our growth strategy. Such weather events can disrupt operations, result in damage to properties and negatively affect the local economies in the markets where they operate. We cannot predict whether or to what extent damage that may be caused by future hurricanes or tornadoes will affect our operations or the economies in our current or future market areas, but such weather events could negatively impact economic conditions in these regions and result in a decline in local loan demand and loan originations, a decline in the value or destruction of properties securing our loans and an increase in delinquencies, foreclosures or loan losses. Our business or results of operations may be adversely affected by these and other negative effects of natural or manmade disasters.

Risks Relating to Our Growth Strategy

We may not be able to effectively manage our growth.

Our future operating results depend to a large extent on our ability to successfully manage our rapid growth. Our rapid growth has placed, and it may continue to place, significant demands on our operations and management. Whether through additional acquisitions or organic growth, our current plan to expand our business is dependent upon:

• the ability of our officers and other key employees to continue to implement and improve our operational, credit, financial, management and other internal risk controls and processes and our reporting systems and procedures in order to manage a growing number of client relationships;

• to scale our technology platform;

• to integrate our acquisitions and develop consistent policies throughout the various businesses; and

• to manage a growing number of client relationships.

We may not successfully implement improvements to, or integrate, our management information and control systems, procedures and processes in an efficient or timely manner and may discover deficiencies in existing systems and controls. In particular, our controls and procedures must be able to accommodate an increase in expected loan volume and the infrastructure that comes with new branches and banks. Thus, our growth strategy may divert management from our existing businesses and may require us to incur additional expenditures to expand our administrative and operational infrastructure and, if we are unable to effectively manage and grow our banking franchise, our business and our consolidated results of operations and financial condition could be materially and adversely impacted. In addition, if we are unable to manage future expansion in our operations, we may experience compliance and operational problems, have to slow the pace of growth, or have to incur additional expenditures beyond current projections to support such growth, any one of which could adversely affect our business.

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Many of our new activities and expansion plans require regulatory approvals, and failure to obtain them may restrict our growth.

We intend to complement and expand our business by pursuing strategic acquisitions of banks and other financial institutions. Generally, any acquisition of target financial institutions or assets by us will require approval by, and cooperation from, a number of governmental regulatory agencies, possibly including the Federal Reserve, the OCC and the FDIC, as well as state banking regulators. In acting on such applications of approval, federal banking regulators consider, among other factors:

• the effect of the acquisition on competition;

• the financial condition and future prospects of the applicant and the banks involved;

• the managerial resources of the applicant and the banks involved;

• the convenience and needs of the community, including the record of performance under the Community Reinvestment Act (which we refer to as the “CRA”); and

• the effectiveness of the applicant in combating money laundering activities.

Such regulators could deny our application based on the above criteria or other considerations or the regulatory approvals may not be granted on terms that are acceptable to us. For example, we could be required to sell branches as a condition to receiving regulatory approvals, and such a condition may not be acceptable to us or may reduce the benefit of any acquisition.

The success of future transactions will depend on our ability to successfully identify and consummate transactions with target financial institutions that meet our investment criteria. Because of the significant competition for acquisition opportunities and the limited number of potential targets, we may not be able to successfully consummate acquisitions necessary to grow our business.

The success of future transactions will depend on our ability to successfully identify and consummate transactions with target financial institutions that meet our investment criteria. There are significant risks associated with our ability to identify and successfully consummate transactions with target financial institutions. There are a limited number of acquisition opportunities, and we expect to encounter intense competition from other banking organizations competing for acquisitions and also from other investment funds and entities looking to acquire financial institutions. Many of these entities are well established and have extensive experience in identifying and effecting acquisitions directly or through affiliates. Many of these competitors possess ongoing banking operations with greater technical, human and other resources than we do, and our financial resources will be relatively limited when contrasted with those of many of these competitors. These organizations may be able to achieve greater cost savings through consolidating operations than we could. Our ability to compete in acquiring certain sizable target institutions will be limited by our available financial resources. These inherent competitive limitations give others an advantage in pursuing the acquisition of certain target financial institutions. In addition, increased competition may drive up the prices for the types of acquisitions we intend to target, which would make the identification and successful consummation of acquisition opportunities more difficult. Competitors may be willing to pay more for target financial institutions than we believe are justified, which could result in us having to pay more for target financial institutions than we prefer or to forego target financial institutions. As a result of the foregoing, we may be unable to successfully identify and consummate future transactions to grow our business on commercially attractive terms, or at all.

Because the institutions we intend to acquire may have distressed assets, we may not be able to realize the value we predict from these assets or make sufficient provision for future losses in the value of, or accurately estimate the future writedowns taken in respect of, these assets.

Delinquencies and losses in the loan portfolios and other assets of financial institutions that we acquire may exceed our initial forecasts developed during the due diligence investigation prior to acquiring those institutions.

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Even if we conduct extensive due diligence on an entity we decide to acquire, this diligence may not reveal all material issues that may affect a particular entity. The diligence process in FDIC-assisted transactions is also expedited due to the short acquisition timeline that is typical for these depository institutions. If, during the diligence process, we fail to identify issues specific to an entity or the environment in which the entity operates, we may be forced to later write down or write off assets, restructure our operations, or incur impairment or other charges that could result in other reporting losses. Any of these events could adversely affect the financial condition, liquidity, capital position and value of institutions we acquire and of the Company as a whole. If any of the foregoing adverse events occur with respect to one subsidiary, they may adversely affect other of our subsidiaries or the Company as a whole. Current economic conditions have created an uncertain environment with respect to asset valuations and there is no certainty that we will be able to sell assets of target institutions if we determine it would be in our best interests to do so. The institutions we will target may have substantial amounts of asset classes for which there is currently limited or no marketability.

The success of future transactions will depend on our ability to successfully combine the target financial institution’s business with our existing banking business and, if we experience difficulties with the integration process, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected.

The success of future transactions will depend, in part, on our ability to successfully combine the target financial institution’s business with our existing banking business. As with any acquisition involving financial institutions, there may be business disruptions that result in the loss of customers or cause customers to remove their accounts and move their business to competing banking institutions. It is possible that the integration process could result in additional expenses in connection with the integration processes and the disruption of ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the acquisition. Integration efforts, including integration of the target financial institution’s systems into our systems may divert our management’s attention and resources, and we may be unable to develop, or experience prolonged delays in the development of, the systems necessary to operate our acquired banks, such as a financial reporting platform or a human resources reporting platform call center. If we experience difficulties with the integration process, the anticipated benefits of any future transaction may not be realized fully or at all or may take longer to realize than expected. Additionally, we may be unable to recognize synergies, operating efficiencies and/or expected benefits within expected timeframes within expected cost projections, or at all. We may also not be able to preserve the goodwill of the acquired financial institution.

Our pending transaction with Green Bankshares may present certain risks to our business and operations.

On May 5, 2011, we entered into an investment agreement providing for our acquisition of a 90.0% interest in Green Bankshares. The proposed investment presents the following risks, among others:

• the possibility that the expected benefits of the transaction may not materialize in the timeframe expected or at all, or may be more costly to achieve;

• the possibility that the transaction may not be timely completed, if at all;

• the possibility that the parties may be unable to successfully implement integration strategies, due to challenges associated with integrating complex systems, technology, banking centers and other assets of Green Bankshares in a manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies and integrating Green Bankshares’ workforce while maintaining focus on providing consistent, high quality customer service;

• the possibility that required regulatory, stockholder or other approvals, including approval of the Federal Reserve and the Tennessee Department of Financial Institutions and the approval of Green Bankshares’ stockholders, might not be obtained or other closing conditions might not be satisfied in a timely manner or at all;

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• reputational risks and the reaction of the companies’ customers to the transaction; and

• whether or not completed, the proposed investment may require diversion of the attention of our management and other key employees from ongoing business activities, including the pursuit of other opportunities that could be beneficial to us.

Further, as of December 31, 2010, Green Bankshares reported a material weakness in its internal controls over financial reporting related to the valuation of impaired loans and real estate owned. Failure to remediate such material weakness could have an adverse effect on us following the completion of the Green Bankshares investment. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Material Trends and Developments” for information regarding actions we intend to take to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act with respect to the Green Bankshares investment in its Annual Report on Form 10-K or the fiscal year ended December 31, 2010.

Projected operating results for entities to be acquired by us may be inaccurate and may vary significantly from actual results.

We will generally establish the pricing of transactions and the capital structure of entities to be acquired by us on the basis of financial projections for such entities. In general, projected operating results will be based primarily on management judgments. In all cases, projections are only estimates of future results that are based upon assumptions made at the time that the projections are developed and the projected results may vary significantly from actual results. General economic, political and market conditions, which are not predictable, can have a material adverse impact on the reliability of such projections. In the event that the projections made in connection with our acquisitions, or future projections with respect to new acquisitions, are not accurate, such inaccuracies could materially and adversely affect our business and our consolidated results of operations and financial condition.

Our officers and directors may have conflicts of interest in determining whether to present business opportunities to us or another entity with which they are, or may become, affiliated.

Our officers and directors may become subject to fiduciary obligations in connection with their service on the boards of directors of other corporations. To the extent that our officers and directors become aware of acquisition opportunities that may be suitable for entities other than us to which they have fiduciary or contractual obligations, or they are presented with such opportunities in their capacities as fiduciaries to such entities, they may honor such obligations to such other entities. In addition, our officers and directors will not have any obligation to present us with any acquisition opportunity that does not fall within certain parameters of our business (which opportunities and parameters are described in more detail in the section entitled “Business”). You should assume that to the extent any of our officers or directors becomes aware of an opportunity that may be suitable both for us and another entity to which such person has a fiduciary obligation or contractual obligation to present such opportunity as set forth above, he or she may first give the opportunity to such other entity or entities and may give such opportunity to us only to the extent such other entity or entities reject or are unable to pursue such opportunity. In addition, you should assume that to the extent any of our officers or directors becomes aware of an acquisition opportunity that does not fall within the above parameters but that may otherwise be suitable for us, he or she may not present such opportunity to us. In general, officers and directors of a corporation incorporated under Delaware law are required to present business opportunities to a corporation if the corporation could financially undertake the opportunity, the opportunity is within the corporation’s line of business and it would not be fair to the corporation and its stockholders for the opportunity not to be brought to the attention of the corporation. However, our certificate of incorporation provides that we renounce any interest or expectancy in certain acquisition opportunities that our officers or directors become aware of in connection with their service to other entities to which they have a fiduciary or contractual obligation.

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Changes in accounting standards may affect how we report our financial condition and results of operations.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the Financial Accounting Standards Board (which we refer to as the “FASB”) or other regulatory authorities change the financial accounting and reporting standards that govern the preparation of financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in us restating prior period financial statements.

Risks Relating to the Regulation of Our Industry

We operate in a highly regulated industry and the laws and regulations that govern our operations, corporate governance, executive compensation and financial accounting, or reporting, including changes in them, or our failure to comply with them, may adversely affect us.

We are subject to extensive regulation and supervision that govern almost all aspects of our operations. Intended to protect customers, depositors, consumers, deposit insurance funds and the stability of the U.S. financial system, these laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on our business activities, limit the dividend or distributions that we can pay, restrict the ability of institutions to guarantee our debt and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than generally accepted accounting principles. Compliance with laws and regulations can be difficult and costly and changes to laws and regulations often impose additional compliance costs. We are currently facing increased regulation and supervision of our industry as a result of the financial crisis in the banking and financial markets. Such additional regulation and supervision may increase our costs and limit our ability to pursue business opportunities. Further, our failure to comply with these laws and regulations, even if the failure was inadvertent or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our securities. Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect our business and financial condition.

We are periodically subject to examination and scrutiny by a number of banking agencies and, depending upon the findings and determinations of these agencies, we may be required to make adjustments to our business that could adversely affect us.

Federal and state banking agencies periodically conduct examinations of our business, including compliance with applicable laws and regulations. If, as a result of an examination, a federal banking agency were to determine that the financial condition, capital resources, asset quality, asset concentration, earnings prospects, management, liquidity sensitivity to market risk or other aspects of any of our operations has become unsatisfactory, or that we or our management is in violation of any law or regulation, it could take a number of different remedial actions as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to change the asset composition of our portfolio or balance sheet, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance. If we become subject to such regulatory actions, our business, results of operations and reputation may be negatively impacted.

The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 may have a material effect on our operations.

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (which we refer to as the “Dodd-Frank Act”), which imposes significant regulatory and compliance changes. The key effects of the Dodd-Frank Act on our business are:

• changes to regulatory capital requirements;

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• exclusion of hybrid securities, including trust preferred securities, issued on or after May 19, 2010 from Tier 1 capital;

• creation of new government regulatory agencies (such as the Financial Stability Oversight Council, which will oversee systemic risk, and the Consumer Financial Protection Bureau, which will develop and enforce rules for bank and non-bank providers of consumer financial products);

• potential limitations on federal preemption;

• changes to deposit insurance assessments;

• regulation of debit interchange fees we earn;

• changes in retail banking regulations, including potential limitations on certain fees we may charge; and

• changes in regulation of consumer mortgage loan origination and risk retention.

In addition, the Dodd-Frank Act restricts the ability of banks to engage in certain proprietary trading or to sponsor or invest in private equity or hedge funds. The Dodd-Frank Act also contains provisions designed to limit the ability of insured depository institutions, their holding companies and their affiliates to conduct certain swaps and derivatives activities and to take certain principal positions in financial instruments.

Some provisions of the Dodd-Frank Act became effective immediately upon its enactment. Many provisions, however, will require regulations to be promulgated by various federal agencies in order to be implemented, some of which have been proposed by the applicable federal agencies. The provisions of the Dodd-Frank Act may have unintended effects, which will not be clear until implementation. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements may negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to investors in our Class A common stock. For a more detailed description of the Dodd-Frank Act, see “Supervision and Regulation—Changes in Laws, Regulations or Policies and the Dodd-Frank Act.”

The short-term and long-term impact of the new regulatory capital standards and the forthcoming new capital rules is uncertain.

On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced an agreement to a strengthened set of capital requirements for internationally active banking organizations in the United States and around the world, known as Basel III. Basel III increases the requirements for minimum common equity, minimum Tier 1 capital and minimum total capital, to be phased in over time until fully phased in by January 1, 2019.

Various provisions of the Dodd-Frank Act increase the capital requirements of bank holding companies, such as the Company, and non-bank financial companies that are supervised by the Federal Reserve. The leverage and risk-based capital ratios of these entities may not be lower than the leverage and risk-based capital ratios for insured depository institutions. In particular, bank holding companies, many of which have long relied on trust preferred securities as a component of their regulatory capital, will no longer be permitted to count trust preferred securities toward their Tier 1 capital. While the Basel III changes and other regulatory capital requirements will likely result in generally higher regulatory capital standards, it is difficult at this time to predict how any new standards will ultimately be applied to us and our subsidiary bank.

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The FDIC’s restoration plan and the related increased assessment rate could adversely affect our earnings.

The FDIC insures deposits at FDIC-insured depository institutions, such as our subsidiary bank, up to applicable limits. The amount of a particular institution’s deposit insurance assessment is based on that institution’s risk classification under an FDIC risk-based assessment system. An institution’s risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to its regulators. Market developments have significantly depleted the deposit insurance fund of the FDIC (which we refer to as the “DIF”) and reduced the ratio of reserves to insured deposits. As a result of recent economic conditions and the enactment of the Dodd-Frank Act, the FDIC has increased the deposit insurance assessment rates and thus raised deposit premiums for insured depository institutions. If these increases are insufficient for the DIF to meet its funding requirements, there may need to be further special assessments or increases in deposit insurance premiums. We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional bank or financial institution failures, we may be required to pay even higher FDIC premiums than the recently increased levels. Any future additional assessments, increases or required prepayments in FDIC insurance premiums may materially adversely affect results of operations, including by reducing our profitability or limiting our ability to pursue certain business opportunities.

We are subject to federal and state and fair lending laws, and failure to comply with these laws could lead to material penalties.

Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act and the Fair Housing Act, impose nondiscriminatory lending requirements on financial institutions. The Department of Justice, Consumer Financial Protection Bureau and other federal and state agencies are responsible for enforcing these laws and regulations. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. A successful challenge to our performance under the fair lending laws and regulations could adversely impact our rating under the Community Reinvestment Act and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on merger and acquisition activity and restrictions on expansion activity, which could negatively impact our reputation, business, financial condition and results of operations.

We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

The federal Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (which we refer to as the “PATRIOT Act”) and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network, established by the U.S. Treasury Department to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. There is also increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control (which we refer to as “OFAC”). If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions that we have already acquired or may acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans, which would negatively impact our business, financial condition and results of operations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.

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Federal, state and local consumer lending laws may restrict our ability to originate certain mortgage loans or increase our risk of liability with respect to such loans and could increase our cost of doing business.

Federal, state and local laws have been adopted that are intended to eliminate certain lending practices considered “predatory.” These laws prohibit practices such as steering borrowers away from more affordable products, selling unnecessary insurance to borrowers, repeatedly refinancing loans and making loans without a reasonable expectation that the borrowers will be able to repay the loans irrespective of the value of the underlying property. It is our policy not to make predatory loans, but these laws create the potential for liability with respect to our lending and loan investment activities. They increase our cost of doing business and, ultimately, may prevent us from making certain loans and cause us to reduce the average percentage rate or the points and fees on loans that we do make.

The Federal Reserve may require us to commit capital resources to support our subsidiary bank.

The Federal Reserve, which examines us and our subsidiaries, requires a bank holding company to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank. Under the “source of strength” doctrine, the Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank. In addition, the Dodd-Frank Act directs the federal bank regulators to require that all companies that directly or indirectly control an insured depository institution serve as a source of strength for the institution. Under these requirements, in the future, we could be required to provide financial assistance to our subsidiary bank if it experiences financial distress.

A capital injection may be required at times when we do not have the resources to provide it, and therefore we may be required to borrow the funds. In the event of a bank holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the holding company’s general unsecured creditors, including the holders of its note obligations. Thus, any borrowing that must be done by the holding company in order to make the required capital injection becomes more difficult and expensive and will adversely impact the holding company’s cash flows, financial condition, results of operations and prospects.

Stockholders may be deemed to be acting in concert or otherwise in control of Capital Bank, which could impose prior approval requirements and result in adverse regulatory consequences for such holders.

We are a bank holding company regulated by the Federal Reserve. Accordingly, acquisition of control of us (or our bank subsidiary) requires prior regulatory notice or approval. With certain limited exceptions, federal regulations prohibit potential investors from, directly or indirectly, acquiring ownership or control of, or the power to vote, more than 10% (more than 5% if the acquiror is a bank holding company) of any class of our voting securities, or obtaining the ability to control in any manner the election of a majority of directors or otherwise exercising a controlling influence over our management or policies, without prior notice or application to, and approval of, the Federal Reserve under the Change in Bank Control Act or the Bank Holding Company Act of 1956, as amended (which we refer to as the “BHCA”). Any bank holding company or foreign bank with a U.S. presence also is required to obtain the approval of the Federal Reserve under the BHCA to acquire or retain more than 5% of our outstanding voting securities.

In addition to regulatory approvals, any stockholder deemed to “control” us for purposes of the BHCA would become subject to investment and activity restrictions and ongoing regulation and supervision. Any entity owning 25% or more of any class of our voting securities, or a lesser percentage if such holder or group otherwise exercises a “controlling influence” over us, may be subject to regulation as a “bank holding company” in accordance with the BHCA. In addition, such a holder may be required to divest 5% or more of the voting securities of investments that may be deemed incompatible with bank holding company status, such as an investment in a company engaged in non-financial activities.

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Regulatory determination of “control” of a depository institution or holding company is based on all of the relevant facts and circumstances. In certain instances, stockholders may be determined to be “acting in concert” and their shares aggregated for purposes of determining control for purposes of the Change in Bank Control Act. “Acting in concert” generally means knowing participation in a joint activity or parallel action towards the common goal of acquiring control of a bank or a parent company, whether or not pursuant to an express agreement. How this definition is applied in individual circumstances can vary among the various federal bank regulatory agencies and cannot always be predicted with certainty. Many factors can lead to a finding of acting in concert, including whether:

• stockholders are commonly controlled or managed;

• stockholders are parties to an oral or written agreement or understanding regarding the acquisition, voting or transfer of control of voting securities of a bank or bank holding company;

• the holders each own stock in a bank and are also management officials, controlling stockholders, partners or trustees of another company; or

• both a holder and a controlling stockholder, partner, trustee or management official of the holder own equity in the bank or bank holding company.

Our common stock owned by holders determined by a bank regulatory agency to be acting in concert would be aggregated for purposes of determining whether those holders have control of a bank or bank holding company for Change in Bank Control Act purposes. Because the control regulations under the Change in Bank Control Act and the BHCA are complex, potential investors should seek advice from qualified banking counsel before making an investment in our Class A common stock.

Risks Related to Our Common Stock

You will incur immediate dilution as a result of this offering.

If you purchase our Class A common stock in this offering, you will pay more for your shares than the amounts paid by our existing stockholders for their shares. As a result, and after the reorganization, you will incur immediate dilution of $        per share assuming an initial offering price of $         per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses, representing the difference between such assumed offering price and our estimated pro forma net tangible book value per pro forma share as of June 30, 2011, of $        . Accordingly, if we are liquidated at our book value, you would not receive the full amount of your investment. See “Dilution.”

There is currently no market for our Class A common stock and a market for our Class A common stock may not develop, which could adversely affect the liquidity and price of our Class A common stock.

Before this offering, there has been no established public market for our Class A common stock. An active, liquid trading market for our Class A common stock may not develop or be sustained following this offering. If an active trading market does not develop, you may have difficulty selling your shares of Class A common stock at an attractive price, or at all. An inactive market may also impair our ability to raise capital by selling our Class A common stock and may impair our ability to acquire other companies, products or technologies by using our Class A common stock as consideration. We intend to apply to have our Class A common stock listed on Nasdaq, but our application may not be approved. In addition the liquidity of any market that may develop or the price that our stockholders may obtain for their shares of Class A common stock cannot be predicted. The initial public offering price for our Class A common stock will be determined by negotiations between us, the selling stockholders and the representative of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. See “Underwriting.” Consequently, you may not be able to sell your Class A common stock at or above the initial public offering price or at any other price or at the time that you would like to sell.

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The market price of our Class A common stock could decline due to the large number of outstanding shares of our common stock eligible for future sale.

Sales of substantial amounts of our Class A common stock in the public market following this offering or in future offerings, or the perception that these sales could occur, could cause the market price of our Class A common stock to decline. These sales could also make it more difficult for us to sell equity or equity-related securities in the future, at a time and place that we deem appropriate.

Upon completion of this offering and the reorganization, we will have             shares of Class A common stock and             shares of Class B non-voting common stock issued and outstanding. Of the outstanding shares of Class A common stock, all of the             shares sold in this offering (or             shares if the underwriters exercise in full their over-allotment option) will be freely tradable, except that any shares purchased by “affiliates” (as that term is defined in Rule 144 under the Securities Act of 1933, amended (which we refer to as the “Securities Act”), only may be sold in compliance with the limitations described in the section entitled “Shares Eligible For Future Sale.” Taking into consideration the effect of the lock-up agreements described below and the provisions of Rule 144 under the Securities Act, the remaining shares of our common stock, including Class A common stock and Class B non-voting stock, may be eligible for resale in the public market under Rule 144 under the Securities Act subject to applicable restrictions under Rule 144.

We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse Securities (USA) LLC (which we refer to as “Credit Suisse”) for a period of 180 days after the date of this prospectus, except issuances pursuant to the exercise of employee stock options outstanding on the date hereof as described herein and the filing of a shelf registration statement pursuant to the registration rights agreement entered into by us and our stockholders in connection with our private placements. Our officers, directors and certain existing stockholders have also agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse for the “lock-up period.” These 180-day periods are subject to extension in certain circumstances. See “Underwriting” and “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

In addition, we intend to file a registration statement on Form S-8 under the Securities Act to register an aggregate of approximately            million shares of Class A common stock for issuance under our 2010 Equity Incentive Plan. We may issue all of these shares without any action or approval by our stockholders and these shares once issued (including upon exercise of outstanding options) will be available for sale into the public market subject to the restrictions described above, if applicable to the holder. Any shares issued in connection with acquisitions, the exercise of stock options or otherwise would dilute the percentage ownership held by investors who purchase our shares in this offering.

If shares of Class B non-voting common stock are converted into shares of Class A common stock, your voting power will be diluted.

Generally, holders of Class B non-voting common stock have no voting power and have no right to participate in any meeting of stockholders or to have notice thereof. However, holders of Class B non-voting common stock that are converted into Class A common stock will have all the voting rights of the other holders of Class A common stock. Class B non-voting common stock is not convertible in the hands of the initial holder. However, a transferee

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unaffiliated with the initial holder that receives Class B non-voting common stock subsequent to transfer permitted by our certificate of incorporation may elect to convert each share of Class B non-voting common stock into one share of Class A common stock. Upon conversion of any Class B non-voting common stock, your voting power will be diluted in proportion to the decrease in your ownership of the total outstanding Class A common stock.

The market price of our Class A common stock may be volatile, which could cause the value of an investment in our Class A common stock to decline.

The market price of our Class A common stock may fluctuate substantially due to a variety of factors, many of which are beyond our control, including:

• general market conditions;

• domestic and international economic factors unrelated to our performance;

• actual or anticipated fluctuations in our quarterly operating results;

• changes in or failure to meet publicly disclosed expectations as to our future financial performance;

• downgrades in securities analysts’ estimates of our financial performance or lack of research and reports by industry analysts;

• changes in market valuations or earnings of similar companies;

• any future sales of our common stock or other securities; and

• additions or departures of key personnel.

The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of particular companies. These types of broad market fluctuations may adversely affect the trading price of our Class A common stock. In the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities. Any similar litigation against us could result in substantial costs, divert management’s attention and resources and harm our business or results of operations. For example, we are currently operating in, and have benefited from, a protracted period of historically low interest rates that will not be sustained indefinitely, and future fluctuations in interest rates could cause an increase in volatility of the market price of our Class A common stock.

We do not currently intend to pay dividends on shares of our common stock in the foreseeable future after the completion of this offering and our ability to pay dividends will be subject to restrictions under applicable banking laws and regulations and under the provisions of our Trust Preferred Securities.

We do not currently intend to pay cash dividends on our common stock in the foreseeable future after the completion of this offering. The payment of cash dividends in the future will be dependent upon various factors, including our earnings, if any, cash balances, capital requirements and general financial condition. The payment of any dividends will be within the discretion of our then-existing Board of Directors. It is the present intention of our Board of Directors to retain all earnings, if any, for use in our business operations in the foreseeable future after the completion of this offering and, accordingly, our Board of Directors does not currently anticipate declaring any dividends. Because we do not expect to pay cash dividends on our common stock for some time, any gains on an investment in our Class A common stock in this offering will be limited to the appreciation, if any, of the market value of our Class A common stock.

Banks and bank holding companies are subject to certain regulatory restrictions on the payment of cash dividends. Federal bank regulatory agencies have the authority to prohibit bank holding companies from engaging in unsafe or unsound practices in conducting their business. The payment of dividends by us depending on our financial condition could be deemed an unsafe or unsound practice. Our ability to pay dividends will directly depend on the ability of our subsidiary bank to pay dividends to us, which in turn will be restricted by the

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requirement that it maintains an adequate level of capital in accordance with requirements of its regulators and, in the future, can be expected to be further influenced by regulatory policies and capital guidelines. In addition, TIB Financial currently has deferred interest on its junior subordinated debentures underlying its trust preferred securities and is prohibited from declaring or paying any dividends on its common stock until it is current on its interest payments. TIB Financial may not repay the deferred interest without regulatory consent, and, upon completion of the reorganization, as the surviving company in the reorganization, we may be subject to this restriction on the payment of dividends. In addition, on August 24, 2010, Capital Bank entered into the OCC Operating Agreement that may restrict Capital Bank’s ability to pay dividends to us, to make changes to its capital structure and to make certain other business decisions. See “Dividend Policy.”

Our management team may allocate the proceeds of this offering in ways in which you may not agree.

We have broad discretion in applying the net proceeds we will receive in this offering. As part of your investment decision, you will not be able to assess or direct how we apply these net proceeds. If we do not apply these funds effectively, we may lose significant business opportunities. Furthermore, our stock price could decline if the market does not view our use of the net proceeds from this offering favorably. For additional information, see “Use of Proceeds.”

Certain provisions of our certificate of incorporation and the loss sharing agreements may have anti-takeover effects, which could limit the price investors might be willing to pay in the future for our common stock and could entrench management. In addition, Delaware law may inhibit takeovers of us and could limit our ability to engage in certain strategic transactions our Board of Directors believes would be in the best interests of stockholders.

Our certificate of incorporation contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include the ability of our Board of Directors to designate the terms of and issue new series of preferred stock, which may make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities, including our Class A common stock. See “Description of Capital Stock.”

Our loss sharing agreements with the FDIC require that we receive prior FDIC consent, which may be withheld by the FDIC in its sole discretion, prior to us or our stockholders engaging in certain transactions. If any such transaction is completed without prior FDIC consent, the FDIC would have the right to discontinue the relevant loss sharing arrangement. Among other things, prior FDIC consent is required for (1) a merger or consolidation of us or our bank subsidiary with or into another company if our stockholders will own less than 66.66% of the combined company, (2) the sale of all or substantially all of the assets of any of our bank subsidiary and (3) a sale of shares by a stockholder, or a group of related stockholders, that will effect a change in control of Capital Bank, as determined by the FDIC with reference to the standards set forth in the Change in Bank Control Act (generally, the acquisition of between 10% and 25% of any class of our voting securities where the presumption of control is not rebutted, or the acquisition by any person, acting directly or indirectly or through or in concert with one or more persons, of 25% or more of any class of our voting securities). If we or any stockholder desired to enter into any such transaction, the FDIC may not grant its consent in a timely manner, without conditions, or at all. If one of these transactions were to occur without prior FDIC consent and the FDIC withdrew its loss share protection, there could be a material adverse effect on our financial condition, results of operations and cash flows. In addition, statutes, regulations and policies that govern bank holding companies, including the BHCA, may restrict our ability to enter into certain transactions. See “Supervision and Regulation.”

We are also subject to anti-takeover provisions under Delaware law. We have not opted out of Section 203 of the Delaware General Corporation Law (which we refer to as the “DGCL”), which, subject to certain exceptions, prohibits a public Delaware corporation from engaging in a business combination (as defined in such

40

section) with an “interested stockholder” (defined generally as any person who beneficially owns 15% or more of the outstanding voting stock of such corporation or any person affiliated with such person) for a period of three years following the time that such stockholder became an interested stockholder, unless (1) prior to such time the board of directors of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (2) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) the voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to tender or vote stock held by the plan); or (3) on or subsequent to such time the business combination is approved by the board of directors of such corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Accordingly, these statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of several factors more fully described under the caption “Risk Factors” and elsewhere in this prospectus, including the exhibits hereto.

Any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. The inclusion of this forward-looking information should not be regarded as a representation by us, the selling stockholders, the underwriters or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward looking statements including, but not limited to statements regarding:

• changes in general economic and financial market conditions;

• changes in the regulatory environment;

• economic conditions generally and in the financial services industry;

• changes in the economy affecting real estate values;

• our ability to achieve loan and deposit growth;

• the completion of our pending or future acquisitions or business combinations and our ability to integrate the acquired business into our business model;

• projected population and income growth in our targeted market areas; and

• volatility and direction of market interest rates and a weakening of the economy which could materially impact credit quality trends and the ability to generate loans.

All forward-looking statements are necessarily only estimates of future results and that actual results may differ materially from expectations. You are, therefore, cautioned not to place undue reliance on such statements which should be read in conjunction with the other cautionary statements that are included elsewhere in this prospectus. In particular, you should consider the numerous risks described in the “Risk Factors” section of this prospectus. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. You should, however, review the risk factors we describe in the reports we will file from time to time with the SEC after the date of this prospectus. See “Where You Can Find More Information.”

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of our Class A common stock in this offering will be approximately $         million, or approximately $         million if the underwriters’ over-allotment option is exercised in full, assuming an initial public offering price of $         per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses. Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share of Class A common stock, the midpoint of the range set forth on the cover page of this prospectus would increase (decrease) the net proceeds to us of this offering by $         million, or $         million if the underwriters’ over-allotment option is exercised in full, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses.

We intend to use the net proceeds from this offering for general corporate purposes, including the acquisition of depository institutions through traditional open bank and FDIC failed bank acquisitions, as well as through selective acquisitions of financial services companies or of assets, deposits and branches that we believe present attractive risk-adjusted returns and provide a strategic benefit to our growth strategy.

We will not receive any proceeds from the sale of shares of Class A common stock from our selling stockholders.

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DIVIDEND POLICY

We have never paid cash dividends to holders of our common stock. We do not expect to declare or pay any cash or other dividends on our common stock in the foreseeable future after the completion of this offering. We intend to reinvest cash flow generated by operations in our business.

As a bank holding company, any dividends paid to us by our subsidiary financial institution(s) are subject to various federal and state regulatory limitations and also subject to the ability of our subsidiary financial institution(s) to pay dividends to us. In addition, TIB Financial currently has deferred interest on its junior subordinated debentures underlying its trust preferred securities and is prohibited from declaring or paying any dividends on its common stock until it is current on its interest payments. TIB Financial may not repay the deferred interest without regulatory consent, and, upon completion of the reorganization, as the surviving company in the reorganization, we may be subject to this restriction on the payment of dividends. In the future, we may enter into credit agreements or other borrowing arrangements that restrict our ability to declare or pay cash dividends. Any determination to pay cash dividends in the future will be at the discretion of our Board of Directors and will depend on various factors, including our financial condition, earnings, cash requirements, legal restrictions, regulatory restrictions and other factors deemed relevant by our Board of Directors. In addition, on August 24, 2010, Capital Bank entered into the OCC Operating Agreement that may restrict Capital Bank’s ability to pay dividends to us, to make changes to its capital structure and to make certain other business decisions. For more discussion on restrictions of dividends, see “Risk Factors—Risks Related to our Common Stock—We do not currently intend to pay dividends on shares of our common stock in the foreseeable future after the completion of this offering and our ability to pay dividends will be subject to restrictions under applicable banking laws and regulations and under the provisions of our Trust Preferred Securities” and “Supervision and Regulation.”

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2011 on an actual basis and on an as adjusted basis to give pro forma effect to (1) the completion of our investment in Green Bankshares, (2) the sale of             shares of Class A common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses, and (3) the issuance of approximately              shares of Class A common stock to the minority stockholders of our majority-held bank holding company subsidiaries (TIB Financial, Capital Bank Corp. and, assuming the completion of our Green Bankshares investment, Green Bankshares), each of which will be merged with us in the reorganization.

This table should be read in conjunction with “Selected Historical Consolidated Financial Information,” “Unaudited Pro Forma Condensed Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus.

	At June 30, 2011
	Actual		Pro Forma(1)
	(unaudited)
	(dollars in thousands, except per share data)
Cash and cash equivalents	$	526,131	$
Long-term debt		97,275
Shareholders’ equity:
Preferred stock $0.01 par value per share: 50,000,000 shares authorized, no shares issued and outstanding		–
Class A common stock, $0.01 par value per share: 200,000,000 shares authorized, 20,851,549 shares issued and outstanding, actual; 200,000,000 shares authorized,              shares issued and outstanding, as adjusted		208
Class B non-voting common stock, $0.01 par value per share: 200,000,000 shares authorized, 25,298,449 shares issued and outstanding, actual; 200,000,000 shares authorized,              shares issued and outstanding, as adjusted		253
Additional paid-in capital		882,896
Retained earnings		13,058
Accumulated other comprehensive income		6,607
Noncontrolling interest		48,670
Total shareholders’ equity		951,692
Total capitalization	$	1,048,967	$

⁽¹⁾  Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share of Class A common stock, the midpoint of the range set forth on the cover page of this prospectus would increase (decrease) cash and cash equivalents, total stockholder’s equity and total capitalization by $         million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses.

An increase (decrease) of one million shares in the number of shares offered by us would increase (decrease) cash and cash equivalents, total stockholder’s equity and total capitalization by $         million, assuming the public offering price remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses.

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DILUTION

If you invest in our Class A common stock, your interest will be diluted by the amount by which the initial offering price per share paid by the purchasers of Class A common stock in this offering exceeds the net tangible book value per share of our Class A common stock following this offering and after giving effect to the reorganization. As of June 30, 2011, net tangible book value attributable to our stockholders was $829.0 million, or $17.96 per share of common stock based on 46,149,998 shares of common stock issued and outstanding (including 20,851,549 shares of Class A common stock and 25,298,449 shares of Class B non-voting common stock). Net tangible book value, including noncontrolling interests, was $863.4 million as of June 30, 2011 after giving effect to the reorganization. Net tangible book value per share equals total consolidated tangible assets minus total consolidated liabilities divided by the number of outstanding shares of Class A common stock outstanding and Class B non-voting common stock.

Our net tangible book value as of June 30, 2011 would have been approximately $        , or $         per share of common stock based on              shares of common stock issued and outstanding (including              shares of Class A common stock, and              shares of Class B non-voting common stock) after giving effect to (1) the sale of          shares of Class A common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses, and the completion of and (2) the issuance of approximately              shares of Class A common stock to the minority stockholders of majority-held bank holdings company subsidiaries (TIB Financial, Capital Bank Corp. and, assuming the completion of our Green Bankshares investment, Green Bankshares), each of which will be merged with us in the reorganization.

This represents an immediate increase in the net tangible book value of $         per share to existing stockholders and an immediate dilution in the net tangible book value of $         per share to the investors who purchase our Class A common stock in this offering. Sales of shares by our selling stockholders in this offering do not affect our net tangible book value.

The following table illustrates the per share dilution after giving pro forma effect to this offering and the reorganization:

Initial public offering price per share			$
Net tangible book value per share as of June 30, 2011	$	17.96
Increase in net tangible book value per share attributable to this offering
Increase in net tangible book value per share attributable to the reorganization
Adjusted net tangible book value per share after this offering and the reorganization
Dilution per share to new investors			$

Each $1.00 increase (decrease) in the assumed initial offering price of $         per share of Class A common stock would increase (decrease) the net tangible book value as of June 30, 2011 by approximately $        , or approximately $         per share, and the dilution per share to new investors by approximately $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase of one million shares in the number of shares offered by us, together with a $1.00 increase in the assumed offering price of $         per share of Class A common stock, would result in our net tangible book value as of June 30, 2011 of approximately $         million, or $         per share, and the dilution per share to investors in this offering would be $         per share. Similarly, a decrease of one million shares in the number of shares of Class A common stock offered by us, together with a $1.00 decrease in the assumed public offering price of $         per share, would result in our net tangible book value as of June 30, 2011 of approximately $         million, or $         per share, and the dilution per

46

share to investors in this offering would be $         per share. The information discussed above is illustrative only and will adjust based on the actual public offering price and other terms of this offering determined at pricing.

If the underwriters exercise their option to purchase additional shares in this offering in full, our net tangible book value at June 30, 2011 would be $         million, or $         per share, representing an immediate increase in the net tangible book value of $         per share to existing stockholders and an immediate dilution in the net tangible book value of $         per share to the investors who purchase our Class A common stock in this offering.

The following table summarizes, as of June 30, 2011 (giving pro forma effect of the sale by us of             shares of Class A common stock in this offering and after giving effect to the reorganization), the difference between existing stockholders and new investors with respect to the number of shares of Class A common stock purchased from us, the total consideration paid to us for these shares and the average price per share paid by our existing stockholders and to be paid by the new investors in this offering. The calculation below reflecting the effect of shares purchased by new investors is based on the initial public offering price of $        per share, the midpoint of the range set forth on the cover page of this prospectus after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

	Shares Purchased				Total Consideration				Average Price Per  Share
	Number	Percent			Amount	Percent
Existing stockholders(1)				%				%	$
New investors				%				%	$
Total			100.0	%			100.0	%	$

⁽¹⁾ Includes              shares of Class A common stock and             shares of Class B non-voting common stock.

To the extent any outstanding options are exercised, there will be further dilution to new investors. To the extent all             outstanding options had been exercised as of June 30, 2011, the net tangible book value per share after this offering and giving effect to the reorganization, would be $         and total dilution per share to new investors would be $        .

If the underwriters exercise their option to purchase additional shares in full:

• the percentage of shares of common stock held by existing stockholders will decrease to approximately     % of the total number of shares of our common stock outstanding after this offering and giving effect to the reorganization; and

• the number of shares held by new investors will increase to             , or approximately         % of the total number of shares of our common stock outstanding after this offering and giving effect to the reorganization.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth our selected historical consolidated financial information. You should read this information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The selected historical consolidated financial information set forth below as of and for the year ended December 31, 2010 and for the period from November 30, 2009 (date of inception) through December 31, 2009 is derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary historical consolidated financial information set forth below as of and for the six months ended June 30, 2011 and 2010 has been derived from our unaudited consolidated financial statements included elsewhere in this prospectus.

On July 16, 2010, we purchased certain assets and assumed certain liabilities, including substantially all deposits, of First National Bank, Metro Bank and Turnberry Bank from the FDIC, as receiver. On September 30, 2010 and January 28, 2011, we consummated controlling investments in TIB Financial and Capital Bank Corp., respectively. Although we were formed in November 2009, our activities prior to our first acquisition consisted solely of organizational, capital raising and related activities and activities related to identifying and analyzing potential acquisition candidates. We did not engage in any substantive operations (including banking operations) prior to our first acquisition.

The selected historical consolidated financial information in the following tables as of and for the year ended December 31, 2010 includes the results of the Company, including First National Bank, Metro Bank and Turnberry Bank subsequent to July 16, 2010 and TIB Financial subsequent to September 30, 2010. The selected historical consolidated financial information presented in the following tables as of and for the six months ended June 30, 2011 includes the results of the Company, including First National Bank, Metro Bank, Turnberry Bank and TIB Financial as well as the results of Capital Bank Corp. subsequent to January 28, 2011.

Because substantially all of our business is composed of acquired operations and because the operations of each acquired business in connection with its acquisition, our results of operations for the six months ended June 30, 2011 and for the year ended December 31, 2010 reflect different operations in different periods (or portions of periods) and therefore cannot be meaningfully compared. In addition, results of operations for these periods reflect, among other things, the acquisition method of accounting. Under the acquisition method of accounting, all of the assets acquired and liabilities assumed were initially recorded on our consolidated balance sheet at their estimated fair values as of the dates of acquisition. These estimated fair values differed substantially from the carrying amounts of the assets acquired and liabilities assumed as reflected in the financial statements of the Failed Banks and of TIB Financial and Capital Bank Corp.

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(Dollars in thousands, except per share data)	As of and for Six Months Ended June 30, 2011			As of and for Six Months Ended June 30, 2010			As of and for Year Ended December 31, 2010			As of December 31, 2009 and for the Period  From November 30 Through December 31, 2009
Summary Results of Operations
Interest income	$	88,298		$	1,556		$	42,745		$	72
Interest expense		16,325			–			6,234			–
Net interest income		71,973			1,556			36,511			72
Provision for loan losses		9,963			–			753			–
Net interest income after provision for loan losses		62,010			1,556			35,758			72
Non-interest income		12,400			–			19,659			–
Non-interest expense		72,480			5,715			44,421			214
Income (loss) before income taxes		1,930			(4,159	)		10,996			(142	)
Income tax expense (benefit)		592			(1,756	)		(1,041	)		(50	)
Net income (loss) before attribution of noncontrolling interests		1,338			(2,403	)		12,037			(92	)
Net income (loss) attributable to noncontrolling interests		218			–			7			–
Net income (loss) attributable to North American Financial Holdings, Inc.	$	1,120		$	(2,403	)	$	12,030		$	(92	)
Summary Balance Sheet Data
Cash and cash equivalents	$	526,131		$	602,327		$	886,925		$	526,711
Investment securities		862,085			–			479,716			–
Loans held for sale		4,713			–			–			–
Loans receivable:
Not covered under FDIC loss sharing agreements		2,377,309			–			1,046,463			–
Covered under FDIC loss sharing agreements.		621,931			–			696,284			–
Allowance for loan losses		(7,689	)		–			(753	)		–
Net loans		2,991,551			–			1,741,994			–
Other real estate owned		77,887			–			70,817			–
FDIC indemnification assets		72,747			–			91,467			–
Receivable from FDIC		22,652			–			46,585			–
Goodwill and intangible assets, net		87,786			–			51,770			–
Other assets		227,613			1,526			127,717			50
Total assets	$	4,873,165		$	603,853		$	3,496,991		$	526,761
Deposits		3,501,423			–			2,260,097			–
Advances from FHLB		244,939			–			243,067			–
Borrowings		133,510			–			84,856			–
Other liabilities		41,601			742			27,735			441
Total liabilities		3,921,473			742			2,615,755			441
Shareholders’ equity		951,692			603,111			881,236			526,320
Total liabilities and shareholders’ equity	$	4,873,165		$	603,853		$	3,496,991		$	526,761

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(Dollars in thousands, except per share data)	As of and for Six Months Ended June 30, 2011			As of and for Six Months Ended June 30, 2010			As of and for Year Ended December 31, 2010			As of December 31, 2009 and for the Period From November 30 Through December 31, 2009
Per Share Data
Earnings
Basic	$	0.02		$	(0.08	)	$	0.31		$	(0.01	)
Diluted	$	0.02		$	(0.08	)	$	0.31		$	(0.01	)
Tangible book value	$	17.96		$	18.79		$	18.39		$	18.86
Weighted average shares outstanding
Basic		45,120,175			31,608,372			38,205,677			8,243,830
Diluted		45,270,175			31,608,372			38,205,677			8,243,830
Common shares outstanding		46,149,998			32,094,240			45,120,175			27,906,524
Performance Ratios
Return on average assets		0.06	%		(0.77	)%		0.76	%		(0.71	)%
Return on average equity		0.29	%		(0.80	)%		1.67	%		(0.71	)%
Net interest margin		3.53	%		0.50	%		2.51	%		0.55	%
Interest rate spread		3.32	%		0.50	%		2.14	%		0.55	%
Efficiency ratio(1)		85.90	%		NM			79.08	%		NM
Average interest-earning assets to average interest-bearing liabilities		127.10	%		NA			186.42	%		NA
Average loans receivable to average deposits		83.06	%		NA			79.40	%		NA
Cost of interest-bearing liabilities		1.01	%		NA			0.80	%		NA
Asset Quality
Non-performing loans to loans receivable(2)
Not covered under loss sharing agreements with the FDIC		7.71	%		NA			5.40	%		NA
Covered under loss sharing agreements with the FDIC		21.19	%		NA			19.71	%		NA
Non-performing assets to total assets
Not covered under loss sharing agreements with the FDIC		5.06	%		NA			2.98	%		NA
Covered under loss sharing agreements with the FDIC		26.89	%		NA			24.60	%		NA
Allowance for loan losses to nonperforming loans
Not covered under loss sharing agreements with the FDIC		2.65	%		NA			1.33	%		NA
Covered under loss sharing agreements with the FDIC		2.14	%		NA			–			NA
Capital Ratios
Average equity to average total assets		20.02	%		96.19	%		45.51	%		99.79	%
Tangible common equity(3)		18.05	%		99.88	%		24.08	%		99.92	%
Tier 1 leverage		17.66	%		NM			24.30	%		NM
Tier 1 risk-based capital		30.17	%		NM			41.80	%		NM
Total risk-based capital		30.61	%		NM			41.90	%		NM

⁽¹⁾ Non-interest expense divided by sum of net interest income and non-interest income.

⁽²⁾ Non-performing loans include non-accrual loans and loans past due over 90 days that retain accrual status due to accretion of income on purchased credit impaired loans.

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⁽³⁾  Tangible common equity is a non-GAAP measure which we believe provides investors with information useful in understanding our financial performance and, specifically, our capital position. The tangible common equity ratio is calculated as tangible common equity divided by tangible assets. Tangible common equity is calculated as total shareholders’ equity less preferred stock and less goodwill and other intangible assets, net and tangible assets are total assets less goodwill and other intangible assets, net. The following table provides reconciliations of tangible common equity to GAAP total common shareholders’ equity and tangible assets to GAAP total assets:

(Dollars in millions)	As of June  30, 2011			As of June  30, 2010			As of December  31, 2010			As of December 31, 2009
Shareholders’ equity	$	951,692		$	603,111		$	881,236		$	526,320
Less: Preferred stock		–			–			–			–
Less: Goodwill and other intangible assets, net		87,786			–			51,770			–
Tangible common shareholders’ equity	$	863,906		$	603,111		$	829,466		$	526,320
Total assets	$	4,873,165		$	603,853		$	3,496,991		$	526,761
Less: Goodwill and other intangible assets, net		87,786			–			51,770			–
Tangible assets	$	4,785,359		$	603,853		$	3,445,221		$	526,761
Tangible common equity ratio		18.05	%		99.88	%		24.08	%		99.92	%

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined balance sheet as of June 30, 2011 and the unaudited pro forma condensed combined statements of income for the six months ended June 30, 2011 and the year ended December 31, 2010 has been presented to give effect to and show the pro forma impact on our historical financial statements of (1) the completion of our investments in TIB Financial, Capital Bank Corp. and Green Bankshares, as applicable, (2) the sale of             shares of Class A common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses, and (3) the issuance of approximately             shares of Class A common stock to the minority stockholders of TIB Financial, Capital Bank Corp. and, assuming the completion of the Green Bankshares investment, Green Bankshares, each of which will be merged with us in the reorganization.

On July 16, 2010, we purchased certain assets and assumed certain liabilities, including substantially all deposits, of First National Bank, Metro Bank and Turnberry Bank from the FDIC, as receiver. The financial impact of these transactions is included in our historical financial position and results of operations. We have omitted certain historical financial information of First National Bank, Metro Bank and Turnberry Bank required by Rule 3-05 of Regulation S-X and the related pro forma financial information under Article 11 of Regulation S-X pursuant to the guidance provided in Staff Accounting Bulletin Topic 1.K, Financial Statements of Acquired Troubled Financial Institutions (“SAB 1:K”) and a request for relief granted by the SEC. SAB 1:K provides relief from the requirements of Rule 3-05 of Regulation S-X in certain instances where a registrant engages in an acquisition of a troubled financial institution in which federal assistance is an essential and significant part of the transaction and for which audited financial statements are not reasonably available.

On September 30, 2010 and January 28, 2011, we consummated controlling investments in TIB Financial and Capital Bank Corp., respectively. The results of operations of TIB Financial and Capital Bank Corp. have been reflected in our consolidated financial statements from their respective dates of consummation and, under the acquisition method of accounting, the assets and liabilities of each of them have been reflected in our consolidated financial statements at their respective estimated fair values as of their respective dates of consummation.

On May 5, 2011, we agreed to make a controlling investment in Green Bankshares. Our investment in Green Bankshares is subject to the approval of Green Bankshares’ shareholders, regulatory approval, and other customary closing conditions, and is expected to be completed in the third quarter of 2011.

Our unaudited pro forma condensed combined balance sheet as of June 30, 2011 presents our consolidated financial position giving pro forma effect to the following transactions as if they had occurred as of June 30, 2011:

• the completion of our investment in Green Bankshares and the related proposed repurchase of its TARP preferred stock that is expected to occur at the time of the investment;

• the sale of             shares of Class A common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses; and

• the issuance of approximately             shares of Class A common stock to the minority stockholders of our majority-held bank holding company subsidiaries, which will be merged with the Company in the reorganization.

Our unaudited pro forma condensed combined statements of income for the six months ended June 30, 2011 presents our consolidated results of operations giving pro forma effect to the following transactions as if they had occurred as of January 1, 2010:

• the completion of our investment in Capital Bank Corp. and the related repurchase of its TARP preferred stock that occurred at the time of the investment;

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• the completion of our investment in Green Bankshares and related proposed repurchase of its TARP preferred stock that is expected to occur at the time of the investment; and

• the elimination of minority interest in connection with the reorganization.

Our unaudited pro forma condensed combined statements of income for the year ended December 31, 2010 presents our consolidated results of operations giving pro forma effect to the following transactions as if they had occurred as of January 1, 2010:

• the completion of our investment in TIB Financial and the related repurchase of its TARP preferred stock that occurred at the time of the investment;

• the completion of our investment in Capital Bank Corp. and the related repurchase of its TARP preferred stock that occurred at the time of the investment;

• the completion of our investment in Green Bankshares and the related proposed repurchase of its TARP preferred stock that is expected to occur at the time of the investment; and

• elimination of minority interest in connection with the reorganization.

The unaudited pro forma condensed combined financial information has been derived from and should be read in conjunction with:

• NAFH’s historical unaudited financial statements as of and for the six months ended June 30, 2011;

• NAFH’s historical audited financial statements as of and for the year ended December 31, 2010;

• TIB Financial’s historical audited financial statements as of and for the year ended December 31, 2010;

• Capital Bank Corp.’s historical unaudited financial statements as of and for the six months ended June 30, 2011;

• Capital Bank Corp.’s historical audited financial statements as of and for the year ended December 31, 2010;

• Green Bankshares’ historical unaudited financial statements as of and for the six months ended June 30, 2011; and

• Green Bankshares’ historical audited financial statements as of and for the year ended December 31, 2010.

The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of these transactions on our historical financial information. The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of each period presented. The adjustments included in these unaudited pro forma condensed financial statements are preliminary and may be revised. The unaudited pro forma condensed combined financial information also does not consider any potential impacts of current market conditions on revenues, potential revenue enhancements, anticipated cost savings and expense efficiencies, or asset dispositions, among other factors. Further, the pro forma allocation of purchase price reflected in the unaudited pro forma condensed combined financial information from the Green Bankshares investment is subject to adjustment and may vary significantly from the actual purchase price allocation that will be recorded at the time the controlling investment is completed. Certain reclassifications have been made to the historical financial statements of TIB Financial, Capital Bank Corp. and Green Bankshares to conform to the presentation in NAFH’s financial statements.

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of June 30, 2011

	North American Financial Holdings, Inc.					Green Bankshares, Inc.						North American Financial Holdings, Inc.
(Dollars in thousands)	June 30, 2011 (As Reported)		Adjustments for Investment in Green Bankshares(1)			June 30, 2011 (As Reported)			Adjustments for Investment and TARP Repurchase(2)			Adjustments for this Offering and the Reorganization (Pro Forma)			June 30, 2011 (Pro Forma)
Assets
Cash and cash equivalents	$	526,131	$	(223,250	)	$	344,265		$	144,722	(3)	$			$
Investment securities		862,085		–			217,556			–	(4)		–			1,079,641
Loans held for sale		4,713		–			617			–			–			5,330
Loans, net of deferred costs and fees		2,999,240		–			1,560,503			(161,000	)(5)		–			4,398,743
Less: Allowance for loan losses		7,689		–			62,728			(62,728	)(5)		–			7,689
Loans, net		2,991,551		–			1,497,775			(98,272	)(5)		–			4,391,054
Other real estate owned		77,887		–			79,690			(16,000	)(6)		–			141,577
FDIC indemnification asset		72,747		–			–			–			–			72,747
Receivable from FDIC		22,652		–			–			–			–			22,652
Goodwill and other intangible assets, net		87,786		–			5,502			43,239	(7)		–			136,527
Other assets		227,613		2,375			148,410			54,000	(8)		–			432,398
Total assets	$	4,873,165	$	(220,875	)	$	2,293,815		$	127,689		$			$
Liabilities and Shareholders’ Equity
Deposits	$	3,501,423	$	–		$	1,883,388		$	11,000	(9)	$	–		$	5,395,811
Advances from FHLB		244,939		–			157,859			9,000	(10)		–			411,798
Borrowings		133,510		–			107,375			(22,000	)(11)		–			218,885
Other liabilities		41,601		–			23,147			–			–			64,748
Total liabilities	$	3,921,473	$	–		$	2,171,769		$	(2,000	)	$	–		$	6,091,242
Preferred stock	$	–	$	–		$	68,815		$	(68,815	)	$			$
Common stock—Class A		209		–			–			–			(12	)
Common stock—Class B		253		–			–			–
Common stock—Green Bankshares		–		–			26,515			(26,515	)
Additional paid-in capital		882,896		(220,875	)		195,985			55,750			(12	)
Retained earnings (accumulated deficit)		13,058		–			(171,381	)		171,381
Accumulated other comprehensive income		6,606		–			2,112			(2,112	)
Noncontrolling interest		48,670		–			–			–			(12	)
Total shareholders’ equity	$	951,692	$	(220,875	)	$	122,046		$	129,689		$			$
Total liabilities and shareholders’ equity	$	4,873,165	$	(220,875	)	$	2,293,815		$	127,689		$			$

⁽¹⁾  On May 5, 2011, we agreed to invest approximately $217.0 million in Green Bankshares. Adjustments in this column reflect payment to Green Bankshares of the $217.0 million purchase price and estimated transaction costs of $6.3 million in connection with the proposed acquisition. If completed, we expect to own approximately 90.0% of Green Bankshares’ common stock.

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⁽²⁾  Adjustments in this column reflect acquisition method accounting and estimated fair value adjustments expected to result from our pending acquisition with Green Bankshares as well as the related proposed repurchase of its TARP preferred stock. The following table summarizes the preliminary purchase price allocation to the estimated fair value of assets and liabilities of Green Bankshares as of June 30, 2011:

Fair value of assets acquired:
Cash and cash equivalents	$	488,987
Investment securities		217,556
Loans held for sale		617
Loans, net		1,399,503
Other real estate owned		63,690
Goodwill and other intangible assets		48,741
Other assets		202,410
Total assets acquired		2,421,504
Fair value of liabilities assumed:
Deposits		1,894,388
Advances from FHLB		166,859
Borrowings		85,375
Other liabilities		23,147
Total liabilities assumed		2,169,769
Net assets acquired		251,735
Less: Non-controlling interest		(34,735	)
Purchase price	$	217,000

In determining the estimated fair value of the non-controlling interest, we utilized the $2.62 closing market price per share on Nasdaq of Green Bankshares’ common stock on June 30, 2011 and multiplied this stock price by the 13,257,606 outstanding common shares at that date.

We plan to perform our valuation of the balance sheet as of the closing date of the Green Bankshares investment and expect to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the closing date of the Green Bankshares investment. The above estimated fair values of assets acquired and liabilities assumed are based on the information that was available to us as of June 30, 2011 and may differ significantly from the fair value adjustments that will be recorded as of the closing date of the Green Bankshares investment.

⁽³⁾  Cash and cash equivalents approximated fair value and did not require a fair value adjustment. Adjustments include proceeds of $217,000 from the Green Bankshares investment and a reduction of $72,278 from the TARP repurchase.

⁽⁴⁾  Investment securities were reported at fair value at June 30, 2011. The fair values of investment securities are primarily based on values obtained from third parties pricing models which are based on recent trading activity for the same or similar securities. Thus, we determined no fair value adjustment was necessary.

⁽⁵⁾  Upon analyzing estimated credit losses as well as evaluating differences between contractual interest rates and market interest rates as of Jute 30, 2011, we estimated a total loan fair value discount of $161,000. Additionally, since all loans were adjusted to estimated fair value, the historical allowance for loan losses of $62,728 was eliminated, resulting in a net loan adjustment of $98,272.

We expect a significant portion of these acquired loans to be classified as purchased credit-impaired at acquisition, which means there is evidence of credit deterioration since origination and it is probable that we will not collect all contractually required principal and interest payments. The following table reconciles the estimated contractual receivable to the estimated carrying amount of loans acquired in the Green Bankshares transaction.

Contractually required payments	$	1,836,712
Nonaccretable difference		146,209
Cash flows expected to be collected at acquisition		1,690,503
Accretable yield		291,000
Fair value of acquired loans at acquisition	$	1,399,503

⁽⁶⁾  Other real estate owned was reduced by $16,000 based on our estimate of property values given current market conditions and additional discounts necessary to liquidate these properties.

⁽⁷⁾  Adjustment includes goodwill of $37,741 and a core deposit intangible (which we refer to as “CDI”) of $11,000, less elimination of historical CDI and other intangibles of $5,502. Goodwill represents the excess of purchase price over the fair value of acquired net assets. This acquisition is expected to be nontaxable and, as a result, there will be no tax basis in the goodwill. Accordingly, none of the goodwill associated with the acquisition will deductible for tax purposes. The CDI represents the present value of the difference between a market participant’s cost of obtaining alternative funds and

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the cost to maintain the acquired deposit base. The present value is calculated over the estimated life of the acquired deposit base and will be amortized on an accelerated method over that period. Deposit accounts evaluated for the CDI were demand deposit accounts, money market accounts and savings accounts.

⁽⁸⁾  The most significant other asset impacted by the application of the acquisition method of accounting was the recognition of a net deferred tax asset of $59,000. The net deferred tax asset is primarily related to the recognition of differences between certain tax and book bases of assets and liabilities related to the acquisition method of accounting, including fair value adjustments discussed elsewhere in this section, along with federal and state net operating losses that the Company determined to be realizable as of the acquisition date. A valuation allowance is recorded for deferred tax assets, including net operating losses, if the Company determines that it is more likely than not that some portion or all of the deferred tax assets will not be realized. Adjustment was reduced by $5,645 which represented the historical deferred tax asset balance.

⁽⁹⁾  Time deposits were not included in the CDI evaluation. Instead, a separate valuation of term deposit liabilities was conducted due to the contractual time frame associated with these liabilities. The fair value of these time deposits was estimated by first stratifying the deposit pool by maturity and determining the contractual interest rate for each maturity period. Then cash flows were projected by period and discounted to present value using current market interest rates. Adjustment of $11,000 reflects an estimated time deposit premium, which means that in aggregate, current market rates were lower than contractual rates.

⁽¹⁰⁾ Fair values for FHLB advances were estimated by developing cash flow estimates for each of these debt instruments based on scheduled principal and interest payments, current interest rates and prepayment penalties. Once the cash flows were determined, a market rate for comparable debt was used to discount the cash flows to the present value. The estimated fair value premium totaled $9,000.

⁽¹¹⁾ Adjustment represents an estimated $22,000 fair value discount to borrowings, which primarily consist of subordinated debt. Fair values for the subordinated debt were estimated by developing cash flow estimates for each of these debt instruments based on scheduled principal and interest payments and contractual interest rates. Once the cash flows were determined, a market rate for comparable subordinated debt was used to discount the cash flows to the present value.

⁽¹²⁾ The proposed reorganization will not affect total shareholders’ equity, but it does result in the elimination of the $48,670 of noncontrolling interest as of June 30, 2011, which will be reclassified to additional paid in capital at the reorganization date.

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

Six Months Ended June 30, 2011

	North American Financial Holdings, Inc.		Capital Bank Corp.						Green Bankshares, Inc.						North American Financial Holdings, Inc.
(Dollars in thousands except per share data)	Six Months Ended June 30, 2011 (As Reported)		Period From January 1 to January 28, 2011 (As Reported)			Adjustments			Six Months Ended June 30, 2011 (As Reported)			Adjustments			Adjustments for the Reorganization			Six Months Ended June 30, 2011 (Pro Forma)
Interest income:
Loans, including fees	$	77,153	$	5,479		$	291	(1)	$	48,404		$	140	(1)	$	–		$	131,467
Investment securities and other		11,145		476			–			4,296			–			–			15,917
Total interest income		88,298		5,955			291			52,700			140			–			147,384
Interest expense:
Deposits		12,978		1,551			(429	)(2)		9,892			(2,750	)(2)		–			21,242
Borrowings and other debt		3,347		445			(68	)(3)		4,090			(460	)(3)		–			7,354
Total interest expense		16,325		1,996			(497	)		13,982			(3,210	)		–			28,596
Net interest income		71,973		3,959			788			38,718			3,350			–			118,788
Provision for loan losses		9,963		40			–	(4)		28,229			–	(4)		–			38,232
Net interest income after provision for loan losses		62,010		3,919			788			10,489			3,350			–			80,556
Non-interest income:
Service charges on deposit accounts		4,065		291			–			12,208			–			–			16,564
Fees on mortgage loans originated and sold		989		210			–			199			–			–			1,398
Investment advisory and trust fees		800		–			–			1,012			–			–			1,812
Accretion on FDIC indemnification asset		2,858		–			–			–			–			–			2,858
Investment securities gains, net		18		–			–			–			–			–			18
Other income		3,670		331			–			2,445			–			–			6,446
Total non-interest income		12,400		832			–			15,864			–			–			29,096
Non-interest expense:
Salaries and employee benefits		34,350		1,977			–			17,311			–			–			53,638
Occupancy and equipment expense		11,650		823			–			6,875			–			–			19,348
Professional fees		4,069		190			–			1,910			–			–			6,169
Foreclosed asset related expense		2,844		176			–	(5)		10,097			–	(5)		–			13,117
Conversion expenses		4,749		–			–			–			–			–			4,749
Other expense		14,818		989			(191	)(6)		11,605			–	(7)		–			27,221
Total non-interest expense		72,480		4,155			(191	)		47,798			–			–			124,242
Income (loss) before income taxes		1,930		596			979			(21,445	)		3,350			–			(14,590	)
Income tax expense		592		–			599	(8)		–			(6,876	)(8)		–			(5,685	)
Net income (loss)		1,338		596			380			(21,445	)		10,226			–			(8,905	)
Dividends and accretion on preferred stock		–		861			(861	)(9)		2,500			(2,500	)(9)		–			–
Net income (loss) attributable to common shareholders		1,338		(265	)		1,241			(23,945	)		12,726			–			(8,905	)
Net income (loss) attributable to noncontrolling interests		218		–			168	(10)		–			(1,117	)(10)		731	(11)		–
Net income (loss) attributable to North American Financial Holdings, Inc.	$	1,120	$	(265	)	$	1,073		$	(23,945	)	$	13,843		$	(731	)	$	(8,905	)
Earnings per share—basic	$	0.02																$
Earnings per share—diluted	$	0.02																$
Weighted average shares—basic		45,120,175		–			–			–			–				(11)
Weighted average shares—diluted		45,270,175		–			–			–			–				(11)

⁽¹⁾  Adjustments reflect the change in loan interest income for the six months ended June 30, 2011 that would have resulted had the loans been acquired as of January 1, 2010. The change in loan interest income is due to estimated discount accretion associated with fair value adjustments to acquired loans. The discount accretion was calculated on the level yield method over the estimated lives of the acquired loan portfolios.

⁽²⁾  Adjustments reflect the change in interest expense for the six months ended June 30, 2011 that would have resulted had the time deposits been acquired as of January 1, 2010. The change in deposit interest expense is due to estimated premium amortization associated with fair value adjustments to acquired time deposits. The premium amortization was calculated on the level yield method over the estimated lives of the acquired time deposits.

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⁽³⁾  Adjustments reflect the change in interest expense for the six months ended June 30, 2011 that would have resulted had the borrowings and other debt been acquired as of January 1, 2010. The change in interest expense is due to estimated premium amortization/discount accretion associated with fair value adjustments to acquired borrowings and other debt, which include FHLB advances, borrowings and subordinated debt. The premium amortization/discount accretion was calculated on the level yield method over the estimated lives of the acquired borrowings and other debt instruments.

⁽⁴⁾  While the recording of acquired loans at their fair value would have significantly impacted the determination of the provision for loan losses, we assumed no adjustments to the historic amount of Capital Bank Corp.’s or Green Bankshares’s provision for loan losses. If such adjustments were estimated, there could be a reduction in the historic amounts of Capital Bank Corp.’s or Green Bankshares’s provision for loan losses presented.

⁽⁵⁾  A significant portion of Capital Bank Corp.’s and Green Bankshares’s foreclosed asset expense was related to write downs and realized losses on other real estate owned. While the recording of acquired other real estate owned at their fair value may have significantly impacted foreclosed asset expense as the one-year measurement period following acquisition date would have improved the underlying assumptions used in valuing these assets at acquisition, we assumed no adjustments to the historic amount of Capital Bank Corp.’s or Green Bankshares’s foreclosed asset expense. If such adjustments were estimated, there could be a reduction in the historic amounts of Capital Bank Corp.’s or Green Bankshares’s foreclosed asset expense presented.

⁽⁶⁾  For Capital Bank Corp., adjustments reflect the difference between estimated impact of amortization on other intangible assets recorded in acquisition accounting and actual amortization recorded in the period from January 1 to January 28, 2011.

⁽⁷⁾  For Green Bankshares, the estimated impact of amortization on core deposit intangible to be recorded in acquisition accounting was not materially different from actual amortization recorded in the six months ended June 30, 2011.

⁽⁸⁾  Adjustments reflect reversal of valuation allowances recorded against deferred tax assets in the six months ended June 30, 2011 as well as recognition of tax expense associated with the adjusted net income (loss) before taxes assuming an effective rate of 38%.

⁽⁹⁾  Adjustments reflect elimination of dividends and accretion on preferred stock as TARP preferred stock was repurchased concurrent with the Capital Bank Corp. investment and is expected to be repurchased concurrent with the proposed Green Bankshares investment.

⁽¹⁰⁾  Adjustments for income attributable to noncontrolling interests were calculated based on noncontrolling stockholder ownership subsequent to each respective transaction. For TIB Financial, Capital Bank Corp. and Green Bankshares, the noncontrolling stockholder ownership was based on ownership levels immediately following its rights offering (5.53% noncontrolling ownership for TIB Financial, 17.25% noncontrolling ownership for Capital Bank Corp. and 9.96% noncontrolling ownership for Green Bankshares).

⁽¹¹⁾  Adjustments reflect issuance of new shares of Class A common stock to existing noncontrolling stockholders and elimination of the net income (loss) attributable to noncontrolling interests due to the planned merger of TIB Financial, Capital Bank Corp. and Green Bankshares into the Company concurrent with this offering.

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

Year Ended December 31, 2010

	North American Financial Holdings, Inc.			TIB Financial Corp.						Capital Bank Corp.						Green Bankshares, Inc.						North American Financial Holdings, Inc.
(Dollars in thousands except per share data)	Year Ended December 31, 2010 (As Reported)			Nine Months Ended September 30, 2010 (As Reported)			Adjustments			Year Ended December 31, 2010 (As Reported)			Adjustments			Year Ended December 31, 2010 (As Reported)			Adjustments(1)			Adjustments for the Reorganization		Year Ended December 31, 2010 (Pro Forma)
Interest income:
Loans, including fees	$	36,429		$	45,471		$	(1,641	)(2)	$	68,474		$	3,809	(2)	$	113,721		$	280	(2)	$	–	$	266,543
Investment securities and other		6,316			6,846			–			9,248			–			7,143			–			–		29,553
Total interest income		42,745			52,317			(1,641	)		77,722			3,809			120,864			280			–		296,096
Interest expense:
Deposits		4,656			13,803			(3,179	)(3)		21,082			(6,675	)(3)		28,434			(5,500	)(3)		–		52,621
Borrowings and other debt		1,578			5,632			(2,626	)(4)		5,677			(1,412	)(4)		8,837			(920	)(4)		–		16,766
Total interest expense		6,234			19,435			(5,805	)		26,759			(8,087	)		37,271			(6,420	)		–		69,387
Net interest income		36,511			32,882			4,164			50,963			11,896			83,593			6,700			–		226,709
Provision for loan losses		753			29,697			–	(5)		58,545			–	(5)		71,107			–	(5)		–		160,102
Net interest income (loss) after provision for loan losses		35,758			3,185			4,164			(7,582	)		11,896			12,486			6,700			–		66,607
Non-interest income:
Service charges on deposit accounts		1,992			2,585			–			3,311			–			24,179			–			–		32,067
Fees on mortgage loans originated and sold		449			1,219			–			1,640			–			703			–			–		4,011
Investment advisory and trust fees		354			948			–			–			–			2,842			–			–		4,144
Accretion on FDIC indemnification asset		736			–			–			–			–			–			–			–		736
Gain on acquisition of banks		15,175			–			–			–			–			–			–			–		15,175
Investment securities gains (losses), net		–			2,635			(2,635	)(6)		5,855			(5,855	)(6)		(93	)		93	(6)		–		–
Other income		909			1,939			–			4,743			–			4,913			–			–		12,504
Total non-interest income		19,615			9,326			(2,635	)		15,549			(5,855	)		32,544			93			–		68,637
Non-interest expense:
Salaries and employee benefits		17,229			19,859			–			22,675			–			35,368			–			–		95,131
Net occupancy and equipment expense		4,629			6,948			–			9,089			–			13,277			–			–		33,943
Professional fees		11,721			2,866			–			2,514			–			2,777			–			–		19,878
Foreclosed asset related expense		701			21,687			–	(7)		5,006			–	(7)		35,447			–	(7)		–		62,841
Conversion expenses		1,991			–			–			–			–			–			–			–		1,991
Other expense		8,106			13,956			(76	)(8)		15,025			209	(8)		23,946			–	(9)		–		61,166
Total non-interest expense		44,377			65,316			(76	)		54,309			209			110,815			–			–		274,950
Income (loss) before income taxes		10,996			(52,805	)		1,605			(46,342	)		5,832			(65,785	)		6,793			–		(139,706	)
Income tax expense (benefit)		(1,041	)		–			(19,456	)(10)		15,124			(30,518	)(10)		14,910			(37,327	)(10)		–		(58,308	)
Net income (loss)		12,037			(52,805	)		21,061			(61,466	)		36,350			(80,695	)		44,120			–		(81,398	)

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	North American Financial Holdings, Inc.		TIB Financial Corp.						Capital Bank Corp.						Green Bankshares, Inc.						North American Financial Holdings, Inc.
(Dollars in thousands except per share data)	Year Ended December 31, 2010 (As Reported)		Nine Months Ended September 30, 2010 (As Reported)			Adjustments			Year Ended December 31, 2010 (As Reported)			Adjustments			Year Ended December 31, 2010 (As Reported)			Adjustments(1)			Adjustments for the Reorganization			Year Ended December 31, 2010 (Pro Forma)
Dividends and accretion on preferred stock		–		2,009			(2,009	)(11)		2,355			(2,355	)(11)		5,001			(5,001	)(11)		–			–
Gain on retirement of preferred stock		–		(24,276	)		24,276	(12)		–			–			–			–						–
Net income (loss) attributable to common stockholders		12,037		(30,538	)		(1,206	)		(63,821	)		38,705			(85,696	)		49,121						(81,398	)
Net income (loss) attributable to noncontrolling interests		7		–			(1,755	)(13)		–			(4,333	)(13)		–			(3,643	)(13)		9,724	(14)		–
Net income (loss) attributable to North American Financial Holdings, Inc.	$	12,030	$	(30,538	)	$	549		$	(63,821	)	$	43,038		$	(85,696	)	$	52,764		$	(9,724	)	$	(81,398	)
Earnings per share—basic	$	0.31																						$
Earnings per share —diluted	$	0.31																						$
Weighted average shares—basic		38,205,677		–			–			–			–			–			–			(14	)
Weighted average shares—diluted		38,205,677		–			–			–			–			–			–			(14	)

⁽¹⁾  Adjustments exclude estimated transaction costs (e.g., legal, accounting, consulting, printing, etc.) of $6,250 related to the investment in Green Bankshares, which would be recorded as non-interest expense as incurred.

⁽²⁾  Adjustments reflect the change in loan interest income for 2010 that would have resulted had the loans been acquired as of January 1, 2010. The change in loan interest income is due to estimated discount accretion associated with fair value adjustments to acquired loans. The discount accretion was calculated on the level yield method over the estimated lives of the acquired loan portfolios.

⁽³⁾  Adjustments reflect the change in interest expense for 2010 that would have resulted had the time deposits been acquired as of January 1, 2010. The change in deposit interest expense is due to estimated premium amortization associated with fair value adjustments to acquired time deposits. The premium amortization was calculated on the level yield method over the estimated lives of the acquired time deposits.

⁽⁴⁾  Adjustments reflect the change in interest expense for 2010 that would have resulted had the borrowings and other debt been acquired as of January 1, 2010. The change in interest expense is due to estimated premium amortization/discount accretion associated with fair value adjustments to acquired borrowings and other debt, which include FHLB advances, borrowings and subordinated debt. The premium amortization/discount accretion was calculated on the level yield method over the estimated lives of the acquired borrowings and other debt instruments.

⁽⁵⁾  While the recording of acquired loans at their fair value would have significantly impacted the determination of the provision for loan losses, we assumed no adjustments to the historic amount of TIB Financial’s, Capital Bank Corp.’s or Green Bankshares’s provision for loan losses. If such adjustments were estimated, there could be a reduction in the historic amounts of TIB Financial’s, Capital Bank Corp.’s or Green Bankshares’s provision for loan losses presented.

⁽⁶⁾  Adjustments reflect the impact to investment securities (gains) losses, net, from the elimination of unrealized gains/losses existing as of January 1, 2010 due to the change in control transactions and application of acquisition accounting.

⁽⁷⁾  A significant portion of TIB Financial’s, Capital Bank Corp.’s and Green Bankshares’s foreclosed asset expense was related to write downs and realized losses on other real estate owned. While the recording of acquired other real estate owned at their fair value may have significantly impacted foreclosed asset expense as the one-year measurement period following acquisition date would have improved the underlying assumptions used in valuing these assets at acquisition, we assumed no adjustments to the historic amount of TIB Financial’s, Capital Bank Corp.’s or Green Bankshares’s foreclosed asset expense. If such adjustments were estimated, there could be a reduction in the historic amounts of TIB Financial’s, Capital Bank Corp.’s or Green Bankshares’s foreclosed asset expense presented.

⁽⁸⁾  For TIB Financial and Capital Bank Corp., adjustments reflect the difference between estimated impact of amortization on other intangible assets recorded in acquisition accounting and actual amortization recorded in 2010.

⁽⁹⁾  For Green Bankshares, the estimated impact of amortization on core deposit intangible to be recorded in acquisition accounting is not materially different from actual amortization recorded in 2010.

⁽¹⁰⁾  Adjustments reflect reversal of valuation allowances recorded against deferred tax assets in 2010 as well as recognition of tax expense associated with the adjusted net income (loss) before taxes assuming an effective rate of 38%.

⁽¹¹⁾  Adjustments reflect elimination of dividends and accretion on preferred stock as TARP preferred stock was repurchased concurrent with the TIB Financial and Capital Bank Corp. investments and is expected to be repurchased concurrent with the proposed Green Bankshares investment.

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⁽¹²⁾  Adjustment reflects reversal of gain on retirement of TIB Financial’s TARP preferred stock. This gain would have been recorded on the TIB Financial predecessor company financial statements and would not have impacted NAFH’s results of operations.

⁽¹³⁾  Adjustments for income attributable to noncontrolling interests were calculated based on noncontrolling stockholder ownership subsequent to each respective transaction. For TIB Financial, Capital Bank Corp. and Green Bankshares, the noncontrolling stockholder ownership was based on ownership levels immediately following each institution’s rights offering (5.53% noncontrolling ownership for TIB Financial. 17.25% noncontrolling ownership for Capital Bank Corp. and 9.96% noncontrolling ownership for Green Bankshares).

⁽¹⁴⁾  Adjustments reflect issuance of new shares of Class A common stock to existing noncontrolling stockholders and elimination of the net income (loss) attributable to noncontrolling interests due to the planned merger of TIB Financial, Capital Bank Corp. and Green Bankshares into the Company concurrent with this offering.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the “Selected Historical Consolidated Financial Information,” and our financial statements and related notes thereto included elsewhere in this prospectus. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.” We assume no obligation to update any of these forward-looking statements.

The following discussion pertains to our historical results, which includes the operations of First National Bank, Metro Bank, Turnberry Bank, TIB Financial and Capital Bank Corp. subsequent to our acquisition of each such entity. In this discussion, unless the context suggests otherwise, references to “Old Capital Bank” refer to Capital Bank Corp.’s banking subsidiary prior to June 30, 2011, the date on which NAFH National Bank merged with Old Capital Bank and changed its name to Capital Bank, N.A.

The following discussion does not include the results of Green Bankshares, which we expect to acquire in the third quarter of 2011, subject to customary closing conditions including shareholder and regulatory approval.

Overview

We are a bank holding company incorporated in late 2009 with the goal of creating a regional banking franchise in the southeastern region of the United States through organic growth and acquisitions of other banks, including failed, underperforming and undercapitalized banks. In December 2009 and January 2010, we raised approximately $900 million to make acquisitions through a series of private placements of our common stock. Since then, we have acquired five depository institutions, including the assets and certain deposits of the three Failed Banks from the FDIC. As of June 30, 2011, we operated 82 branches in Florida, North Carolina and South Carolina. We expect to complete the acquisition of a sixth depository institution, Green Bankshares, Inc., in the third quarter of 2011. Upon completion of our transaction with Green Bankshares, we will operate 146 branches in Tennessee, Florida, North Carolina, South Carolina and Virginia. Through our branches, we offer a wide range of commercial and consumer loans and deposits, as well as ancillary financial services.

We were founded by a group of experienced bankers with a multi-decade record of leading, operating, acquiring and integrating financial institutions. Our executive management team is led by our Chief Executive Officer, R. Eugene Taylor. Mr. Taylor is the former Vice Chairman of Bank of America Corp., where his career spanned 38 years, including tenure as President of the Consumer and Commercial Bank. He also has extensive experience executing and overseeing bank acquisitions, including NationsBank Corp.’s acquisition and integration of Bank of America, Maryland National Bank and Barnett Banks, Inc. Our Chief Financial Officer, Christopher G. Marshall, has over 23 years of financial and managerial experience, including service as the Chief Financial Officer of Fifth Third Bancorp and as the Chief Operations Executive for Bank of America’s Global Consumer and Small Business Bank. Our Chief Risk Officer, R. Bruce Singletary, has over 32 years of experience, including 19 years of experience managing credit risk. He has served as Head of Credit for NationsBank Corp. for the Mid-Atlantic region and as Senior Risk Manager for commercial banking for Bank of America’s Florida Bank. Kenneth A. Posner serves as our Chief of Investment Analytics and Research. Mr. Posner spent 13 years as an equity research analyst at Morgan Stanley focusing on a wide range of financial services firms.

Acquisitions

Our banking operations commenced on July 16, 2010, when we purchased approximately $1.2 billion of assets and assumed approximately $960.1 million of deposits of three Failed Banks from the FDIC: First National Bank , Metro Bank and Turnberry Bank. The acquired assets included loans with an estimated fair value

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of $768.6 million at the acquisition date. These transactions gave us an initial market presence in Miami, which we targeted because of its size and concentrated business activity, and South Carolina, which we targeted because of its attractive demographic growth trends. In connection with the acquisition, we entered into loss-sharing arrangements with the FDIC covering approximately $796.1 million of loans and real estate owned of the Failed Banks that we acquired.

On September 30, 2010, we invested approximately $175.0 million in TIB Financial, a publicly held bank holding company headquartered in Naples, Florida with approximately $1.7 billion in assets at the acquisition date and, after giving effect to a subsequent rights offering to legacy TIB Financial shareholders, we acquired approximately 94% of TIB Financial’s common stock. The acquired assets included loans with an estimated fair value of $1.0 billion at the acquisition date. This acquisition expanded our geographic reach in Florida to include markets that we believe have particularly attractive deposit customer characteristics and provided a platform to support our future growth.

On January 28, 2011, we invested approximately $181.1 million in Capital Bank Corp., a publicly held bank holding company headquartered in Raleigh, North Carolina with approximately $1.7 billion in assets at the acquisition date and, after giving effect to a subsequent rights offering to legacy Capital Bank Corp. shareholders, we acquired approximately 83% of Capital Bank Corp.’s common stock. The acquired assets included loans with an estimated fair value of $1.1 billion at the acquisition date. This transaction gave us a strong presence in fast-growing North Carolina markets, including the Raleigh metropolitan area, which, according to data derived from the U.S. Census, is the third fastest growing metropolitan area in the country by population.

On May 5, 2011, we agreed to invest approximately $217.0 million in Green Bankshares, a publicly held bank holding company headquartered in Greeneville, Tennessee with approximately $2.3 billion in assets reported as of June 30, 2011. Our investment in Green Bankshares is subject to stockholder approval, regulatory approvals and other customary closing conditions, and is expected to be completed in the third quarter of 2011. If completed, we expect to own approximately 90% of Green Bankshares’ common stock. Total assets as of June 30, 2011 included $1.6 billion of gross loans. This transaction will extend our market area into the fast-growing Tennessee metropolitan areas of Nashville and Knoxville.

The following table sets forth the fair value of the assets we acquired in each of our acquisitions as of the applicable acquisition date and shows the acquisition price as a percentage of the most recently reported tangible book value of the assets prior to acquisition accounting and the tangible book value in accordance with the acquisition method of accounting:

(Dollars in millions)						Acquisition Price
Target	Announcement Date		Fair Value of Assets Acquired			Percent of Last Reported Tangible Book Value(1)			Percent of Tangible Book Value in accordance with Acquisition Accounting(2)
First National Bank		July 16, 2010	$	602			NA			110.3	%
Metro Bank		July 16, 2010	$	393			NA			31.3	%
Turnberry Bank		July 16, 2010	$	228			NA			NM	(3)
TIB Financial		June 28, 2010	$	1,737			25.4	%		133.8	%
Capital Bank Corp.		November 3, 2010	$	1,729			45.1	%		125.4	%
Green Bankshares		May 5, 2011	$	2,294	(4)		18.9	%		119.0	%

⁽¹⁾  Last reported tangible book value is based on the tangible book value per share amount as disclosed by the institution in the quarter immediately preceding the announcement of the acquisition.

⁽²⁾ Tangible book value for the investment or purchase by us reflects all assets and liabilities recorded at fair value in accordance with acquisition accounting.

⁽³⁾ Not a meaningful ratio because consideration of $16.9 million was received on this transaction. Tangible book value acquired was a negative $12.9 million.

⁽⁴⁾ Total assets reported by Green Bankshares as of June 30, 2011.

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Comparability to Past Periods

The consolidated financial information presented throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the three months and six months ended June 30, 2011 includes our consolidated results, including First National Bank, Metro Bank, Turnberry Bank and TIB Financial, as well as the results of Capital Bank Corp. subsequent to January 28, 2011. The consolidated financial information presented throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2010 includes our consolidated results, including First National Bank, Metro Bank and Turnberry Bank subsequent to July 16, 2010 and TIB Financial subsequent to September 30, 2010. Prior to July 16, 2010, we did not have any banking operations.

Because substantially all of our business is composed of acquired operations and because the operations of each acquired business were substantially changed in connection with its acquisition, our results of operations for the three and six months ended June 30, 2011 and for the year ended December 31, 2010 reflect different operations in different periods (or portions of periods) and therefore cannot be meaningfully compared. In addition, results of operations for these periods reflect, among other things, the acquisition method of accounting. Under the acquisition method of accounting, all of the assets acquired and liabilities assumed were initially recorded on our consolidated balance sheet at their estimated fair values as of the dates of acquisition. These estimated fair values differed substantially from the carrying amounts of the assets acquired and liabilities assumed as reflected in the financial statements of the Failed Banks and of TIB Financial and Capital Bank Corp. immediately prior to the acquisition. Therefore, comparisons to prior periods have been intentionally omitted unless observations we deem meaningful could be disclosed herein.

For more information on the acquisition method of accounting as well as the indemnification asset we recorded in connection with our acquisition of the Failed Banks, see “—Critical Accounting Policies and Estimates.”

Material Trends and Developments

Our financial performance reflects the acquisitions we have completed, our progress in restructuring the acquired banks and implementing our performance-based strategy and general economic and competitive trends in our markets. As noted above, we have completed five acquisitions since our inception, and our sixth transaction, the investment in Green Bankshares, is expected to close in the third quarter of 2011, subject to shareholder and regulatory approvals.

We have made substantial progress in integrating and restructuring the five acquisitions. We restructured the management teams of the three Failed Banks during the third quarter of 2010 and integrated them under our line of business model and policies and procedures, completed the conversion to our core processing platform during the fourth quarter of 2010 and merged them together with TIB Bank, TIB Financial’s banking subsidiary, into NAFH Bank, our OCC-regulated bank, in April 2011. After closing our investment in Capital Bank Corp., during January 2011, we immediately restructured the management team, integrated Old Capital Bank, Capital Bank Corp.’s banking subsidiary, under our line of business model and policies and procedures and merged Old Capital Bank with and into NAFH National Bank, which was renamed Capital Bank, N.A., in June 2011. We completed the conversion of Old Capital Bank to our core processing platform in July 2011. Conversion related expenses of $4.7 million were related to $3.7 million of accruals for the early termination of certain information technology system related contracts and $1.0 of expense related to the conversion of the Company’s operations onto a common technology platform in the second quarter of 2011.

In connection with our plans to become a public registrant, the additional costs of being a public entity should not materially affect our non-interest expense and efficiency ratios as two of our subsidiaries are currently public companies, and, through the consolidation of these entities, we expect to realize cost savings through the elimination of duplicative or redundant costs.

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Following the completion of our acquisition of Green Bankshares, we expect to convert the operating platform of GreenBank, Green Bankshares’ banking subsidiary, to our existing platform, which we expect to be simplified due to the fact that GreenBank currently operates on the same core processing platform used by our banking subsidiary. In its Annual Report on Form 10-K for the fiscal year ended December 31, 2010, Green Bankshares disclosed a material weakness in internal control over financial reporting related to the valuation of impaired loans and real estate owned. Management of Green Bankshares has described certain activities in its Quarterly Report on Form 10-Q for the period ended June 30, 2011 intended to remediate this material weakness and improve upon its internal control activities, which include actions to timely update appraisals and have them independently reviewed by third party specialists as well as actions to strengthen their internal review, approval and documentation of those independently reviewed appraisals and related impairment analyses. Since we plan to convert Green Bankshares’ accounting systems and processes as well as their credit risk management policies and procedures to our common platform shortly following the acquisition, accounting for acquired balances and subsequent activity will be subject to our internal control structure, including our management’s supervision and review. Further, due to the application of acquisition accounting to the prospective Green Bankshares’ transaction, we have engaged third party valuation specialists to estimate fair value for Green Bankshares’ assets and liabilities at acquisition date and our management will conduct the purchase price allocation and related accounting for this acquisition. We believe that application of accounting policies and practices consistent with our existing internal control structure as well as the revaluation of the Green Bankshares’ balance sheet, which includes the loan portfolio and real estate owned, at acquisition will mitigate the risk related to the aforementioned Green Bankshares’ internal control material weakness.

As part of the process of integrating these banks into our line of business model, we have appointed experienced bankers to oversee loan and deposit production in each of our markets, centralized and consolidated back office operations and eliminated certain duplicative positions, improved productivity in our sales forces and established line of business reporting. These steps have helped us accelerate new loan production and core deposit growth. New loan production for the six months ended June 30, 2011 was $345.1 million, of which approximately one-half consisted of commercial loans. Growth in core deposits was $181.5 million in the six months ended June 30, 2011, up from $55.6 million in the fourth quarter of 2010, and helped lower the contractual rate on deposits from 1.2% as of December 31, 2010 to 1.1% as of June 30, 2011.

Southeast Florida loan origination increased in the first six months of 2011 as we selectively hired new commercial loan officers and credit analysts. South Carolina loan origination also benefited from improved results in commercial lending, while Southwest Florida benefited from residential mortgage and indirect auto loan volumes. Loan originations were steady in North Carolina as we closed the investment in Capital Bank Corp. and reorganized the management team during the first quarter of 2011. Southwest Florida, Southeast Florida, South Carolina and North Carolina accounted for 25.6%, 18.7%, 33.9% and 21.7%, respectively, of our new loan originations in the first six months of 2011.

A significant portion of our core deposit growth resulted from in-flows into savings and money market accounts, for which balances increased by 38.1% and 26.3%, respectively, during the six months ended June 30, 2011.

In addition to our recent acquisitions and pending acquisition with Green Bankshares, we plan to pursue acquisitions that position us in southeastern U.S. markets with attractive demographics and business growth trends, expand our branch network in existing markets, increase our earnings power or enhances our suite of products. Our future acquisitions may include distressed assets auctioned by the FDIC or another seller where our operations, underwriting and servicing capabilities or management experience give us an advantage in evaluating and resolving the assets.

We are operating in an environment characterized by a slow-paced economic recovery with ongoing pressure on employment and property values and continued dislocations in the banking industry. South Florida continues to suffer from elevated unemployment and continued pressure on home prices, which have declined

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through the second quarter of 2011 by 48% from peak levels reached in the second quarter of 2007, according to data compiled by the Federal Housing Finance Agency based on conforming mortgages held or insured by Fannie Mae and Freddie Mac. North Carolina, South Carolina and Tennessee are also experiencing employment and home price pressure, although not as severe as south Florida. We experience competition from both large regional banks and small community banks, but are nonetheless finding opportunities to originate high-quality loans and to grow low-cost customer deposits, consistent with our operating strategy. Large numbers of banks in our markets continue to struggle with weak capital levels, credit quality and earnings performance, and many are subject to regulatory orders.

Primary Factors Used to Evaluate Our Business

As a financial institution, we manage and evaluate various aspects of both our results of operations and our financial condition. We evaluate the levels and trends of the line items included in our balance sheet and income statement, as well as various financial ratios that are commonly used in our industry. We analyze these ratios and financial trends against our budgeted performance and the financial condition and performance of comparable financial institutions in our region and nationally. Our financial information is prepared in accordance with U.S. generally accepted accounting principles. Application of these principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the following discussion and in our consolidated financial statements and accompanying notes. For more information on our accounting policies and estimates, see “—Critical Accounting Policies and Estimates.”

Income Statement Metrics

Net Interest Income

Net interest income represents the amount by which interest income on interest-earning assets exceeds interest expense incurred on interest-bearing liabilities. The net interest margin represents net interest income divided by average interest-earning assets. We generate interest income from interest, dividends and fees received on interest-earning assets, including loans and investment securities we own. We incur interest expense from interest paid on interest-bearing liabilities, including interest-bearing deposits, borrowings and other forms of indebtedness. We seek to improve our net interest margin by originating commercial and consumer loans we believe to be high-quality and funding these assets primarily with low-cost customer deposits. References throughout this discussion to “commercial loans” include commercial & industrial and owner occupied commercial real estate loans, and references to “commercial real estate loans” include non-owner occupied commercial real estate loans, C&D loans and multifamily commercial real estate loans.

Provision for Loan Losses

The provision for loan losses is the amount of expense that, based on our judgment, is required to maintain the allowance for loan losses at an adequate level to absorb probable losses inherent in the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under U.S. generally accepted accounting principles. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity.

Non-interest Income

Non-interest income includes service charges on deposit accounts, debit card income, fees on mortgage loans, investment advisory and trust fees, accretion on the FDIC indemnification asset, other operating income and investment securities gains and losses.

Non-interest Expense

Non-interest expense includes salary and employee benefits, net occupancy expense, conversion related expenses, accounting, legal and other professional expenses, FDIC and state assessments, foreclosed asset related

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expenses and other operating expenses. We monitor the ratio of non-interest expense to net revenues (net interest income plus non-interest income), which is commonly known as the efficiency ratio.

Net Income

We evaluate our net income using the common industry ratio, return on assets (which we refer to as “ROA”), which is equal to net income for the period annualized, divided by the average of total assets for the period. As part of our budgeting process, we plan to improve the returns on assets of banks we acquire from the lower levels characteristic of institutions operating under financial distress.

Balance Sheet Drivers

Loan Growth

We monitor new loan production on a weekly basis by loan type, borrower type, market and profitability. Our operating strategy focuses on growing assets by originating commercial and consumer loans that we believe to be high quality. In the first six months of 2011, we originated $208.7 million of commercial loans, $79.9 million of consumer loans, $58.2 million of commercial real estate loans and $7.3 million in other loans. In addition, our acquisition strategy, which focuses on acquiring assets and businesses in southeastern U.S. markets, has resulted in an increase of the number of commercial and consumer loans.

Asset Quality

In order to operate with a sound risk profile, we have focused on originating loans we believe to be of high quality, disposing of nonperforming assets as rapidly as possible.

We are working to improve the diversification of our portfolio by reducing the concentration of commercial real estate loans in the legacy portfolios of the acquisitions and increasing the contribution of newly originated commercial and consumer loans. We monitor the levels of each loan type in our portfolio on a quarterly basis.

In marking the legacy loan portfolios to market at acquisition, we segregated similar loans into pools and value those pools by projecting lifetime cash flows for each loan based on assumptions about yield, average life and credit losses and then discounting those cash flows to present value. Because of this accounting treatment, we no longer report these loans as non-accrual loans or report charge-offs with respect to these loans. Rather, we monitor the performance of our legacy portfolio by tracking the ratio of non-performing loans against our projections. Each quarter we update our assessment of cash flows for the loans in each pool. To the extent that we increase our estimates of lifetime credit losses for loans in a given pool, we will record a loss provision to establish an allowance against the incremental lifetime losses for that pool. For any pool where the present value of our most recent estimate of future cumulative lifetime cash flows has increased above its recorded investment, we transfer appropriate estimated cash flows from non-accretable difference to accretable yield, which is then recognized in income on a prospective basis through an increase in the pool’s yield over its remaining life.

Deposit Growth

We monitor deposit growth by account type, market and rate on a daily and weekly basis. We seek to fund loan growth primarily with low-cost customer deposits either originated or acquired by us.

Liquidity

We manage liquidity based upon policy limits and cash flow modeling. To maintain adequate liquidity, we also monitor indicators of potential liquidity risk, utilize cash flow projection models to forecast liquidity needs, model liquidity stress scenarios and develop contingency plans, and identify alternative back-up sources of liquidity.

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Capital

We manage capital to comply with our internal planning targets and regulatory capital standards, including the requirements of the OCC Operating Agreement. We review capital levels on a quarterly basis, and we project capital levels in connection with our organic growth plans and acquisitions to ensure continued compliance. We evaluate a number of capital ratios, including Tier 1 capital to total adjusted assets (the leverage ratio) and Tier 1 capital to risk-weighted assets.

Results of Operations

Net Interest Income

Net interest income is the largest component of our income, and is affected by the interest rate environment, and the volume and the composition of interest-earning assets and interest-bearing liabilities. Our interest-earning assets include loans, interest-bearing deposits in other banks, investment securities, federal funds sold and securities purchased under agreements to resell. Our interest-bearing liabilities include deposits, advances from the FHLB, federal funds purchased, subordinated debentures underlying the trust preferred securities we acquired in connection with our investments in TIB Financial and Capital Bank Corp., repurchase agreements and other short-term borrowings.

Our net interest income increased from $32.8 million in the first quarter of 2011 to $39.1 million in the second quarter of 2011 primarily due to the inclusion of a full quarter of Capital Bank Corp.’s results. The net interest margin was 3.63% during the quarter, up from 3.42% in the preceding quarter. Our net interest margin is affected by our holdings of significant liquidity, which included average balances of $578.1 million in cash on deposit at other banks and $802.8 million in securities. We expect to use much of this liquidity to fund organic loan growth and acquisitions, and we intend to retire higher-cost borrowings and deposits over time.

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	Three Months Ended June 30, 2011								Three Months Ended March 31, 2011
(Dollars in thousands)	Average Balances			Income/ Expense		Yields/ Rates			Average Balances			Income/ Expense		Yields/ Rates
Interest-earning assets:
Loans(1)(2)	$	2,953,166		$	41,779		5.67	%	$	2,504,191		$	35,584		5.76	%
Investment securities(2)		802,847			5,848		2.92	%		619,232			4,013		2.63	%
Interest-bearing deposits in other banks		578,133			588		0.41	%		751,029			710		0.38	%
FHLB stock		29,526			102		1.39	%		30,846			132		1.74	%
Total interest-earning assets	$	4,363,672		$	48,317		4.44	%	$	3,905,298		$	40,439		4.20	%
Non-interest-earning assets:
Cash and due from banks	$	51,875							$	47,973
Other assets		470,244								465,424
Total non-interest-earning assets	$	522,119							$	513,397
Total assets	$	4,885,791							$	4,418,695
Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits	$	1,967,308		$	5,361		1.09	%	$	1,790,638		$	4,598		1.04	%
Money market		486,088			884		0.73	%		395,119			719		0.74	%
Negotiable order of withdrawal accounts		415,952			582		0.56	%		355,129			424		0.48	%
Savings deposits		166,663			224		0.54	%		137,866			185		0.54	%
Total interest-bearing deposits	$	3,036,011		$	7,051		0.93	%	$	2,678,752		$	5,926		0.90	%
Other interest-bearing liabilities:
Short-term borrowings and FHLB advances	$	303,864		$	691		0.91	%	$	317,220		$	658		0.84	%
Long-term borrowings		97,650			1,117		4.59	%		72,250			882		4.95	%
Total interest-bearing liabilities	$	3,437,525		$	8,859		1.03	%	$	3,068,222		$	7,466		0.99	%
Non-interest-bearing liabilities and shareholders’ equity:
Demand deposits	$	460,035							$	396,001
Other liabilities		42,944								36,839
Shareholders’ equity		945,287								917,633
Total non-interest-bearing liabilities and shareholders’ equity	$	1,448,266							$	1,350,473
Total liabilities and shareholders’ equity	$	4,885,791							$	4,418,695
Interest rate spread (tax equivalent basis)							3.41	%							3.21	%
Net interest income (tax equivalent basis)				$	39,458							$	32,973
Net interest margin (tax equivalent basis)							3.63	%							3.42	%
Average interest earning assets to average interest bearing liabilities		143.73	%							145.79	%

⁽¹⁾ Average loans include nonperforming loans.

⁽²⁾ Interest income and rates include the effects of a tax equivalent adjustment using applicable statutory tax rates in adjusting tax-exempt interest on tax-exempt investment securities and loans to a fully taxable basis.

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	Three Months Ended June 30, 2011								Three Months Ended June 30, 2010
(Dollars in thousands)	Average Balances			Income/ Expense		Yields/ Rates			Average Balances			Income/ Expense		Yields/ Rates
Interest-earning assets:
Loans(1)(2)	$	2,953,166		$	41,779		5.67	%	$	—		$	—		—
Investment securities(2)		802,847			5,848		2.92	%		—			—		—
Interest-bearing deposits in other banks		578,133			588		0.41	%		665,251			831		0.50	%
FHLB stock		29,526			102		1.39	%		—			—		—
Total interest-earning assets	$	4,363,672		$	48,317		4.44	%	$	665,251		$	831		0.50	%
Non-interest-earning assets:
Cash and due from banks	$	51,875							$	394
Other assets		470,244								1,208
Total non-interest-earning assets	$	522,119							$	1,602
Total assets	$	4,885,791							$	666,853
Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits	$	1,967,308		$	5,361		1.09	%	$	—		$	—		—
Money market		486,088			884		0.73	%		—			—		—
Negotiable order of withdrawal accounts		415,952			582		0.56	%		—			—		—
Savings deposits		166,663			224		0.54	%		—			—		—
Total interest-bearing deposits	$	3,036,011		$	7,051		0.93	%	$	—		$	—		—
Other interest-bearing liabilities:
Short-term borrowings and FHLB advances	$	303,864		$	691		0.91	%	$	—		$	—		—
Long-term borrowings		97,650			1,117		4.59	%		—			—		—
Total interest-bearing liabilities	$	3,437,525		$	8,859		1.03	%	$	—		$	—		—
Non-interest-bearing liabilities and shareholders’ equity:
Demand deposits	$	460,035							$	—
Other liabilities		42,944								63,059
Shareholders’ equity		945,287								603,794
Total non-interest-bearing liabilities and shareholders’ equity	$	1,448,266							$	666,853
Total liabilities and shareholders’ equity	$	4,885,791							$	666,853
Interest rate spread (tax equivalent basis)							3.41	%							0.50	%
Net interest income (tax equivalent basis)				$	39,458							$	831
Net interest margin (tax equivalent basis)							3.63	%							0.50	%
Average interest earning assets to average interest bearing liabilities		143.73	%							NM	(3)

⁽¹⁾ Average loans include nonperforming loans.

⁽²⁾ Interest income and rates include the effects of a tax equivalent adjustment using applicable statutory tax rates in adjusting tax-exempt interest on tax-exempt investment securities and loans to a fully taxable basis.

⁽³⁾ Not a meaningful ratio as no interest expense was incurred during the period.

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	Six Months Ended June 30, 2011								Six Months Ended June 30, 2010
(Dollars in thousands)	Average Balances			Income/ Expense		Yields/ Rates			Average Balances			Income/ Expense		Yields/ Rates
Interest-earning assets:
Loans(1)(2)	$	2,729,918		$	77,363		5.42	%	$	—		$	—		—
Investment securities(2)		711,547			9,861		2.65	%		—			—		—
Interest-bearing deposits in other banks		664,095			1,298		0.37	%		626,828			1,556		0.50	%
FHLB stock		30,191			234		1.48	%		—			—		—
Total interest-earning assets	$	4,135,751		$	88,756		4.33	%	$	626,828		$	1,556		0.50	%
Non-interest-earning assets:
Cash and due from banks	$	49,935							$	352
Other assets		467,847								1,206
Total non-interest-earning assets	$	517,782							$	1,558
Total assets	$	4,653,533							$	628,386
Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits	$	1,879,461		$	9,959		1.07	%	$	—		$	—		—
Money market		440,855			1,603		0.73	%		—			—		—
Negotiable order of withdrawal accounts		385,709			1,006		0.53	%		—			—		—
Savings deposits		152,344			409		0.54	%		—			—		—
Total interest-bearing deposits	$	2,858,369		$	12,977		0.92	%	$	—		$	—		—
Other interest-bearing liabilities:
Short-term borrowings and FHLB advances	$	310,506		$	1,349		0.88	%	$	—		$	—		—
Long-term borrowings		85,020			1,999		4.74	%		—			—		—
Total interest-bearing liabilities	$	3,253,895		$	16,325		1.01	%	$	—		$	—		—
Non-interest-bearing liabilities and shareholders’ equity:
Demand deposits	$	428,195							$	—
Other liabilities		39,907								23,959
Shareholders’ equity		931,537								604,427
Total non-interest-bearing liabilities and shareholders’ equity	$	1,399,639							$	628,386
Total liabilities and shareholders’ equity	$	4,653,534							$	628,386
Interest rate spread (tax equivalent basis)							3.32	%							0.50	%
Net interest income (tax equivalent basis)				$	72,431							$	1,556
Net interest margin (tax equivalent basis)							3.53	%							0.50	%
Average interest earning assets to average interest bearing liabilities		144.69	%							NM	(3)

⁽¹⁾  Average loans include nonperforming loans.

⁽²⁾  Interest income and rates include the effects of a tax equivalent adjustment using applicable statutory tax rates in adjusting tax-exempt interest on tax-exempt investment securities and loans to a fully taxable basis.

⁽³⁾  Not a meaningful ratio as no interest expense was incurred during the period.

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	Year Ended December 31, 2010								Period from November 30, 2009 (Inception) to December 31, 2009
(Dollars in thousands)	Average Balances			Income/ Expense		Yields/ Rates			Average Balances			Income/ Expense		Yields/ Rates
Interest-earning assets:
Loans(1)(2)	$	585,485		$	36,453		6.23	%	$	—		$	—		—
Interest-bearing deposits in other banks		737,739			3,462		0.47	%		164,597			72		0.50	%
Investment securities(2)		124,731			2,752		2.21	%		—			—		—
FHLB stock		8,372			141		1.68	%		—			—		—
Total interest-earning assets	$	1,456,327		$	42,808		2.94	%	$	164,597		$	72		0.50	%
Non-interest-earning assets:
Cash and due from banks	$	10,243							$	—
Other assets		114,350								—
Total non-interest-earning assets	$	124,593							$	—
Total assets	$	1,580,920							$	164,597
Interest-bearing liabilities:
Interest-bearing deposits:
Money market	$	131,949		$	708		0.54	%	$	—		$	—		—
Negotiable order of withdrawal accounts		66,994			191		0.29	%		—			—		—
Savings deposits		25,064			148		0.59	%		—			—		—
Time deposits		446,372			3,609		0.81	%		—			—		—
Total interest-bearing deposits	$	670,379		$	4,656		0.69	%	$	—		$	—		—
Other interest-bearing liabilities:
Short-term borrowings and FHLB advances	$	102,899		$	1,120		1.09	%	$	—		$	—		—
Long-term borrowings		7,944			458		5.78	%		—			—		—
Total interest-bearing liabilities	$	781,222		$	6,234		0.80	%	$	—		$	—		—
Non-interest-bearing liabilities and shareholders’ equity:
Demand deposits	$	66,967							$	—
Other liabilities		13,298								317
Shareholders’ equity		719,433								164,280
Total non-interest-bearing liabilities and shareholders’ equity	$	799,698							$	164,597
Total liabilities and shareholders’ equity	$	1,580,920							$	164,597
Interest rate spread (tax equivalent basis)							2.14	%							0.50	%
Net interest income (tax equivalent basis)				$	36,574							$	72
Net interest margin (tax equivalent basis)							2.51	%							0.50	%
Average interest earning assets to average interest bearing liabilities		186.42	%							NM	(3)

⁽¹⁾  Average loans include nonperforming loans.

⁽²⁾  Interest income and rates include the effects of a tax equivalent adjustment using applicable statutory tax rates in adjusting tax-exempt interest on tax-exempt investment securities and loans to a fully taxable basis.

⁽³⁾ Not a meaningful ratio as no interest expense was incurred during the period.

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Three months ended June 30, 2011

Net interest income was $39.1 million for the three months ended June 30, 2011 and included the effects of maintaining a high level of cash and highly liquid investment securities during the period. The increase in net interest income over prior quarter was partially due to the reinvestment of excess cash in mortgage backed securities which increased by $113.4 million which contributed to the 24 basis point increase in the yield of assets during the quarter. Net interest income includes $1.8 million associated with the recognition of the unamortized discount on certain non-PCI loans which were paid in full prior to their contractual maturity resulting in a favorable impact to the net interest margin of 17 basis points during the second quarter of 2011.

Three months ended June 30, 2010

Net interest income was $831,000 for the three months ended June 30, 2010 and resulted from interest-bearing deposits in other banks.

Six months ended June 30, 2011

Net interest income was $72.0 million for the six months ended June 30, 2011 and included the effects of maintaining a high level of cash and highly liquid investment securities during the period. Net interest income includes $1.8 million associated with the recognition of the unamortized discount on certain non-PCI loans which were paid in full prior to their contractual maturity resulting in a favorable impact to the net interest margin of 9 basis points during the first half of 2011.

Six months ended June 30, 2010

Net interest income was $1.6 million for the six months ended June 30, 2010 and resulted from interest-bearing deposits in other banks.

Year ended December 31, 2010

Net interest income was $36.5 million for the year ended December 31, 2010 and included the effects of maintaining a high level of cash and highly liquid investment securities during the period.

Period from November 30, 2009 (Inception) to December 31, 2009

Net interest income was $72,000 for the period from inception through December 31, 2009 and resulted from interest-bearing deposits in other banks.

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Rate/Volume Analysis

The table below details the components of the changes in net interest income for second quarter of 2011 compared to the first quarter of 2011. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volumes and changes due to rates, with the changes in both volumes and rates allocated to these two categories based on the proportionate absolute changes in each category.

	Three Months Ended June 30, 2011 Compared to Three Months Ended March 31, 2011 Due to Changes in
(Dollars in thousands)	Average Volume			Average Rate			Net Increase (Decrease)
Interest income
Loans(1)(2)	$	6,352		$	(157	)	$	6,195
Investment securities(1)		1,294			541			1,835
Interest-bearing deposits in other banks		(173	)		51			(122	)
FHLB stock		(5	)		(25	)		(30	)
Federal funds sold		—			—			—
Total interest income	$	7,468		$	410		$	7,878
Interest expense
Time deposits	$	471		$	292		$	763
Money market		16			149			165
Negotiable order of withdrawal accounts		79			79			158
Savings deposits		39			—			39
Short-term borrowings and FHLB advances		(29	)		62			33
Long-term borrowings		294			(59	)		235
Total interest expense	$	870		$	523		$	1,393
Change in net interest income	$	6,598		$	(113	)	$	6,485

⁽¹⁾  Interest income includes the effects of a tax equivalent adjustment using applicable federal tax rates in adjusting tax exempt interest on tax exempt investment securities and loans to a fully taxable basis.

⁽²⁾  Average loan volumes include nonperforming loans which results in the impact of the non-accrual of interest being reflected in the change in average rate on loans.

We are unable to provide a rate and volume variance analyses in this discussion for periods other than the second quarter of 2011 compared to the first quarter of 2011 because there are no other comparable periods as our banking operations did not commence until July 16, 2010. Accordingly, there were no interest-earning assets other than cash and no interest-bearing liabilities during the three and six month period ending June 30, 2010 and the period from inception through December 31, 2009. Additionally, with respect to the comparison from inception through December 31, 2009 to the year ended December 31, 2010, as the periods required to be presented are of different lengths, such a rate and volume comparison would not be meaningful.

Provision for Loan Losses

Three months ended June 30, 2011

The provision for loan losses of $8.4 million recorded during the second quarter of 2011 reflects approximately $3.5 million related to additional impairment identified with respect to acquired impaired loans, $2.7 million related to acquired loans which were not considered impaired at the date of acquisition and $2.2 million related to the increase in the allowance for loan losses established for loans originated subsequent to acquisition. Of the $3.5 million related to acquired impaired loans, approximately $2.8 million, $561,000 and $117,000 resulted from the portfolios acquired through the Failed Banks, Old Capital Bank, and TIB Bank,

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respectively. Approximately $2.7 million of the provision recorded during the second quarter of 2011 related to acquired loans which were not considered impaired at the date of acquisition, of which $1.8 million, $600,000 and $350,000 was related to the FDIC Banks, TIB Bank and Old Capital Bank, respectively. As the Company is covered by an indemnification agreement from the FDIC for the majority of the acquired loans related to the FDIC Banks, an increase in the value of the indemnification asset of approximately $3.2 million was associated with the provision for loan losses required for covered loans during the quarter. This increase was recorded as additional FDIC indemnification asset accretion which is reflected as a component of non-interest income. The remaining $2.2 million of the provision for loan losses recorded during the quarter related primarily to the increase in the allowance for loan losses established for loans originated by the Company with new originations of approximately $183.6 million.

Loans acquired where there was evidence of credit deterioration since origination and where it was probable that the Company will not collect all contractually required principal and interest payments are aggregated in pools of loans with similar risk characteristics and accounted for as purchased credit-impaired (“PCI Loans”). Subsequent to acquisition, estimates of cash flows expected to be collected are updated each reporting period based on updated assumptions regarding default rates, loss severities, and other factors that are reflective of current market conditions. If the Company has probable decreases in the cash flows expected to be collected for a loan pool (other than due to decreases in interest rate indices), the Company charges the provision for loan losses, resulting in an increase in the allowance for loan losses. If the Company has probable and significant increases in cash flows expected to be collected for a loan pool, the Company will first reverse any previously established allowance for loan losses and then increase interest income as a prospective yield adjustment over the remaining life of the pool of loans. In the second quarter of 2011, in addition to the $3.5 million of additional impairment discussed above resulting from decreases in expected cash flows in certain pools, the Company estimated a $72.8 million increase in cash flows expected to be collected on its remaining PCI loan pools. This increase in expected cash flows will result in a prospective yield increase over the remaining life of the respective pools.

The table below illustrates the impact of our most recent estimates of expected cash flows on PCI loans:

					Weighted Average Prospective Yields
(Dollars in millions) Legacy Bank	Impairment		Increase in Accretable Yield		Based on Prior Estimates of Expected Cash Flows			Based on Most Recent Estimates of Expected Cash Flows
Capital Bank:
Loan pools with impairment	$	0.6	$	—		5.38	%		5.38	%
Loan pools with improvement		—		18.1		6.14	%		7.39	%
Capital Bank Total	$	0.6	$	18.1		6.02	%		7.08	%
TIB Bank:
Loan pools with impairment	$	0.1	$	—		5.75	%		5.75	%
Loan pools with improvement		—		11.1		5.40	%		6.49	%
TIB Bank Total	$	0.1	$	11.1		5.60	%		6.06	%
Failed Banks:
Loan pools with impairment	$	2.8	$	—		6.67	%		6.67	%
Loan pools with improvement		—		43.6		6.14	%		10.63	%
Failed Banks Total	$	2.8	$	43.6		6.17	%		10.41	%
Total	$	3.5	$	72.8		5.91	%		7.49	%

Six months ended June 30, 2011

The provision for loan losses of $10.0 million recorded during the first six months of 2011 reflects approximately $3.5 million related to additional impairment identified with respect to acquired impaired loans, $2.7 million related to acquired loans which were not considered impaired at the date of acquisition and $3.8

75

million related to the increase in the allowance for loan losses established for loans originated subsequent to acquisition. Of the $3.5 million related to acquired impaired loans, approximately $2.8 million, $561,000 and $117,000 resulted from the portfolios acquired through the Failed Banks, Old Capital Bank, and TIB Bank, respectively. Approximately $2.7 million of the provision recorded during 2011 related to acquired loans which were not considered impaired at the date of acquisition, of which $1.8 million, $600,000 and $350,000 was related to the FDIC Banks, TIB Bank and Old Capital Bank, respectively. As the Company is covered by an indemnification agreement from the FDIC for the majority of the acquired loans related to the FDIC Banks, an increase in the value of the indemnification asset of approximately $3.2 million was associated with the provision for loan losses required for covered loans during 2011. This increase was recorded as additional FDIC indemnification asset accretion which is reflected as a component of non-interest income. The remaining $3.8 million of the provision for loan losses recorded during 2011 related primarily to the increase in the allowance for loan losses established for loans originated by the Company as new originations approximated $354.1 million during 2011.

Year ended December 31, 2010

The provision for loan losses of $753,000 during 2010 was related to new loan production. During 2010, the legacy portfolio of purchased credit impaired loans performed within expectations and we did not accrue any provision for loan losses associated with loans we acquired in our acquisitions.

Non-interest Income

Non-interest income increased from $4.5 million in the first quarter of 2011 to $7.9 million in the second quarter of 2011. The increase was attributable to the inclusion of a full quarter of results from Capital Bank Corp and additional accretion on the indemnification asset as discussed below. The following table sets forth the components of non-interest income for the periods indicated:

(Dollars in thousands)	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010		Six Months Ended June 30, 2011		Six Months Ended June 30, 2010		Year Ended December 31, 2010		Period From November 30, 2009 (Inception) Through December 31, 2009
Accretion on FDIC indemnification asset	$	2,540	$	—	$	2,858	$	—	$	736	$	—
Service charges on deposit accounts		2,152		—		4,065		—		1,992		—
Debit card income		1,036		—		1,811		—		382		—
Fees on mortgage loans sold		649		—		1,180		—		449		—
Investment advisory and trust fees		413		—		800		—		354		—
Earnings on bank owned life insurance policies		240		—		361		—		110		—
Brokerage fees		212		—		309		—		—		—
Wire transfer fees		156		—		282		—		51		—
Investment securities gains (losses), net		75		—		18		—		—		—
Bargain purchase gain		—		—		—		—		15,175		—
Other		426		—		716		—		366		—
Total non-interest income	$	7,899	$	—	$	12,400	$	—	$	19,615	$	—

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As the Company is covered by an indemnification agreement from the FDIC for the majority of the loans acquired related to the FDIC Banks, an increase in the value of the indemnification asset of approximately $3.2 million was associated with the provision for loan losses required for covered loans during the quarter ended June 30, 2011. This increase was recorded as additional FDIC indemnification asset accretion which is reflected as a component of non-interest income, offset set by prepayments of acquired non-impaired loans of approximately $1.0 million.

We generated no non-interest income during the period from November 30, 2009 through December 31, 2009, because we had not yet commenced banking activities. During the year ended December 31, 2010, bargain purchase gains of $15.2 million were recorded resulting from the acquisitions of Metro Bank and Turnberry Bank.

Non-interest Expense

Non-interest expense increased from $35.0 million in the first quarter of 2011 to $37.4 million in the second quarter of 2011 due to the inclusion of a full quarter of results from Capital Bank Corp partially offset by reduction in conversion costs. The following table sets forth the components of non-interest expense for the periods indicated:

	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010		Six Months Ended June  30, 2011		Six Months Ended June  30, 2010		Year Ended December 31, 2010		Period From November 30, 2009 (Inception) Through December 31, 2009
Salary and employee benefits	$	19,257	$	832	$	34,350	$	1,683	$	17,229	$	—
Net occupancy expense		6,312		50		11,650		65		4,629		—
Accounting, legal and other professional		1,809		1,523		4,069		1,525		9,511		—
Foreclosed asset related expense		1,666		—		2,844		—		701		—
Computer services		1,386		—		2,323		—		2,098		—
FDIC and state assessments		1,186		—		3,319		—		2,097		—
Amortization of intangibles		1,146		—		1,957		—		818		—
Conversion related expenses		1,012		—		4,749		—		1,991		—
Insurance, non-building		551		7		1,060		8		640		—
Postage, courier and armored car		506		—		936		—		460		—
Operating supplies		351		—		775		—		289		—
Marketing and community relations		344		—		908		—		498		—
Organizational expense		—		—		—		2,100		2,100		91
Other operating expense		1,914		189		3,540		334		1,316		—
Total non-interest expense	$	37,440	$	2,601	$	72,480	$	5,715	$	44,377	$	91

Non-interest expense was $37.4 million for the three months ended June 30, 2011 which included a full three months of operations of Capital Bank which was acquired on January 28, 2011. Approximately $1.0 million in expense was related to the conversion and integration of the Company’s operations onto a common technology platform in the second quarter of 2011.

Non-interest expense was $72.5 million for the six months ended June 30, 2011 which included a full five months of operations of Capital Bank which was acquired on January 28, 2011. Conversion related expenses of

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$4.7 million were related to $3.7 million of accruals for the early termination of certain information technology system related contracts and $1.0 of expense related to the conversion of the Company’s operations onto a common technology platform in the second quarter of 2011.

During the three months ended June 30, 2010, non-interest expense of $2.6 million was primarily composed of salaries and professional fees. Non-interest expense of $5.7 million for the six months ended June 30, 2010 included $2.1 million in organizational expenses.

We monitor the ratio of non-interest expense to net revenues (net interest income plus non-interest income), which is commonly known as the efficiency ratio. For the three and six months ended June 30, 2011, our efficiency ratio was approximately 79.6% and 85.9%. The efficiency ratio was significantly impacted by expenses associated with the early termination of information systems contracts, conversion costs and legal fees related to the acquisition of Capital Bank Corp. totaling $1.0 million and $5.4 million during the three and six months ended June 30, 2011. Excluding these accruals, the efficiency ratio would have been approximately 77.4% and 79.5% for the three and six months ended June 30, 2011.

Income Taxes

The provision for income taxes includes federal and state income taxes. Fluctuations in effective tax rates reflect the effect of the differences in the inclusion or deductibility of certain income and expenses, respectively, for income tax purposes. At June 30, 2011, we had a deferred tax asset of $64.9 million, which principally reflects the tax effect of the acquisition accounting adjustments made in connection with each of the acquisitions, subject to the limits of Section 382 of the Internal Revenue Code of 1986, as amended (which we refer to as the “Internal Revenue Code”), which determines our ability to preserve the tax benefits of existing net operating losses and built-in losses in a change of control.

Our future effective income tax rate will fluctuate based on the mix of taxable and tax-free investments we make and our overall level of taxable income. See the notes to our consolidated financial statements for additional information about the calculation of income tax expense and the various components thereof. Additionally, there were no unrecognized tax benefits at June 30, 2011, December 31, 2010 and 2009, and we do not expect the total of unrecognized tax benefits to significantly increase in the next 12 months.

Three and six months ended June 30, 2011

The provision for income taxes was $187,000 and $592,000 for the three and six months ended June 30, 2011. The effective income tax rates were approximately 16% and 31% for the three and six months ended June 30, 2011, respectively. As we operated at near breakeven levels during the first and second quarters of 2011, changes in our operations and amounts not included or deducted in arriving at taxable income during these periods caused significant variances on our expected effective tax rate for the year. Accordingly the provision for income taxes recorded during the second quarter of 2011 was lower than that recorded for the first quarter of 2011 as we recorded the provision for income taxes for the six months ended June 30, 2011 that was consistent with our most recent expectations of the effective income tax rates applicable for 2011.

Three and six months ended June 30, 2010

The income taxes benefit was $748,000 and $1.8 million for the three and six months ended June 30, 2010. The effective income tax rates were 42% for the three and six months ended June 30, 2010.

Year ended December 31, 2010 and the period from November 30, 2009 (inception) to December 31, 2009

The effective income tax rates for the year ended December 31, 2010 and the period from inception through December 31, 2009 were (9%) and 35%, respectively. A tax benefit was recorded during the year ended

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December 31, 2010 primarily due to $15.2 million in gains on the acquisitions of Metro Bank and Turnberry Bank which are not included in taxable income. Accordingly, the tax benefit recorded during the period was calculated excluding these gains and based upon the resulting consolidated loss, for tax purposes.

Net Income

Three months ended June 30, 2011

For the three months ended June 30, 2011, our net income of $720,000 or $0.02 basic and diluted net income per common share represented a ROA of 0.06% and a ROE of 0.31%. Net income includes a deduction of $1.0 million of expense related to the conversion of the Company’s operations onto a common technology platform in the second quarter of 2011. Net income also includes additional accretion on the FDIC indemnification asset of approximately $2.2 million due to unfavorable changes in estimated cash flows for certain pools of PCI loans and losses incurred in excess of unamortized discounts on certain covered non-PCI loans, partially offset by the impact of the payoff of certain covered non-PCI loans prior to maturity. Net interest income of $39.1 million and non-interest income of $7.9 million were partially offset by the provision for loan losses of $8.4 million and non-interest expense of $37.4 million.

Three months ended June 30, 2010

We reported a net loss of $1.0 million for the three months ended June 30, 2010, or basic and diluted net loss per share of $0.03 represented a ROA of (0.62)% and a ROE of (0.69)%. Net interest income of $831,000 consisted of earnings on capital raised through private placements in December 2009 and January 2010, which was temporarily invested in interest-bearing deposits with other financial institutions. Non-interest expense of $2.6 million was primarily related to organizational expenses.

Six months ended June 30, 2011

For the six months ended June 30, 2011, our net income of $1.1 million or $0.02 basic and diluted net income per common share represented a ROA of 0.05% and a ROE of 0.24%. Our equity to assets ratio was 19.53%. Net income includes a deduction for an accrual of $3.7 million for the early termination of certain information technology system related contracts and $1.0 of expense related to the conversion of the Company’s operations onto a common technology platform in the second quarter of 2011 and acquisition-related legal costs of $750,000 (which are not tax-deductible). Offsetting this decrease was additional accretion on the indemnification asset of $2.2 million due to an unfavorable change in loss estimates. Net interest income of $72.0 million and non-interest income of $12.4 million were partially offset by the provision for loan losses of $10.0 million and non-interest expense of $72.5 million.

Six months ended June 30, 2010

We reported a net loss of $2.4 million for the six months ended June 30, 2010 or basic and diluted net loss per common share of $0.08 represented a ROA of (0.77)% and a ROE of (0.80)%. Net interest income of $1.6 million consisted of earnings on capital raised through private placements in December 2009 and January 2010, which was temporarily invested in interest-bearing deposits with other financial institutions. Non-interest expense of $5.7 million was primarily related to organizational expenses, salaries and professional fees.

Year ended December 31, 2010

We reported net income of $12.0 million for the year ended December 31, 2010, which equated to a ROA of 0.76%, a ROE of 1.67% and a basic and diluted net income per common share of $0.31. Our equity to assets ratio was 25.0%. Net interest income of $36.5 million and non-interest income of $19.7 million was partially offset by the provision for loan losses of $753,000 and non-interest expense of $44.4 million. Non-interest income

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reported during 2010 included $15.2 million related to a gain on the acquisitions of Metro Bank and Turnberry Bank. The provision for loan losses recorded reflects the allowance for loan losses established for loans originated subsequent to the acquisition of our banking subsidiaries. No net charge-offs or losses on the disposition of other real estate owned were recorded as credit losses experienced were incorporated in the acquisition accounting adjustments to record loans and other real estate at fair value on the dates of acquisition.

Period from November 30, 2009 (inception) to December 31, 2009

The net loss for the period from inception to December 31, 2009 was $92,000 or basic and diluted loss per common share was $0.01. Our operations during the year ended December 31, 2009 were limited to organizational matters and activities relating to the completion of our original private offerings.

Financial Condition

Our assets totaled $4.9 billion and $3.5 billion at June 30, 2011 and December 31, 2010, respectively. Total loans at June 30, 2011 and December 31, 2010 were $3.0 billion and $1.7 billion, respectively. Total deposits were $3.5 billion and $2.3 billion at June 30, 2011 and December 31, 2010, respectively. Borrowed funds, consisting of Federal Home Loan Bank (FHLB) advances, short-term borrowings, notes payable and subordinated debentures, totaled $378.4 million and $327.9 million at June 30, 2011 and December 31, 2010, respectively. The increases in total assets, loans, deposits and borrowings during the six months ended June 30, 2011 were primarily due to the acquisition of Capital Bank Corp. The increases in these items during 2010 were primarily due to the acquisitions of the Failed Banks and TIB Financial.

Shareholders’ equity was $951.7 million, $881.2 million and $526.3 million at June 30, 2011, December 31, 2010 and December 31, 2009, respectively. The increase in shareholders’ equity during the first six months of June 30, 2011 was primarily due to the noncontrolling interest originating from the acquisition of Capital Bank Corp. and the completions of shareholders’ rights offerings to legacy shareholders of Capital Bank Corp. and TIB Financial. The increase in shareholders’ equity during 2010 was primarily due to private placements of common stock resulting in net proceeds of $339.7 million.

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Loans

Our loan portfolio is our primary earning asset. Our strategy is to grow the loan portfolio by originating commercial and consumer loans that we believe to be high-quality, that comply with our conservative credit policies and that produce revenues consistent with our financial objectives. Additionally, we are working to reduce excessive concentrations in commercial real estate loans, which were the predominate portion of the acquisitions’ legacy portfolios, in order to achieve a more diversified portfolio mix.

The following table sets forth the unpaid principal balance of our loan portfolio:

(Dollars in thousands)	As of June 30, 2011					As of December 31, 2010					Sequential Change
Loan Type	Amount		Percent			Amount		Percent			Amount		Percent
Non-owner occupied commercial real estate	$	730,133		24.3	%	$	500,470		28.8	%	$	229,663		45.9	%
Other commercial C&D		290,647		9.7	%		113,681		6.5	%		176,966		155.7	%
Multifamily commercial real estate		88,845		3.0	%		56,105		3.2	%		32,740		58.4	%
1-4 family residential C&D		72,277		2.4	%		16,341		0.9	%		55,936		342.3	%
Total commercial real estate	$	1,181,902		39.4	%	$	686,597		39.4	%	$	495,305		72.1	%
Owner occupied commercial real estate		628,947		20.9	%		347,741		20.0	%		281,206		80.9	%
Commercial and industrial		263,745		8.8	%		94,302		5.4	%		169,443		179.7	%
Total commercial	$	892,692		29.7	%	$	442,043		25.4	%	$	450,649		101.9	%
1-4 family residential		575,846		19.2	%		422,057		24.2	%		153,789		36.4	%
Home equity		229,367		7.6	%		119,039		6.8	%		110,328		92.7	%
Consumer		60,263		2.0	%		43,054		2.5	%		17,209		40.0	%
Total consumer	$	865,476		28.8	%	$	584,150		33.5	%	$	281,326		48.2	%
Other		63,883		2.1	%		29,957		1.7	%		33,926		113.2	%
Total	$	3,003,953		100.0	%	$	1,742,747		100.0	%	$	1,261,206		72.4	%

During the first six months of 2011, our loan portfolio increased by $1.3 billion due to the acquisition of Capital Bank Corp. and new loan originations of $354.1 million. While the change in the composition of the loan portfolio between December 31, 2010 and June 30, 2011 was most significantly impacted by the acquisition of Capital Bank, the composition of new loan production is indicative of our business strategy of emphasizing commercial and industrial and consumer loans and reducing our overall concentration of commercial real estate loans. As illustrated in greater detail in the table below, commercial and industrial loans and consumer and other loans represented approximately 59% and 25%, respectively, of new loan originations during the six months ended June 30, 2011. We expect that this production emphasis which resulted in nearly 85% of our new loan production in categories other than commercial real estate, along with normal runoff of the legacy portfolios, will, over time, lead to the reduction of our concentration in commercial real estate loans which represented approximately 39% of the outstanding balance of the loan portfolio at June 30, 2011 and December 31, 2010.

Commercial loan production during the first six months of 2011 rose to $208.7 million, from $16.0 million in the fourth quarter of 2010, as we implemented the NAFH line of business model at the acquisitions. As a result of stronger volumes, commercial loans made up approximately one-half of our new loan originations during the first six months of 2011, while commercial real estate loans were 16% of our new loan originations, consistent with our plans to reduce concentrations in this category.

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The following table sets forth our new loan origination (excluding renewals of existing loans) segmented by loan type:

(Dollars in millions)	Three months ended June 30, 2011					Three months ended March 31, 2011					Three months ended December 31, 2010					Six months ended June 30, 2011
Loan Type	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
Non-owner occupied commercial real estate	$	19.1		10.4	%	$	13.0		7.6	%	$	5.8		11.0	%	$	32.1		9.1	%
Other commercial C&D		7.0		3.8	%		3.7		2.2	%		3.6		6.8	%		10.7		3.0	%
Multifamily commercial real estate		0.5		0.3	%		—		—			—		—			0.5		0.1	%
1-4 family residential C&D		5.7		3.1	%		9.2		5.4	%		1.1		2.1	%		14.9		4.2	%
Total commercial real estate	$	32.3		17.6	%	$	25.9		15.2	%	$	10.5		19.9	%	$	58.2		16.4	%
Owner occupied commercial real estate		88.6		48.2	%		45.0		26.4	%		6.5		12.2	%		133.6		37.7	%
Commercial and industrial		37.2		20.3	%		37.9		22.2	%		9.5		18.0	%		75.1		21.2	%
Total commercial	$	125.8		68.5	%	$	82.9		48.6	%	$	16.0		30.2	%	$	208.7		58.9	%
1-4 family residential		13.2		7.2	%		37.0		21.7	%		15.7		29.6	%		50.2		14.2	%
Home equity		2.0		1.1	%		3.6		2.1	%		3.1		5.9	%		5.6		1.6	%
Consumer		7.6		4.1	%		16.5		9.7	%		7.5		14.2	%		24.1		6.8	%
Total consumer	$	22.8		12.4	%	$	57.1		33.5	%	$	26.3		49.7	%	$	79.9		22.6	%
Other		2.7		1.5	%		4.6		2.7	%		0.1		0.2	%		7.3		2.1	%
Total	$	183.6		100.0	%	$	170.5		100.0	%	$	52.9		100.0	%	$	354.1		100.0	%

Southeast Florida loan origination increased in the first six months of 2011 as we selectively hired new commercial loan officers and credit analysts. South Carolina loan origination also benefited from improved results in commercial lending, while Southwest Florida benefited from residential mortgage and indirect auto loan volumes. Loan originations were steady in North Carolina as we closed the investment in Capital Bank Corp. and reorganized the management team during the first quarter of 2011. Southwest Florida, Southeast Florida, South Carolina and North Carolina accounted for 17.2% and 25.6%, 16.6% and 18.7%, 37.3% and 33.9% and 28.9% and 21.7%, of our new loan originations for the three and six months ended June 30, 2011, respectively.

We underwrite commercial real estate loans based on the value of the collateral, the ratio of debt service to property income and the creditworthiness of tenants. Due to the inherent risk of commercial real estate lending, we underwrite loans selectively, with the goal of reducing the concentration in our portfolio over time.

We follow a conservative approach to underwriting commercial loans, which is based on the cash flows of the underlying business and the value of collateral securing the loan. During the first six months of 2011, we originated commercial loans from a variety of businesses. The industry groups in which we originated the most loans in the first six months of 2011 were real estate (including rental and leasing), retail trade, health care and social assistance, manufacturing, utilities and arts and recreation which accounted for 13.4%, 12.7%, 12.4%, 6.5%, 6.1% and 5.7% of new originations, respectively.

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We underwrite consumer loans to conservative standards, including FICO score, loan-to-value ratio and loan term, among other factors. We do not generally offer loans to consumers with FICO scores below 660. Our HELOC loans include both first and non-first lien loans. The following table indicates how our loan originations during the first six months of 2011 tracked to two key metrics—FICO scores and loan-to-value ratios—used in underwriting consumer loans:

	Originations ($)		FICO								LTV									Average Term (Months)
Type			Average		%680-660			%<660			Average			%80-90			%>90%
1-4 family residential		49.2		756.8		1.1	%		0.9	%		70.8	%		12.4	%		12.3	%		264.6
Auto		20.5		747.7		5.6	%		0.0	%		106.6	%		7.7	%		81.1	%		69.4
HELOC/Other		8.0		713.2		8.5	%		11.7	%		79.2	%		7.0	%		41.9	%		90.1
Total		77.7		749.9		3.0	%		1.8	%		82.4	%		10.5	%		35.9	%		189.1

Note: Auto loan LTVs are based on NADA Clean Trade value for used vehicles and Dealer Invoice for new vehicles.

The contractual maturity distribution of our loan portfolio as of June 30, 2011 are indicated in the tables below. The majority of these are amortizing loans.

	Loans Maturing (As of June 30, 2011)
(Dollars in thousands)	Within One Year		One to Five Years		After Five Years		Total
Non-owner occupied commercial real estate	$	90,229	$	400,621	$	239,283	$	730,133
Other commercial C&D		116,455		161,644		12,548		290,647
Multifamily commercial real estate		11,343		54,840		22,662		88,845
1-4 family residential C&D		9,556		53,519		9,202		72,277
Total commercial real estate	$	227,583	$	670,624	$	283,695	$	1,181,902
Owner occupied commercial real estate		56,396		245,736		326,815		628,947
Commercial and industrial		42,876		142,441		78,428		263,745
Total commercial	$	99,272	$	388,177	$	405,243	$	892,692
1-4 family residential		46,366		103,618		425,862		575,846
Home equity		12,139		51,946		165,282		229,367
Consumer		3,879		30,396		25,988		60,263
Total consumer	$	62,384	$	185,960	$	617,132	$	865,476
Other		4,499		16,487		42,897		63,883
Total	$	393,738	$	1,261,248	$	1,348,967	$	3,003,953

	Loans Maturing (As of June 30, 2011)
(Dollars in thousands)	Within One Year		One to Five Years		After Five Years		Total
Loans with:
Predetermined interest rates	$	135,707	$	528,346	$	428,641	$	1,092,694
Floating or adjustable rates		258,031		732,902		920,326		1,911,259
Total loans	$	393,738	$	1,261,248	$	1,348,967	$	3,003,953

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Asset Quality

Consistent with our strategy of operating with a sound risk profile, we have focused on originating loans we believe to be of high quality, disposing of nonperforming assets as rapidly as possible, and reducing the size of our legacy commercial real estate loan portfolio. To achieve these objectives, we underwrite new loans and manage existing loans in accordance with our underwriting standards under the direction of our chief risk officer. Additionally, we have assigned senior credit officers to oversee the Florida and Carolinas markets, and we have established a special assets division to dispose of legacy problem loans and OREO.

We refer to our loans covered under loss sharing agreements with the FDIC as “covered loans.” These are the legacy loans of Metro Bank, Turnberry Bank, and First National Bank that are covered by FDIC loss sharing agreements that reimburse us for 80% of net charge-offs and OREO losses over a five-year period for commercial loans and a ten-year period for residential loans. We refer to all other loans as “non-covered loans.” These are loans we originate, loans acquired through the acquisitions of Capital Bank and TIB Bank and certain consumer loans of the Failed Banks that we acquired, which are not covered by any loss sharing agreement.

Covered Loans

As of June 30, 2011, covered loans were $621.9 million, representing 20.7% of our loan portfolio. Also as of June 30, 2011, the covered loans were 2.9% past due 30-89 days, 20.6% greater than 90 days past due and still accruing/accreting and 0.6% nonaccrual, reflecting the severity of the real estate downturn and the excessive concentrations in commercial real estate and poor quality underwriting that characterized these banks under their prior business models. We have recorded these loans at estimated fair value reflecting expected lifetime losses estimated as of the respective acquisition dates. Projected reimbursements from the FDIC relating to projected future losses on covered loans are recorded as the FDIC indemnification asset, which was $72.7 million as of June 30, 2011. Actual claims for reimbursement filed with the FDIC for incurred losses on covered loans were $19.2 million at June 30, 2011.

We manage credit risk associated with loans covered under loss sharing agreements in the same manner as credit risk associated with non-covered loans. This includes following consistent policies and procedures relating to the process of working with borrowers in efforts to resolve problem loans resulting in the lowest losses possible and collection including foreclosure, repossession and the ultimate liquidation of any applicable underlying collateral. The loss sharing agreements also contain certain restrictions and conditions which, among other things, provide that certain credit risk management strategies like loan sales, under certain conditions, could be prohibited under the agreements and may lead to the termination of coverage of any applicable losses on the related loans. Accordingly, actions taken by management in the process of prudently managing credit risk and borrower relationships, including, but not limited to, the renewal of covered loans for periods extending beyond the expiration of the applicable loss sharing agreement, the extension of additional credit or the making of certain modifications of loan terms, can lead to the termination of coverage under the loss sharing agreements for these particular loans. Additionally, the loss sharing agreements limit coverage to ten years for residential loans and five years for other covered loans.

Collection of loss claims under the loss sharing agreements requires extensive and specific recordkeeping and incremental monthly and quarterly reporting to the FDIC on the status of covered loans. The loss claims filed and the related reporting on covered loans to the FDIC are subject to review and approval by the FDIC and various subcontractors utilized by the FDIC. The requirements for such reporting and interpretations thereof are occasionally revised by the FDIC and its subcontractors. Such changes along with our ability to comply with the requirements and revisions require interpretation and can lead to delays in the collection of claims on losses incurred. Claims filed by us for losses realized through June 30, 2011, totaling $58.2 million, had been collected from the FDIC. Additionally, the loss sharing agreements provide for regular examination of compliance with loss sharing agreements including independent reviews of relevant policies and procedures and detailed audits of claims filed. Noncompliance with the provisions of the loss sharing agreements can lead to termination of the agreements.

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Non-Covered Loans

As of June 30, 2011, non-covered loans were $2.4 billion, representing 79.3% of our loan portfolio. Also as of June 30, 2011, our non-covered loans were 1.3% past due 30-89 days and 7.7% greater than 90 days past due and still accruing/accreting. These loans have also been affected by the real estate downturn and excessive commercial real estate concentrations. However, the credit quality of these loans is generally higher than that of the covered loans. In connection with the acquisitions, we applied acquisition accounting adjustments to the non-covered loans not originated by us to reflect estimates at the time of acquisition of the expected lifetime losses of such loans.

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Covered and Non-Covered Loan Credit Quality Summary

The table below summarizes key loan credit quality indicators for covered and non-covered loan portfolios as of the dates indicated:

	As of June 30, 2011											As of December 31, 2010
(Dollars in millions)	Portfolio Balance		% 30-89 Days Past Due			% Greater Than 90 Days Past Due and Accruing/ Accreting			Non Accrual Loans			Portfolio Balance		% 30-89 Days Past Due			% Greater Than 90 Days Past Due and Accruing/ Accreting
Covered Portfolio
Non-owner occupied commercial real estate	$	141.6		2.9	%		21.2	%		0.0	%	$	172.0		4.2	%		16.8	%
Other commercial C&D		63.0		1.6	%		60.6	%		0.0	%		81.2		7.4	%		55.6	%
Multifamily		25.6		0.5	%		21.3	%		0.0	%		30.4		0.2	%		30.7	%
1-4 family residential C&D		3.5		0.0	%		91.3	%		0.0	%		7.9		0.0	%		75.6	%
Total commercial real estate	$	233.7		2.2	%		32.9	%		0.0	%	$	291.5		4.6	%		30.6	%
Owner occupied commercial real estate		123.4		2.7	%		12.7	%		0.0	%		129.2		7.7	%		9.8	%
Commercial & Industrial		27.2		3.1	%		7.8	%		0.0	%		33.4		3.9	%		5.7	%
Total commercial	$	150.6		2.8	%		11.8	%		0.0	%	$	162.6		6.9	%		9.0	%
1-4 family residential		139.6		3.2	%		19.1	%		0.0	%		153.4		3.4	%		12.6	%
Home equity		91.1		2.9	%		2.7	%		4.2	%		79.4		3.4	%		11.6	%
Consumer		0.1		0.0	%		0.0	%		0.0	%		0.1		0.0	%		0.0	%
Total consumer	$	230.8		3.1	%		12.6	%		1.6	%	$	232.9		3.4	%		12.3	%
Other		6.8		19.2	%		62.1	%		0.0	%		9.2		3.4	%		51.6	%
Total covered	$	621.9		2.9	%		20.6	%		0.6	%	$	696.2		4.7	%		19.7	%
Non-covered Portfolio
Non-owner occupied commercial real estate		588.5		0.3	%		7.6	%		0.0	%		328.4		2.7	%		3.3	%
Other commercial C&D		227.6		5.8	%		26.1	%		0.0	%		32.5		5.5	%		25.3	%
Multifamily		63.3		0.0	%		1.7	%		0.0	%		25.7		0.0	%		0.0	%
1-4 family residential C&D		68.8		1.4	%		5.9	%		0.0	%		8.5		0.0	%		0.0	%
Total commercial real estate	$	948.2		1.7	%		11.5	%		0.0	%	$	395.1		2.7	%		4.8	%
Owner occupied commercial real estate		505.6		0.8	%		6.8	%		0.0	%		218.5		1.0	%		10.4	%
Commercial and industrial		236.5		1.3	%		7.8	%		0.0	%		60.9		2.4	%		0.7	%
Total commercial	$	742.1		1.0	%		7.1	%		0.0	%	$	279.4		1.3	%		8.2	%
1-4 family residential		436.3		1.4	%		3.8	%		0.0	%		268.7		0.6	%		4.4	%
Home equity		138.3		0.7	%		1.3	%		0.6	%		39.6		1.4	%		2.4	%
Consumer		60.1		1.0	%		0.6	%		0.0	%		42.9		2.6	%		0.9	%
Total consumer	$	634.7		1.2	%		3.0	%		0.1	%	$	351.2		0.9	%		3.8	%
Other		57.0		0.4	%		2.2	%		0.0	%		20.8		0.8	%		5.9	%
Total non-covered	$	2,382.0		1.3	%		7.7	%		0.0	%	$	1,046.5		1.7	%		5.4	%
Total	$	3,003.9		1.6	%		10.3	%		0.2	%	$	1,742.7		2.9	%		11.1	%

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Due to the required accounting for purchased credit impaired (which we refer to as “PCI”) loans described above, loans designated as such that would otherwise have met our established criteria for being placed on nonaccrual are generally referred to in our consolidated financial statements, and in discussion herein, as past due greater than 90 days and still accruing/accreting. These loans are included in the disclosures of nonperforming loans as they are not performing in accordance with the contractual terms of the underlying loan agreements. Nonperforming loans also include acquired loans which were not designated as purchased credit impaired loans but have become severely delinquent (in excess of 90 days), but are well secured and in the process of collection. As of December 31, 2010, no loans originated by us met the criteria required for classification as nonaccrual.

Of the loans past due greater than 90 days and still in accruing/accreting status as of June 30, 2011, $131.9 million (or approximately 42%) were loans covered by loss sharing agreements with the FDIC. All of these loans were acquired loans and such loans were either purchased credit impaired loans or, based upon their recorded investment, were considered well secured and in the process of collection and met the criteria for reporting as 90 days past due and still accruing.

Six months ended June 30, 2011

Total non-performing loans as of June 30, 2011 were $315.1 million. The change in non-performing loans during the six months ended June 30, 2011 was attributable to $44.3 million in additional non-performing loans acquired through the acquisition of Capital Bank Corp. as well as $164.7 million of loans that became non-performing. Partially offsetting these increases were $87.7 million in transfers to other real estate owned through foreclosures or receipt of deeds in lieu of foreclosures and other reductions.

During the six months ended June 30, 2011, we foreclosed, or received deeds in lieu of foreclosure, on $33.5 million in loans, of which approximately 56% consisted of commercial real estate loans and approximately 24% and 28% were associated with the covered loans in Southeast Florida and South Carolina, respectively. Of the loans transferred to other real estate owned during the period, 52% were covered by loss sharing agreements.

Sales of other real estate owned were $39.9 million during the six months ended June 30, 2011. Approximately 50% of the sales were commercial real estate loans, and approximately 14% and 19% were associated with the covered loans in Southeast Florida and South Carolina, respectively. Loss sharing agreements covered 33% of these sales.

In connection with the acquisitions, we recorded the acquired loan portfolios at estimated fair value by projecting expected lifetime cash flows, taking into account our expectations for default and recovery, then discounting those cash flows to fair value based on current market yields for similar loans. The fair value adjustments reflect our judgments and estimates based on due diligence performed on the acquired portfolios and consideration of procedures performed by third-party independent valuation professionals.

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The customer owed balances and carrying amounts as of June 30, 2011 (which includes all amounts contractually owed by borrowers) set forth in the table below:

(Dollars in millions)
Loan Type	Gross Customer Balance Owed June 30, 2011		Carrying Amount June 30, 2011		Carrying Amount as a Percentage of Customer Balance			Carrying Amount of Noncurrent Loans(1)		Carrying Amount of Noncurrent Loans as a Percentage of Carrying Amount
Covered Portfolio
Non-owner occupied commercial real estate	$	182.6	$	141.6		77.5	%	$	34.1		24.1	%
Other commercial C&D		110.1		63.0		57.3	%		39.2		62.2	%
Multifamily		35.8		25.6		71.4	%		5.6		21.8	%
1-4 family residential C&D		7.2		3.5		48.6	%		3.2		91.3	%
Total commercial real estate	$	335.7	$	233.7		69.6	%	$	82.1		35.1	%
Owner occupied commercial real estate	$	140.4	$	123.4		87.8	%	$	18.9		15.4	%
Commercial and industrial		35.6		27.2		76.6	%		3.0		10.9	%
Total commercial	$	176.0	$	150.6		85.6	%	$	21.9		14.6	%
1-4 family residential	$	164.4	$	139.6		84.9	%	$	31.1		22.3	%
Home equity		97.5		91.1		93.4	%		8.9		9.8	%
Consumer		0.2		0.1		94.3	%		—		0.0	%
Total consumer	$	262.1	$	230.8		88.1	%	$	40.0		17.3	%
Other		14.7		6.8		46.3	%		5.5		81.2	%
Total covered	$	788.5	$	621.9		78.9	%	$	149.5		24.0	%
Covered discount to customer balance owed			$	166.6
Non-Covered Portfolio
Non-owner occupied commercial real estate	$	625.0	$	588.5		94.2	%	$	46.5		7.9	%
Other commercial C&D		308.8		227.6		73.7	%		72.6		31.9	%
Multifamily		65.5		63.3		96.6	%		1.1		1.7	%
1-4 family residential C&D		71.1		68.8		96.7	%		5.0		7.3	%
Total commercial real estate	$	1,070.4	$	948.2		88.6	%	$	125.2		13.2	%
Owner occupied commercial real estate	$	541.9	$	505.6		93.3	%	$	38.5		7.6	%
Commercial and industrial		259.7		236.5		91.1	%		21.4		9.0	%
Total commercial	$	801.6	$	742.1		92.6	%	$	59.9		8.1	%
1-4 family residential	$	466.2	$	436.3		93.6	%	$	23.0		5.3	%
Home equity		138.3		138.3		100.0	%		3.6		2.6	%
Consumer		63.1		60.1		95.0	%		0.9		1.6	%
Total consumer	$	667.6	$	634.7		95.1	%	$	27.5		4.3	%
Other		58.4		57.0		97.7	%		1.5		2.6	%
Total non-covered	$	2,598.0	$	2,382.0		91.7	%	$	214.1		9.0	%
Non-Covered discount to customer balance owed			$	216.0

⁽¹⁾ Includes loans greater than 30 days past due.

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We regularly reassess the performance of the legacy portfolios by comparing actual to expected cash flows for a number of pools of similar loans. For those pools which exhibit performance below expectations, we record a provision to establish or increase an allowance for losses. For loan pools that perform above expectations, we record an increase in accretable yield, which is then amortized into net income as an increase in net interest income over the remaining life of the pool.

The following is a summary of the purchased credit impaired and non purchased credit impaired covered loans outstanding as of June 30, 2011:

June 30, 2011	PCI Loans		Non PCI Loans		Total Covered Loans
Non-owner occupied commercial real estate	$	141,590	$	—	$	141,590
Other commercial C&D		63,037		—		63,037
Multifamily commercial real estate		25,592		—		25,592
1-4 family residential C&D		3,518		—		3,518
Total commercial real estate		233,737		—		233,737
Owner occupied commercial real estate		123,349		—		123,349
Commercial and industrial		26,613		635		27,248
Total commercial		149,962		635		150,597
1-4 family residential		139,569		—		139,569
Home Equity		20,509		70,558		91,067
Consumer		166		—		166
Total consumer		160,244		70,558		230,802
Other		6,795		—		6,795
Total	$	550,738	$	71,193	$	621,931

The following is a summary of the purchased credit impaired and non purchased credit impaired non-covered originated and acquired loans outstanding as of June 30, 2011:

June 30, 2011	PCI Loans		Non PCI Originated Loans		Non PCI Acquired Loans		Total Noncovered Loans
Non-owner occupied commercial real estate	$	549,773	$	38,645	$	125	$	588,543
Other commercial C&D		211,339		16,271		—		227,610
Multifamily commercial real estate		62,656		597		—		63,253
1-4 family residential C&D		50,343		18,293		123		68,759
Total commercial real estate		874,111		73,806		248		948,165
Owner occupied commercial real estate		350,215		155,051		332		505,598
Commercial and industrial		148,762		84,255		3,480		236,497
Total commercial		498,977		239,306		3,812		742,095
1-4 family residential		379,694		56,416		167		436,277
Home Equity		24,167		14,481		99,652		138,300
Consumer		25,926		30,260		3,911		60,097
Total consumer		429,787		101,157		103,730		634,674
Other		49,195		7,887		6		57,088
Total	$	1,852,070	$	422,156	$	107,796	$	2,382,022

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Year ended December 31, 2010

Total non-performing loans as of December 31, 2010 were $193.8 million. The change in non-performing loans during 2010 was attributable to $157.1 million in non-performing loans acquired, $68.9 million of loans that became non-performing during the period, partially offset by $32.2 million in transfers to other real estate owned through foreclosures or receipt of deeds in lieu of foreclosures and other reductions. During 2010, loans past due greater than 90 days and still accruing/accreting increased by $36.7 million, excluding the impact of acquired loans classified as past due greater than 90 days and still accruing/accreting.

Of the aggregate $68.9 million of loans which became classified as past due greater than 90 days and still accruing/accreting during 2010, the composition was as follows: 54% commercial real estate loans; 31% commercial loans; and 16% consumer loans, which in the aggregate represented $68.9 million of loans.

The following is a summary of the purchased credit impaired and non purchased credit impaired covered loans outstanding as of December 31, 2010:

December 31, 2010	PCI Loans		Non PCI Loans		Total Covered Loans
Non-owner occupied commercial real estate	$	170,606	$	—	$	170,606
Other commercial C&D		81,842		—		81,842
Multifamily commercial real estate		30,441		—		30,441
1-4 family residential C&D		7,357		—		7,357
Total commercial real estate		290,246		—		290,246
Owner occupied commercial real estate		129,253		—		129,253
Commercial and industrial		29,592		2,558		32,150
Total commercial		158,845		2,558		161,403
1-4 family residential		155,619		—		155,619
Home Equity		6,217		73,592		79,809
Consumer		—		—		—
Total consumer		161,836		73,592		235,428
Other		9,207		—		9,207
Total	$	620,134	$	76,150	$	696,284

The following is a summary of the purchased credit impaired and non purchased credit impaired non-covered loans outstanding as of December 31, 2010:

December 31, 2010	PCI Loans		Non PCI Originated Loans		Non PCI Acquired Loans		Total Noncovered Loans
Non-owner occupied commercial real estate	$	320,925	$	8,939		—	$	329,864
Other commercial C&D		28,083		3,756		—		31,839
Multifamily commercial real estate		25,664		—		—		25,664
1-4 family residential C&D		8,231		753		—		8,984
Total commercial real estate		382,903		13,448		—		396,351
Owner occupied commercial real estate		210,170		8,318		—		218,488
Commercial and industrial		46,519		9,959		5,674		62,152
Total commercial		256,689		18,277		5,674		280,640
1-4 family residential		251,348		15,090		—		266,438
Home equity		12,220		2,616		24,394		39,230
Consumer		32,525		7,643		2,886		43,054
Total consumer		296,093		25,349		27,280		348,722
Other		19,798		952		—		20,750
Total	$	955,483	$	58,026	$	32,954	$	1,046,463

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Allowance for Loan Losses

For newly originated loans, we have recorded a provision to establish an allowance against loan losses. At June 30, 2011, the allowance was $7.7 million of which $4.2 million related to loans we originated or acquired non-PCI loans. As of June 30, 2011, we had recorded provisions of $3.5 million associated with PCI loans. As of December 31, 2010, the allowance for loan losses was $753,000 and related solely to loans we originated.

Allowance and Provision for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses in the loan portfolio. As of December 31, 2010, the allowance for loan losses related only to loans originated by us and acquired non-purchased credit impaired loans. Based upon our most recent estimates of expected cash flows, approximately $3.5 million of the allowance for loan losses was required to be allocated for purchased credit impaired loans as of June 30, 2011. Our formalized process for assessing the adequacy of the allowance for loan losses and the resultant need, if any, for periodic provisions to the allowance charged to income, includes both individual loan analyses and loan pool analyses. Individual loan analyses are periodically performed on loan relationships of a significant size, or when otherwise deemed necessary, and are performed primarily on commercial real estate and other commercial loans. The result is that commercial real estate loans and commercial loans are divided into the following risk categories: Pass, Special Mention, Substandard and Loss. The allowance consists of specific and general components. When appropriate, a specific reserve will be established for individual loans based upon the risk classifications and the estimated potential for loss. The specific component relates to loans that are individually classified as impaired. Otherwise, we estimate an allowance for each risk category. The general allocations to each risk category are based on factors including historical loss rate, perceived economic conditions (local, national and global), perceived strength of our management, recent trends in loan loss history and concentrations of credit.

Home equity loans, indirect auto loans, residential loans and consumer loans generally are not analyzed individually or separately identified for impairment disclosures. These loans are grouped into pools and assigned risk categories based on their current payment status and management’s assessment of risk inherent in the various types of loans. The allocations are based on the same factors mentioned above. However, should such loans exceeding certain size thresholds exhibit signs of impairment, they are individually evaluated for impairment.

Senior management and our Board of Directors review this calculation and the underlying assumptions on a routine basis not less frequently than quarterly.

The acquisitions of our banking operations during 2010 and the acquisition of Capital Bank Corp. during the first quarter of 2011 resulted in significant preliminary accounting adjustments recorded, resulting in the majority of our balance sheet being recently valued at fair value. The most significant adjustments related to loans which previously were recorded at values reflecting estimated fair values as of the various acquisition dates. For information on the acquisitions and the value of the assets acquired, see “—Acquisitions” above. Due to these accounting adjustments, no allowance for loan losses was recorded for acquired loans upon acquisition.

The provision for loan losses is a charge to income in the current period to establish or replenish the allowance and maintain it at a level that management has determined to be adequate to absorb estimated incurred losses in the loan portfolio for originated loans. A provision for loan losses is also required for any unfavorable changes in expected cash flows related to pools of purchased impaired loans. The provision for loan losses and expectations of cash flows may be impacted by many factors, including changes in the value of real estate collateralizing loans, net charge-offs and credit losses incurred, changes in loans outstanding, changes in impaired loans, historical loss rates and the mix of loan types. The provision for loan losses of $8.4 million and $10.0 million for the three and six months ended June 30, 2011, respectively, and $753,000 for the year ended December 31, 2010. During the three and six months ended June 30, 2011, $3.5 million of the provision for loan losses reflects impairment related to unfavorable changes in expected cash flows in certain pools of purchased impaired loans and the remainder of the provision for loan losses in these periods and the entirety of the

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provision for loan losses recorded during 2010 reflects the allowance for loan losses established for loans originated by us and related to net charge offs. Net charge-offs of approximately $3.0 million for the three and six months ended June 30, 2011 were primarily related to acquired home equity loans which were not classified as purchased credit impaired loans at their acquisition dates. No provision was taken related to purchased credit impaired loans during 2010, as actual credit losses experienced during the period were generally in accordance with levels of expected credit losses used in our estimates of pool cash flows for these loans.

As the majority of our acquired loans are considered purchased credit impaired loans, our provision for loan losses in future periods will be most significantly influenced in the short term by the differences in actual credit losses resulting from the resolution of problem loans from the estimated credit losses used in determining the estimated fair values of purchased impaired loans as of their acquisition dates. As we have not yet finalized our analysis of the estimated fair value of all acquired loans or the related estimated amounts of expected credit losses, these amounts may change. For loans originated by us, the provision for loan losses will be affected by the loss potential of impaired loans and trends in the delinquency of loans, non-performing loans and net charge offs, which cannot be reasonably predicted.

Management continuously monitors and actively manages the credit quality of the entire loan portfolio and will continue to recognize the provision required to maintain the allowance for loan losses at an appropriate level.

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Changes affecting the allowance for loan losses are summarized below for the three and six months ended June 30, 2011 and for the year ended December 31, 2010. Due to the inception of banking operations on July 16, 2010, there was no allowance for loan losses or related activity during the three and six months ended June 30, 2010 or for the period from inception through December 31, 2009.

(Dollars in thousands)	Three Months Ended June 30, 2011		Six Months Ended June 30, 2011		Year Ended December 31, 2010
Balance at beginning of period	$	2,287	$	753	$	—
Charge-offs:
Non-owner occupied commercial real estate		—		—		—
Other commercial C&D		—		—		—
Multifamily commercial real estate		—		—		—
1-4 family residential C&D		—		—		—
Total commercial real estate		—		—		—
Owner occupied commercial real estate		—		—		—
Commercial and industrial		—		—		—
Total commercial		—		—		—
1-4 family residential		—		—		—
Home Equity		2,986		2,986		—
Consumer		30		41		—
Total consumer		3,016		3,027		—
Other		—		—		—
Total charge-offs	$	3,016	$	3,027	$	—
Recoveries:
Non-owner occupied commercial real estate		—		—		—
Other commercial C&D		—		—		—
Multifamily commercial real estate		—		—		—
1-4 family residential C&D		—		—		—
Total commercial real estate		—		—		—
Owner occupied commercial real estate		—		—		—
Commercial and industrial		—		—		—
Total commercial		—		—		—
1-4 family residential		—		—		—
Home Equity		—		—		—
Consumer		—		—		—
Total consumer		—		—		—
Other		—		—		—
Total recoveries	$	—	$	—	$	—
Net charged off		3,016		3,027		—
Provision for loan losses		8,418		9,963		753
Allowance for loan losses at end of period	$	7,689	$	7,689	$	753
Ratio of net charge-offs to average net loans outstanding		NM		NM		NM

No portion of the allowance allocated to non purchased credit impaired loans is in any way restricted to any individual loan or group of originated or non purchased credit impaired loans, and the entire allowance is available to absorb probable incurred credit losses from any and all such loans. The following table represents management’s best estimate of the allocation of the allowance for loan losses to the various segments of the loan

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portfolio based on information available as of June 30, 2011 and December 31, 2010. The following table allocates the allowance for loan losses for non purchased credit impaired loans by loan category as of the dates indicated:

	June 30, 2011		December 31, 2010
(Dollars in thousands)	Allowance		Percent of Non PCI Loans			Allowance		Percent of Non PCI Loans
Non-owner occupied commercial real estate	$	394		1.0	%	$	79		0.8	%
Other commercial C&D		235		1.4	%		6		1.3	%
Multifamily commercial real estate		6		1.0	%		—		—
1-4 family residential C&D		264		1.4	%		19		1.3	%
Total commercial real estate		899		1.2	%		104		0.9	%
Owner occupied commercial real estate		1,368		0.9	%		70		0.8	%
Commercial and industrial		951		1.1	%		133		0.7	%
Total commercial		2,319		1.0	%		203		0.8	%
1-4 family residential		544		1.0	%		215		1.4	%
Home Equity		89		0.0	%		33		0.0	%
Consumer		336		1.0	%		184		2.9	%
Total consumer		969		0.4	%		432		0.4	%
Other		—		—			14		0.2	%
Total	$	4,187		0.7	%	$	753		0.5	%

Impaired Loans

Non-performing loans and impaired loans are defined differently. Some loans may be included in both categories, whereas other loans may only be included in one category. A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract. Generally, residential mortgages, commercial and commercial real estate loans exceeding certain size thresholds established by management are individually evaluated for impairment. Nonaccrual loans and restructured loans where loan term concessions benefiting the borrowers have been made are generally designated as impaired. The application of the acquisition method of accounting due to the acquisitions of our banking operations in 2010 and 2011 resulted in all acquired loans, impaired as well as non-impaired loans, being recorded in the financial statements at their fair value at the date of acquisition, and the historical allowance for loan loss associated with these loans by the predecessor institutions was eliminated. The fair value of loans is determined by the net present value of the expected cash flows, taking into consideration the credit quality and expectations of credit losses. The large majority of acquired loans were classified as purchased credit impaired loans and are accounted for in pools of loans with similar risk characteristics.

Within the context of the accounting for impaired loans described in the preceding paragraph, other than the purchased credit impaired loans described above, there were no impaired loans as of June 30, 2011 or December 31, 2010. Based upon the most recent estimates of pool expected cash flows, additional impairment of purchased credit impaired loans of approximately $3.5 million was identified during the second quarter of 2011.

Due to the pool method of accounting for purchased credit impaired loans, such loans are reported as 90 days past due and still accruing/accreting. Going forward, acquired loans not classified as purchased credit impaired and loans originated by us may become impaired and will be classified as such. Impaired loans also include loans which were not classified as non-accrual, but otherwise meet the criteria for classification as an impaired loan (i.e., loans for which the collection of all principal and interest amounts as specified in the original loan contract are not expected, or where management has substantial doubt that the collection will be as

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specified, but is still expected to occur in its entirety). In our evaluation of the adequacy of the allowance for loan losses, we consider (1) purchased credit impaired loans and loans classified as impaired, (2) our historical portfolio loss experience and trends and (3) certain other quantitative and qualitative factors.

Non-performing Assets

Non-performing assets include accruing/accreting loans delinquent 90 days or more, non-accrual loans and investment securities, repossessed personal property and other real estate. Non-PCI loans and investments in debt securities are placed on non-accrual status when management has concerns relating to the ability to collect the principal and interest and generally when such assets are 90 days past due. Non-performing assets were as follows:

	June 30, 2011									December 31, 2010
(Dollars in thousands)	Covered			Non-Covered			Total			Covered			Non-Covered			Total
Total non-accrual loans	$	3,795		$	835		$	4,630		$	—		$	—		$	—
Accruing/accreting loans delinquent 90 days or more		127,999			182,473			310,472			137,261			56,557			193,818
Total non-performing loans		131,794			183,308			315,102			137,261			56,557			193,818
Non-accrual investment securities		—			1,059			1,059			—			795			795
Repossessed personal property (primarily indirect auto loans)		—			210			210			—			104			104
Other real estate owned		48,501			29,386			77,887			50,619			20,198			70,817
Other assets		—			2,217			2,217			—			2,111			2,111
Total non-performing assets	$	180,295		$	216,180		$	396,475		$	187,880		$	79,765		$	267,645
Allowance for loan losses	$	2,825		$	4,864		$	7,689			NA		$	753		$	753
Non-performing assets as a percent of total assets		3.70	%		4.44	%		8.14	%		5.37	%		2.28	%		7.65	%
Non-performing loans as a percent of total loans		4.39	%		6.10	%		10.49	%		7.88	%		3.25	%		11.12	%
Allowance for loan losses as a percent of non-performing loans		2.14	%		2.65	%		2.44	%		NA			1.33	%		0.39	%
Allowance for loan losses as a percent of non-PCI loans								0.70	%								0.45	%

Investment Securities

Investment securities represent a significant portion of our assets. We invest in a variety of securities, including obligations of the U.S. Treasury, U.S. government agencies, U.S. government-sponsored entities, including mortgage-backed securities, bank eligible obligations of any state or political subdivision, privately issued mortgage-backed securities, bank eligible corporate obligations, mutual funds and limited types of equity securities.

Our investment activities are governed internally by a written, board-approved policy. The investment policy is carried out by our Treasury department. Investment strategies are reviewed by the Audit Committee based on the interest rate environment, balance sheet mix, actual and anticipated loan demand, funding opportunities and our overall interest rate sensitivity. In general, the investment portfolio is managed in a manner appropriate to the attainment of the following goals: (1) to provide a sufficient margin of liquid assets to meet unanticipated deposit and loan fluctuations and overall funds management objectives; (2) to provide eligible securities to secure public funds and other borrowings; and (3) to earn the maximum return on funds invested that is commensurate with meeting our first two goals.

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Our investment securities consisted primarily of U.S. agency mortgage-backed securities, which expose us to a lower degree of credit and liquidity risk. The following table sets forth our investment securities (including trading, available for sale and held to maturity securities) as of June 30, 2011:

(Dollars in thousands)
Security Type	Book Value		Fair Value		Percent of Total Portfolio			Yield			Effective Duration (years)
Mortgage backed securities	$	765,200	$	775,461		90.0	%		2.94	%		4.21
U.S. Government agencies		45,191		45,257		5.2	%		1.46	%		1.45
States and political subdivisions
Tax exempt		25,904		27,405		3.2	%		4.04	%		5.69
Taxable		7,225		7,297		0.8	%		4.94	%		6.50
Corporate bonds		3,230		3,529		0.4	%		4.09	%		9.81
Equity		2,448		2,457		0.3	%		NA			NA
Collateralized debt obligations		803		679		0.1	%		0.00	%		NA
Total	$	850,001	$	862,085		100.0	%		2.92	%		4.15

Contractual maturities of investment securities at June 30, 2011 and December 31, 2010 are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations without call or prepayment penalties. Other securities include mortgage-backed securities and marketable equity securities which are not due at a single maturity date. The following table segments our investment portfolio by maturity date:

(Dollars in thousands)	Within One Year					After One Year Within Five Years					After Five Years Within Ten Years					After Ten Years					Other Securities
As of June 30, 2011	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount
U.S. Government agencies and corporations	$	2,003		0.56	%	$	12,081		1.79	%	$	24,084		0.95	%	$	7,089		2.89	%	$	—
States and political subdivisions—tax-exempt		274		0.91	%		3,683		1.92	%		2,916		4.08	%		20,532		4.45	%		—
States and political subdivisions—taxable		—		—			—		—			2,564		4.49	%		4,733		5.19	%		—
Marketable equity securities		—		—			—		—			—		—			—		—			2,457
Mortgage-backed securities—residential		—		—			—		—			—		—			—		—			775,461
Corporate bonds		—		—			—		—			726		0.00	%		2,803		2.82	%		—
Collateralized debt obligations		—		—			—		—			—		—			679		0.00			—
Total	$	2,277		0.61	%	$	15,764		1.82	%	$	30,290		1.74	%	$	35,836		4.02	%	$	777,918

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(Dollars in thousands)	Within One Year					After One Year Within Five Years					After Five Years Within Ten Years					After Ten Years					Other Securities
As of December 31, 2010	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount
Securities Available for Sale:
U.S. Government agencies and corporations	$	2,014		0.57	%	$	17,300		0.65	%	$	22,120		1.05	%	$	7,700		2.69	%	$	—
States and political subdivisions—tax-exempt		276		4.88	%		1,109		2.15	%		2,829		2.93	%		1,578		4.42	%		—
States and political subdivisions— taxable		—		—			—		—			1,155		4.71	%		8,198		5.34	%		—
Marketable equity securities		—		—			—		—			—		—			—		—			74
Mortgage-backed securities— residential		—		—			—		—			—		—			—		—			412,213
Foreign government		250		5.10	%
Corporate bonds		—		—			—		—			—		—			2,105		3.14	%		—
Collateralized debt obligations		—		—			—		—			—		—			795		0.00	%		—
Total	$	2,540		1.48	%	$	18,409		0.74	%	$	26,104		1.41	%	$	20,376		3.83	%	$	412,287

As of December 31, 2010, the yield on and total dollar amount of each category of investment security held in our securities portfolio and accounted for as held to maturity or available for sale was as follows:

(Dollars in thousands)	Yield			Totals
Securities Available for Sale:
U.S. Government agencies and corporations		1.15	%	$	49,134
States and political subdivisions—tax exempt		3.28	%		5,792
States and political subdivisions—taxable		5.26	%		9,353
Marketable equity securities		0.00	%		74
Mortgage-backed securities—residential		2.46	%		412,213
Foreign government		5.10	%		250
Corporate bonds		3.14	%		2,105
Collateralized debt obligations		0.00	%		795
Total		2.38	%	$	479,716

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The following table presents the amortized cost, unrealized gains, unrealized losses, and fair value for the major categories of our investment portfolio (including available for sale and held to maturity securities) for each reported period (no securities were owned as of June 30, 2010 or December 31, 2009):

(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
As of June 30, 2011:
Available for Sale
U.S. Government agencies and corporations	$	45,191	$	176	$	110	$	45,257
States and political subdivisions—tax-exempt		25,904		1,511		10		27,405
States and political subdivisions—taxable		7,225		84		12		7,297
Mortgage-backed securities—residential		765,200		10,980		719		775,461
Marketable equity securities		1,833		9		—		1,842
Corporate bonds		3,230		299		—		3,529
Collateralized debt obligations		803		—		124		679
Total available for sale	$	849,386	$	13,059	$	975	$	861,470
As of December 31, 2010:
Available for Sale
U.S. Government agencies and corporations	$	49,497	$	18	$	382	$	49,133
States and political subdivisions—tax-exempt		5,918		2		128		5,792
States and political subdivisions—taxable		9,540		41		227		9,354
Mortgage-backed securities—residential		415,961		948		4,696		412,213
Marketable equity securities		102		—		28		74
Corporate bonds		2,104		1		—		2,105
Collateralized debt obligations		807		—		12		795
Total available for sale	$	483,929	$	1,010	$	5,473	$	479,466
Held to Maturity
Foreign government	$	250	$	—	$	—	$	250
Total held to maturity	$	250	$	—	$	—	$	250

We regularly review each investment security for impairment based on criteria that include the extent to which cost exceeds the estimated fair value, the duration of that market decline, the financial health of and specific prospects for the issuer(s) and our ability and intention with regard to holding the security to maturity. Future declines in the fair value of securities may result in impairment charges which may be material to our financial condition and results of operations. More specifically, our impairment analysis is based on the following: (1) whether it is “more likely than not” we would have to sell a security prior to recovery of the amortized cost; (2) whether we intend to sell the security; and (3) whether we do not expect to recover our recorded investment on an amortized cost basis based on credit characteristics of the investment. If, based upon our analysis, any of those conditions exist for a given security, we would generally be required to record an impairment charge in the amount of the difference between the carrying amount and estimated fair value of such security.

Deposits

Our strategy is to fund asset growth primarily with low-cost customer deposits in order to maintain a stable liquidity profile and net interest margin. During the six months ended June 30, 2011, we emphasized growth in “core deposits,” which we define as demand deposit accounts, savings and money-market accounts, in order to

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reduce the reliance on certificates of deposit that characterized certain of our acquired banks under their historic business models. Excluding the impact of the Capital Bank Corp. acquisition, during the six months ended June 30, 2011, we grew core deposits by $181.5 million and allowed certificates of deposit to be reduced by $278.4 million as certain high-cost and brokerage certificates of deposit matured and were not replaced. The contractual rate on deposits declined from 1.20% as of December 31, 2010 to 1.10% as of June 30, 2011. The following table sets forth the balances and average contractual rates payable to customers on our deposits, segmented by account type as of the end of the period:

	As of June 30, 2011								As of December 31, 2010								Sequential Change
(Dollars in thousands)	Balance		Percent of Total			Weighted Average Contractual Rate			Balance		Percent of Total			Weighted Average Contractual Rate			Amount		Percent
Non-interest demand deposit accounts	$	461,046		13	%		0.00	%	$	295,713		13	%		0.00	%	$	165,333		56	%
Interest Bearing demand deposit accounts		417,799		12	%		0.35	%		243,672		11	%		0.31	%		174,127		71	%
Savings		173,284		5	%		0.54	%		94,422		4	%		0.60	%		78,862		84	%
Money Market		516,290		15	%		0.76	%		272,780		12	%		0.80	%		243,510		89	%
Total Core Deposits	$	1,568,419		45	%		0.40	%	$	906,587		40	%		0.39	%	$	661,832		73	%
Customer Time Deposits		1,850,052		53	%		1.66	%		1,339,625		59	%		1.75	%		510,427		38	%
Wholesale Time Deposits		82,952		2	%		1.51	%		13,885		1	%		2.65	%		69,067		497	%
Total Time Deposits	$	1,933,004		55	%		1.66	%	$	1,353,510		60	%		1.76	%	$	579,494		43	%
Total Deposits	$	3,501,423		100	%		1.10	%	$	2,260,097		100	%		1.20	%	$	1,241,326		55	%

A significant portion of core deposit growth resulted from in-flows into savings and money-market accounts, and some of this activity reflects price-sensitive customers shifting out of certificates of deposit due to low prevailing market rates. To reduce the amount of new price-sensitive deposits we may attract, we have begun to lower money market and savings rates in a targeted fashion.

Core deposit growth also benefited from increased balance size for business demand deposit accounts in Florida, which we attribute to improved economic activity in the Miami-Dade market and seasonality in Southwest Florida. We opened 8,791 new demand deposit accounts during the first six months of 2011. The following table sets forth our deposits and the average rates expensed for the periods indicated:

(Dollars in thousands)	Six Months Ended June 30, 2011					Year Ended December 31, 2010
	Average Amount		Average Rate			Average Amount		Average Rate
Non-interest bearing deposits	$	428,195		—	%	$	66,967		—	%
Interest-bearing deposits
Negotiable order of withdrawal accounts		385,709		0.53	%		66,994		0.29	%
Money market		440,855		0.73	%		131,949		0.54	%
Savings deposit		152,344		0.54	%		25,064		0.59	%
Time deposits(1)		1,879,461		1.07	%		446,372		0.81	%
Total	$	3,286,564		0.80	%	$	737,346		0.69	%

⁽¹⁾ The average rates on time deposits include the amortization of premiums on time deposits assumed in connection with the acquisitions. Such premiums were required to be recorded by the acquisition method of accounting to initially record these deposits at their fair values as of the respective acquisition dates.

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The following table sets forth the growth in our deposits for the periods indicated segmented by account type:

(Dollars in millions)	Three months ended June 30, 2011					Three months ended March 31, 2011				Three months ended December 31, 2010
	Increase in Deposits			Number of New Accounts		Increase in Deposits		Number of New Accounts		Increase in Deposits		Number of New Accounts
Non-interest bearing demand deposit accounts	$	(2.1	)		2,836	$	37.5		2,365	$	13.8		1,684
Interest bearing demand deposit accounts		(12.9	)		2,064		3.8		1,526		4.4		891
Savings		15.8			376		32.0		1,584		7.9		688
Money market		60.1			2,255		47.3		369		29.5		207
Total Core	$	60.9			7,531	$	120.6		5,844	$	55.6		3,470

During the six months ended June 30, 2011, our Florida markets accounted for 67% of core deposit growth, due to intensified selling efforts in the retail branch system, as well as the economic and seasonal factors noted above. In the Carolinas, core deposit growth primarily benefited from the activities of the commercial lending teams, which gather low-cost commercial deposits in connection with new loans.

The following table sets forth our time deposits segmented by months to maturity and deposit amount:

(Dollars in thousands)	June 30, 2011
	Time Deposits of $100 and Greater		Time Deposits of Less Than $100		Total
Months to maturity:
Three or less	$	127,338	$	123,250	$	250,588
Four to Six		187,731		152,849		340,580
Seven through Twelve		264,710		294,963		559,673
Over Twelve		389,480		392,683		782,163
Total	$	969,259	$	963,745	$	1,933,004

Liquidity and Capital Resources

In order to maintain a conservative risk profile, we operate with a prudent cushion of capital in relation to regulatory requirements and to the risk of our assets and business model. For planning purposes, we expect to operate with a minimum capital target equal to an 8% leverage ratio (defined as Tier 1 capital equal to 8% of average tangible assets), which would be in excess of regulatory standards for “well-capitalized” banks. We believe the 8% target is appropriate for our business model because of our conservative loan underwriting policies, investment portfolio composition, funding strategy, interest rate risk management limits and liquidity risk profile and because of the experience of our senior management team and Board of Directors.

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As of June 30, 2011, we had an 18.1% tangible common equity ratio. We believe that this non-GAAP financial measure provides investors with information useful in understanding our financial performance and, specifically, our capital position. The tangible common equity ratio is calculated as tangible common shareholders’ equity divided by tangible assets. Tangible common equity is calculated as total shareholders’ equity less preferred stock and less goodwill and other intangible assets, net and tangible assets are total assets less goodwill and other intangible assets, net. The following table provides reconciliations of tangible common equity to GAAP total common shareholders’ equity and tangible assets to GAAP total assets:

(Dollars in millions)	As of June 30, 2011
Shareholders’ equity	$	952
Less: Preferred stock		—
Less: Goodwill and other intangible assets, net		88
Tangible common shareholders’ equity	$	864
Total assets	$	4,873
Less: Goodwill and other intangible assets, net		88
Tangible assets	$	4,785
Tangible common equity ratio		18.1	%

As of June 30, 2011, we had a Tier 1 leverage ratio of 17.7%, which provides us with $363.4 million in excess capital relative to the 10% Tier 1 leverage ratio required under the OCC Operating Agreement and $458.3 million in excess capital relative to our longer-term target of 8%. As of June 30, 2011, we had cash and securities equal to 28% of total assets, representing $657.2 million of excess liquidity in excess of our target of 15%. As of June 30, 2011, Capital Bank, NA had a 10.5% Tier 1 leverage ratio, a 17.0% Tier 1 risk-based ratio and a 17.5% total risk-based capital ratio.

At present, the OCC Operating Agreement requires Capital Bank, NA to maintain total capital equal to at least 12% of risk-weighted assets, Tier 1 capital equal to at least 11% of risk-weighted assets and a minimum leverage ratio of 10%. We expect to operate under this capital standard until we demonstrate that we have stabilized our acquired operations, improved our profitability and reduced legacy problem assets.

The minimum ratios along with the actual ratios for us, TIB Financial, Capital Bank Corp., Capital Bank, NA and TIB Bank as of June 30, 2011 and December 31, 2010 are presented in the following tables.

	Well Capitalized Requirement		Adequately Capitalized Requirement			June 30, 2011 Actual			December 31, 2010 Actual
Tier 1 Capital (to Average Assets)
NAFH Consolidated		NA		³ 4.0	%		17.7	%		24.3	%
TIB Financial		NA		³ 4.0	%		28.5	%		8.2	%
Capital Bank Corp.		NA		³ 4.0	%		14.3	%		NA
Capital Bank, NA (formerly NAFH Bank)		³ 5.0%		³ 4.0	%		10.5	%		12.1	%
TIB Bank		³ 5.0%		³ 4.0	%		NA			8.1	%
Tier 1 Capital (to Risk Weighted Assets)
NAFH Consolidated		NA		³ 4.0	%		30.2	%		41.8	%
TIB Financial		NA		³ 4.0	%		98.4	%		13.4	%
Capital Bank Corp.		NA		³ 4.0	%		103.5	%		NA
Capital Bank, NA (formerly NAFH Bank)		³ 6.0%		³ 4.0	%		17.0	%		17.1	%
TIB Bank		³ 6.0%		³ 4.0	%		NA			13.1	%
Total Capital (to Risk Weighted Assets)
NAFH Consolidated		NA		³ 8.0	%		30.6	%		41.9	%
TIB Financial		NA		³ 8.0	%		98.4	%		13.4	%
Capital Bank Corp.		NA		³ 8.0	%		105.0	%		NA
Capital Bank, NA (formerly NAFH Bank)		³ 10.0%		³ 8.0	%		17.5	%		17.1	%
TIB Bank		³ 10.0%		³ 8.0	%		NA			13.1	%

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(Dollars in millions)	June 30, 2011			December 31, 2010
NAFH
Tier 1 Capital	$	837		$	838
Tier 1 Leverage Ratio		17.7	%		24.3	%
Tier 1 Risk Based Capital Ratio		30.2	%		41.8	%
Total Risk Based Ratio		30.6	%		41.9	%
Excess Tier 1 Capital
vs. 10% regulatory requirement	$	363		$	493
vs. 8% target		458			562
Capital Bank, NA (formerly NAFH National Bank)
Tier 1 Capital	$	460		$	146
Tier 1 Leverage Ratio		10.5	%		12.1	%
Tier 1 Risk Based Capital Ratio		17.0	%		17.1	%
Total Risk Based Ratio		17.5	%		17.1	%
Excess Tier 1 Capital
vs. 10% regulatory requirement	$	22		$	25
vs. 8% target		109			49

Liquidity involves our ability to raise funds to support asset growth or reduce assets to meet deposit withdrawals and other borrowing needs, to maintain reserve requirements and to otherwise operate on an ongoing basis. To mitigate liquidity risk, our strategy is to fund asset growth primarily with low-cost customer deposits. We also operate under a liquidity policy and contingent liquidity plan that requires us to monitor indicators of potential liquidity risk, utilize cash flow projection models to forecast liquidity needs, identify alternative back-up sources of liquidity and maintain a predetermined cushion of cash and liquid securities at 15% of total assets.

Our liquidity needs are primarily met by our cash position, growth in core deposits, cash flow from our amortizing investment and loan portfolios (including scheduled payments, prepayments, and maturities from portfolios of loans and investment securities) and reimbursements under the loss sharing agreements with the FDIC. Our ability to borrow funds from nondeposit sources provides additional flexibility in meeting our liquidity needs. Short-term borrowings include federal funds purchased, securities sold under repurchase agreements, short-term FHLB borrowings and brokered deposits. We also utilize longer-term borrowings when management determines that the pricing and maturity options available through these sources create cost effective options for funding asset growth and satisfying capital needs. Our long-term borrowings include long-term FHLB advances, structured repurchase agreements and subordinated notes underlying our trust preferred securities.

As of June 30, 2011, cash and liquid securities totaled 28% of assets, providing us with excess liquidity relative to our planning target, and the ratio of wholesale to total funding was 18%, below our planning target. In addition to maintaining a stable core deposit base, we maintain adequate liquidity primarily through the use of investment securities, short term investments such as federal funds sold and unused borrowing capacity. We hold investments in FHLB stock for the purpose of maintaining credit lines with the FHLB. The credit availability is based on a percentage of the subsidiary banks’ total assets as reported in their most recent quarterly financial information submitted to the FHLB and subject to the pledging of sufficient collateral. At June 30, 2011 and December 31, 2010, there were $234.3 million and $230.8 million in advances outstanding, with carrying amounts of $244.9 million and $243.1 million, respectively. In addition, we had $25.2 million in letters of credit outstanding as of June 30, 2011 and December 31, 2010. As of June 30, 2011 and December 31, 2010, collateral availability under our agreements with the FHLB provided for total borrowings of up to approximately $451.1 million and $309.6 million, respectively, of which $197.7 million and $53.6 million was available.

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We believe that we have adequate funding sources through unused borrowing capacity from the Federal Home Loan Bank, unpledged investment securities, cash on hand and on deposit in other financial institutions, loan principal repayment and potential asset maturities and sales to meet our foreseeable liquidity requirements and contractual obligations.

The following table reflects the average daily outstanding, year-end outstanding, maximum month-end outstanding and the weighted average rates paid for each of the categories of short-term borrowings and FHLB advances:

(Dollars in thousands)	Six months ended June 30, 2011
Securities sold to customers under agreements to repurchase:
Balance:
Average daily outstanding	$	43,789
Outstanding at June 30, 2011		34,676
Maximum month-end outstanding		49,206
Rate:
Weighted average		0.2	%
Weighted average interest rate		0.1	%
Treasury, tax and loan note option:
Balance:
Average daily outstanding	$	1,123
Outstanding at June 30, 2011		1,558
Maximum month-end outstanding		1,700
Rate:
Weighted average		0.0	%
Weighted average interest rate		0.0	%
Securities sold to financial institution under agreements to repurchase:
Balance:
Average daily outstanding	$	1,325
Outstanding at June 30, 2011		—
Maximum month-end outstanding		—
Rate:
Weighted average		2.7	%
Weighted average interest rate		2.1	%
Advances from the Federal Home Loan Bank:
Balance:
Average daily outstanding	$	264,238
Outstanding at June 30, 2011		244,939
Maximum month-end outstanding		280,151
Rate:
Weighted average		0.9	%
Weighted average interest rate		1.0	%

As of June 30, 2011, our holding company had cash of approximately $358.1 million. This cash is available for providing capital support to our subsidiary banks and for other general corporate purposes including potential future acquisitions. Through our September 30, 2010 acquisition of TIB Financial, we assumed trust preferred securities with notional amounts of $33.0 million, which are currently in elected interest deferral periods beginning with the payments due in October 2009. Deferral of interest due on the junior subordinated debentures underlying TIB Financial’s trust preferred securities is allowed for up to 60 months without being considered an

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event of default. TIB Financial currently has deferred interest on these junior subordinated debentures and is prohibited from declaring or paying dividends on its common stock, or, with certain exceptions, repurchasing its capital stock until it is current on its interest payments. We are currently in the process of requesting that the Federal Reserve allow TIB Financial to resume payment of interest on these junior subordinated debentures.

Our bank holding subsidiaries have issued $63.0 million in trust preferred securities, which we acquired in connection with our investments in TIB Financial and Capital Bank Corp., and which are now carried on the balance sheet at fair value of $38.0 million. We regard these securities as a low-cost substitute for equity capital. While trust preferred securities will be phased out as regulatory capital for certain institutions under the Dodd-Frank Act, we believe we will be able to count trust preferred securities as Tier 1 for their remaining life because our instruments were issued before May 19, 2010 and because NAFH had total consolidated assets of less than $15 billion at December 31, 2009. The following table sets forth the notional amount and carrying value of our outstanding trust preferred securities as of June 30, 2011 as well as the rate paid thereon and maturities:

(Dollars in thousands) Issuer	Notional Amount		Carrying Value		Rate			Maturity
TIBFL Statutory Trust I	$	8,000	$	8,839		10.60	%		9/7/2030
TIBFL Statutory Trust II		5,000		3,704		3m Libor + 3.58	%		7/31/2031
TIBFL Statutory Trust III		20,000		10,488		3m Libor + 1.55	%		7/7/2036
Total TIB Trust Preferred	$	33,000	$	23,031
Capital Bank Statutory Trust I		10,000		5,538		3m Libor + 3.10	%		6/30/2033
Capital Bank Statutory Trust II		10,000		5,323		3m Libor + 2.85	%		12/31/2033
Capital Bank Statutory Trust III		10,000		4,103		3m Libor + 1.40	%		12/31/2035
Total CBKN Trust Preferred	$	30,000	$	14,964
Total Trust Preferred	$	63,000	$	37,995

We calculate tangible book value, which is a non-GAAP measure but which we believe is helpful to investors in understanding our business. Tangible book value is equal to book value less goodwill and core deposit intangibles, net of related deferred tax liabilities. The following table sets forth a reconciliation of tangible book value to book value, which is the most directly comparable GAAP measure:

(Dollars in millions)	As of June 30, 2011			As of December 31, 2010
Total shareholders’ equity	$	951,692		$	881,236
Less: Noncontrolling interest		(48,670	)		(5,933	)
Less: NAFH Inc. proportional share of goodwill(1)		(63,758	)		(36,226	)
Less: NAFH Inc. proportional share of core deposit intangibles, net of taxes(1)		(10,377	)		(9,217	)
Tangible Book Value	$	828,887		$	829,859
Book Value Per Share	$	19.57		$	19.49
Tangible Book Value Per Share	$	17.96		$	18.39

⁽¹⁾ Proportional share is calculated based upon 94.467% ownership of TIB Financial and 83.051% ownership of Capital Bank Corp. as of June 30, 2011. Proportional shares is calculated based upon 98.7% ownership of TIB Financial as of December 31, 2010.

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Background on Our Acquisition of the Failed Banks

The following discussion of assets acquired and liabilities assumed in connection with our acquisition of the Failed Banks is presented below based on estimated fair values as of July 16, 2010. The fair values of the assets acquired and liabilities assumed were determined as described in Note 2 to the Audited Statements of Assets Acquired and Liabilities Assumed by Capital Bank of Metro Bank, Turnberry Bank and First National Bank, each dated as of July 16, 2010, and the accompanying notes thereto.

Assets Acquired and Liabilities Assumed

The fair values of the assets acquired and liabilities assumed in conjunction with our acquisition of the Failed Banks as of July 16, 2010 are detailed in the following table:

(Dollars in thousands)	July 16, 2010		Average maturity (years)		Effective Yield/ Cost
Assets Acquired:
Cash	$	184,348
Securities		74,392		7.71		3.48	%
Loans		768,554		5.63		6.91	%
Other real estate owned		33,818
FDIC indemnification asset		137,316
Core deposit and other intangibles		4,214
Goodwill		6,616
Other assets		14,628
Total assets acquired		1,223,886
Liabilities assumed:
Non time deposits		277,739
Time deposits		682,375		.64		0.63	%
Borrowings		148,584		3.14		3.08	%
Other liabilities		18,269
Fair value of liabilities assumed		1,126,967
Net Assets Acquired	$	96,919
Consideration Paid		81,744
Gain on acquisitions	$	15,175

Capital Bank also entered into loss sharing agreements with the FDIC, which cover approximately $796.1 million of assets, consisting of $762.2 million of loans (residential and commercial) and $33.8 million of other real estate owned. The loss sharing agreements are described in more detail under “Business—Our Acquisitions—Loss Sharing Agreements.”

The following table summarizes the fair value of assets covered by the loss sharing agreements:

(Dollars in thousands)	Estimated Fair Value as of July 16, 2010
Assets subject to loss-sharing:
Loans	$	762,242
Other real estate owned		33,818
Total	$	796,060

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As set forth above, on July 16, 2010, Capital Bank acquired a majority of all assets and liabilities of the Failed Banks pursuant to the loss sharing agreements. A narrative description of the anticipated effects of our acquisition of the Failed Banks on Capital Bank’s financial condition, liquidity, capital resources and operating results is presented below. This discussion should be read in conjunction with the financial statements and the accompanying notes of Capital Bank.

Capital Bank estimated the acquisition-date fair value of the acquired assets and assumed liabilities in accordance with the acquisition method of accounting. However, the amount realized on these assets could differ materially from the carrying value reflected in Capital Bank’s financial statements as a result of changes in the timing and amount of collections on the acquired loans in future periods, among other reasons.

Financial Condition

In connection with our acquisition of the Failed Banks, Capital Bank purchased loans with an estimated fair value of $768.6 million. The fair value of the loans acquired represented 100% of Capital Bank’s outstanding loans as of the date of acquisition.

Short-term Assets

Initially, our acquisition of the Failed Banks increased Capital Bank’s levels of liquidity by a net amount of $102.6 million. Capital Bank acquired $184.3 million in total cash and due from banks before making net payments of $81.7 million to settle the transactions with the FDIC.

Investment Securities

The following table reflects the acquired investment securities available for sale as of July 16, 2010 (dollars in thousands):

Security Type	Fair Value		Average Yield			Average Maturity (in  Years)
Agency	$	7,042		0.65	%		0.32
MBS/CMO		57,063		3.61	%		7.98
Taxable municipal		7,239		5.11	%		11.53
Tax free municipal		2,798		3.58	%		11.57
Total	$	74,142		3.48	%		7.71

Held to maturity securities were $250 at July 16, 2010. The acquired portfolio comprised Capital Bank’s entire investment portfolio at July 16, 2010.

The acquired portfolio comprised Capital Bank’s entire investment portfolio at July 16, 2010.

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Loans

Loans acquired represented all of Capital Bank’s loans at July 16, 2010. The following table presents information regarding the loan portfolio acquired on July 16, 2010 at fair value:

(Dollars in thousands): Loan Type	Loans with deterioration of credit quality		Loans without a deterioration of credit quality		Total loans at fair value
Non-owner occupied commercial real estate	$	185,024	$	–	$	185,024
Other commercial C&D		85,048		–		85,048
Multifamily commercial real estate		27,752		–		27,752
1-4 family residential C&D		6,902		–		6,902
Total commercial real estate		304,726		–		304,726
Owner occupied commercial real estate		154,175		–		154,175
Commercial and industrial		36,666		2,445		39,111
Total commercial		190,841		2,445		193,286
1-4 family residential		170,464		–		170,464
Home equity		11,173		72,786		83,959
Consumer		4,012		2,288		6,300
Total consumer		185,649		75,074		260,723
Other		9,819		–		9,819
Total loans	$	691,035	$	77,519	$	768,554

The acquired loan portfolio contained both fixed and variable rate loans. The following table provides information about the acquired portfolio according to loan rate type and fair value at July 16, 2010:

			Fair value amounts with:
(Dollars in thousands):	Total fair value		Fixed rates		Variable rates
Non-owner occupied commercial real estate	$	185,024	$	69,798	$	115,226
Other commercial C&D		85,048		26,431		58,617
Multifamily commercial real estate		27,752		9,878		17,874
1-4 family residential C&D		6,902		2,430		4,472
Total commercial real estate		304,726		108,537		196,189
Owner occupied commercial real estate		154,175		57,177		96,998
Commercial and industrial		39,111		7,281		31,830
Total commercial		193,286		64,458		128,828
1-4 family residential		170,464		49,990		120,474
Home equity		83,959		19,836		64,123
Consumer		6,300		5,030		1,270
Total consumer		260,723		74,856		185,867
Other		9,819		1,802		8,017
Total loans	$	768,554	$	249,653	$	518,901

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The contractual maturity distribution of the acquired loan portfolio at July 16, 2010 is indicated in the table below:

	Loans Maturing
(Dollars in thousands)	Within 1 Year		1 to 5 Years		After 5 Years		Total
Non-owner occupied commercial real estate	$	41,106	$	116,922	$	26,996	$	185,024
Other commercial C&D		55,820		28,388		840		85,048
Multifamily commercial real estate		4,853		15,954		6,945		27,752
1-4 family residential C&D		5,893		1,009		–		6,902
Total commercial real estate		107,672		162,273		34,781		304,726
Owner occupied commercial real estate		40,568		78,346		35,261		154,175
Commercial and industrial		9,389		18,258		11,464		39,111
Total commercial		49,957		96,604		46,725		193,286
1-4 family residential		32,193		50,534		87,737		170,464
Home equity		10,661		29,760		43,538		83,959
Consumer		2,736		3,294		270		6,300
Total consumer		45,590		83,588		131,545		260,723
Other		4,608		2,021		3,190		9,819
Total Loans	$	207,827	$	344,486	$	216,241	$	768,554

Foreclosed Property

Capital Bank acquired $33.8 million of foreclosed property in connection with our acquisition of the Failed Banks. This represented 100% of Capital Bank’s balance of foreclosed property at the time of acquisition. Capital Bank was able to determine the fair value of the property acquired through the use of appraisals and/or review of the comparable sales data available at the time of acquisition. Up to 80% of losses on foreclosed property are covered by Capital Bank’s loss sharing agreements with the FDIC.

Deposits

Capital Bank assumed approximately $960.1 million in deposits based on estimated fair values. This amount represented 100% of Capital Bank’s total deposits at the time of acquisition.

The various types of deposit accounts assumed as of July 16, 2010 are summarized below (dollars in thousands):

(Dollars in thousands)	Amount as of July 16, 2010
Demand deposits	$	126,181
Interest bearing demand deposits		137,923
Savings deposits		14,799
Time deposits		681,211
Total	$	960,114

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As of July 16, 2010, the scheduled maturities of time deposits with balances $100,000 or greater were as follows:

(Dollars in thousands)	Amount as of July 16, 2010
Months to maturity:
Three or less	$	78,631
Four to Six		25,430
Seven through Twelve		141,558
Over Twelve		59,860
Total	$	305,479

In its assumption of the deposit liabilities, Capital Bank determined that some of the customer relationships associated with these deposits have intangible value, in accordance with the accounting for goodwill and other intangible assets in a business combination. Capital Bank determined the estimated fair value of the core deposit intangible to be $4.1 million, which will be amortized over a four-year period on an accelerated basis, which is its estimated life.

Future amortization of this core deposit intangible asset over the estimated economic life will decrease results of operations. Since amortization is a non-cash item, it will have no effect upon future liquidity and cash flows. For the calculation of regulatory capital, this core deposit intangible asset is disallowed and is a reduction of equity capital. As such Capital Bank expects no material impact on regulatory capital.

The core deposit intangible asset is subject to significant estimates by management of Capital Bank related to the value and the life of the asset. These estimates could change over time. Capital Bank will review the valuation of this asset periodically to ensure that no impairment has occurred. If any impairment is subsequently determined, Capital Bank will record the impairment as an expense in its consolidated statement of operations.

Borrowings

Borrowings include securities sold under agreements to repurchase, advances from the FHLB, and a treasury, tax and loan note option.

Capital Bank also acquired securities sold under agreements to repurchase with commercial account holders whereby Capital Bank sweeps the customers’ accounts on a daily basis and pays interest on these amounts. These agreements are collateralized by investment securities chosen by Capital Bank.

Capital Bank also assumed an agreement with another financial institution in which securities had been sold which would be repurchased at a future date. The interest rates on these repurchase agreements are fixed for the remaining term of the agreement. The outstanding fair value amount at July 16, 2010 was $10,188 and had a fixed interest rate of 5.16%. As of July 16, 2010, $11,856 of securities of the U.S. government or its agencies were pledged to collateralize these borrowings.

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Through our acquisition of the Failed Banks, Capital Bank assumed FHLB advances outstanding with a carrying value of $134,684, a face value of $127,776 and a weighted average interest rate of 3.08%. The advances consist of the following:

Fair Value		Contractual  Outstanding Amount		Maturity Date	Repricing Frequency		Rate at July 16, 2010
	$    4,059	$	4,052	August 2010		Fixed		3.36	%
	5,004		5,000	September 2010		Fixed		0.69	%
	6,005		6,000	December 2010		Fixed		0.68	%
	5,003		5,000	February 2011		Fixed		0.51	%
	3,034		3,000	March 2011		Fixed		2.12	%
	3,028		3,000	May 2011		Fixed		1.65	%
	5,212		5,000	June 2011(1)		Fixed		5.04	%
	5,203		5,000	June 2011(1)		Fixed		4.95	%
	5,000		5,000	June 2011		Daily		0.49	%
	5,107		5,000	July 2011(1)		Fixed		2.81	%
	1,969		1,944	September 2011		Fixed		2.99	%
	2,119		2,083	September 2011		Fixed		3.58	%
	583		572	October 2011		Fixed		3.91	%
	5,292		5,000	January 2012(1)		Fixed		4.56	%
	646		625	April 2012		Fixed		4.70	%
	5,353		5,000	May 2012(1)		Fixed		4.59	%
	7,736		7,500	March 2013		Fixed		2.29	%
	4,372		4,000	March 2013(1)		Fixed		4.58	%
	5,185		5,000	May 2013(1)		Fixed		2.27	%
	5,600		5,000	May 2014(1)		Fixed		4.60	%
	5,625		5,000	June 2014(1)		Fixed		4.67	%
	5,239		5,000	February 2015(1)		Fixed		2.83	%
	5,431		5,000	June 2015(1)		Fixed		3.71	%
	5,469		5,000	July 2015(1)		Fixed		3.57	%
	5,558		5,000	November 2017		Fixed		3.93	%
	5,786		5,000	June 2017(1)		Fixed		4.58	%
	5,210		5,000	July 2018(1)		Fixed		2.14	%
	5,206		5,000	July 2018(1)		Fixed		2.12	%
	5,650		5,000	July 2018(1)		Fixed		3.94	%
	$  134,684	$	127,776

⁽¹⁾ These advances have quarterly conversion dates. If the FHLB chooses to convert the advance, Capital Bank has the option of prepaying the entire balance without penalty. Otherwise, the advance will convert to an adjustable rate, repricing on a quarterly basis. If the FHLB does not convert the advance, it will remain at the contracted fixed rate until the maturity date.

Other Liabilities

Capital Bank acquired approximately $18.3 million of other liabilities. The book value of these liabilities approximated their fair value.

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Operating Results and Cash Flows

Capital Bank was formed to pursue acquisition opportunities and management performed various types of reviews and analyses to determine their impact on Capital Bank’s operating results, cash flows and risk profile. The acquisition of the Failed Banks was attractive to Capital Bank for a variety of reasons, including the following:

• enabling the startup of Capital Bank’s banking operations in several of our target markets (Miami, which we targeted because of its size and concentrated business activity, and South Carolina, which we targeted because of its attractive demographic growth trends) with a baseline level of trained staff in place;

• attractiveness in the pricing of the acquired loan portfolios considering the protective nature of the loss sharing agreements;

• the ability to utilize acquired excess liquidity to allow a planned run-off of out-of-market and unprofitable deposits; and

• the ability to quickly reduce redundancies and gain additional efficiencies related to Capital Bank’s corporate functions.

The acquisition of the Failed Banks had an immediate accretive impact on Capital Bank’s financial results as it recognized a gain of approximately $15.2 million in connection with our acquisition of the Failed Banks. The gain resulted from Capital Bank’s determination that the fair value of the net assets acquired exceeded the fair value of the consideration transferred in connection with our acquisition of the Failed Banks.

The extent to which Capital Bank’s operating results may be adversely affected by the acquired loans is offset to a significant extent by the loss sharing agreements and the related discounts reflected in the fair value of these assets at July 16, 2010. The fair values of the acquired loans and other real estate owned reflect an estimate of lifetime expected losses related to these assets as of July 16, 2010. As a result, Capital Bank’s operating results would only be adversely affected by loan losses to the extent that such losses exceed the expected losses reflected in the estimates of fair value of these assets at July 16, 2010. In addition, to the extent that the stated interest rate on acquired loans was not considered a market rate of interest at the acquisition date, appropriate adjustments to the acquisition-date fair value were recorded. These adjustments mitigate the risk associated with the acquisition of loans earning a below-market rate of return.

On July 16, 2010, the estimated fair value for all non-purchased credit impaired loans acquired in the acquisition totaled $77.5 million. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value, exclusive of the shared-loss agreements with the FDIC. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

Loans acquired in a transfer, including business combinations, where there is evidence of credit deterioration since origination and it is probable at the date of acquisition that we will not collect all contractually required principal and interest payments, are accounted for under accounting guidance for purchased credit impaired (which we refer to as “PCI”) loans. On the acquisition date, the estimated fair value of PCI loans was $691.0 million. The preliminary estimate of the cash flows expected to be collected for PCI loans was $737.6 million, net of an accretable yield of $46.6 million. These amounts were determined based upon the estimated remaining life of the underlying loans, which include the effects of estimated prepayments, expected credit losses and market liquidity and interest rates.

The accretable yield is the amount by which the undiscounted expected cash flows exceeds the estimated fair value. The accretable yield includes the future interest expected to be collected over the remaining life of the acquired loans.

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The loss sharing agreements will likely have a material impact on the cash flows and operating results of Capital Bank in both the short-term and the long-term. In the short-term, as stated above, it is likely there will be a significant amount of the covered assets that will experience deterioration in payment performance or will be determined to have inadequate collateral values to repay the loans. In such instances, Capital Bank will likely no longer receive payments from the borrowers, which will impact cash flows. The loss sharing agreements will not fully offset the financial effects of such a situation. However, if a loan is subsequently charged off or charged down after Capital Bank completes its best efforts at collection, the loss sharing agreements will cover a substantial portion of the loss associated with the covered assets.

The effects of the loss sharing agreements on cash flows and operating results in the long-term will be similar to the short-term effects described above. The long-term effects Capital Bank may experience will depend primarily on the ability of the borrowers under the various loans covered by the loss sharing agreements to make payments over time. As the loss sharing agreements cover up to a 10-year period (five years for commercial loans and other assets), changing economic conditions will likely impact the timing of future charge-offs and the resulting reimbursements from the FDIC. Capital Bank believes that any recapture of interest income and recognition of cash flows from the borrowers or received from the FDIC (as part of the FDIC indemnification asset) may be recognized unevenly over this period, as Capital Bank exhausts its collection efforts under its normal practices. In addition, Capital Bank recorded substantial discounts related to the purchase of these covered assets. A portion of these discounts will be accretable to income over the economic life of the loans and will be dependent upon the timing and success of Capital Bank’s collection efforts on the covered assets.

Liquidity

Initially, the acquisition of the Failed Banks increased Capital Bank’s liquidity reserves $102.6 million due to the acquisition of $184.3 million cash and due from banks in the deal before making net payments of $81.7 million to settle the transactions with the FDIC.

Capital Resources

To be categorized as well capitalized and adequately capitalized (as defined) under the regulatory framework for prompt corrective action, Capital Bank must maintain minimum Tier I leverage, Tier I risk-based and total risk-based ratios. These minimum ratios along with capital ratios for Capital Bank as of July 16, 2010 are as follows:

	Well Capitalized Requirement			Adequately Capitalized Requirement			Estimated as of July 16, 2010
Tier 1 Capital (to Average Assets)		³5.0	%	³	4.0	%		11.7	%
Tier 1 Capital (to Risk Weighted Assets)		³6.0	%	³	4.0	%		14.3	%
Total Capital (to Risk Weighted Assets)		³10.0	%	³	8.0	%		14.3	%

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk Management

Interest rate risk management is carried out through our Asset Liability Committee, which consists of our Chief Executive Officer, Chief Financial Officer, Treasurer, business unit heads and certain other officers. To manage interest rate risk, our Board of Directors has established quantitative and qualitative guidelines with respect to our net interest income exposure and how interest rate shocks affect our financial performance. Consistent with industry practice, we measure interest rate risk by utilizing the concept of economic value of equity, which is the intrinsic value of assets, less the intrinsic value of liabilities. Economic value of equity does not take into account management intervention and assumes the new rate environment is constant and the change is instantaneous. Further, economic value of equity only evaluates risk to the current balance sheet. Therefore, in

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addition to this measurement, we also evaluate and consider the impact of interest rate shocks on other business factors, such as forecasted net interest income for subsequent years.

Management continually reviews and refines its interest rate risk management process in response to the changing economic climate. Currently, our model projects a minus 200, minus 100, 0, plus 100 and plus 200 basis point changes to evaluate our interest rate sensitivity and to determine whether specific action is needed to improve the current structure, either through economic hedges and matching strategies or by utilizing derivative instruments.

Based upon the current interest rate environment, as of June 30, 2011, our sensitivity to interest rate risk was as follows:

(Dollars in Millions)
Interest Rate Change in Basis Points	Next 12 Months                  Net Interest Income		Economic6 Value of Equity
	$ Change	% Change	$ Change	% Change
200	$6.2	4%	$1.4	0%
100	2.8	2%	3.4	1%
0	—	0%	—	0%
-100	(5.6)	(4%)	(19.6)	(3%)
-200	(13.8)	(9%)	(52.4)	(8%)

We used many assumptions to calculate the impact of changes in interest rates on our portfolio, and actual results may not be similar to projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. Actual results may also differ due to our actions, if any, in response to the changing rates.

In the event the model indicates an unacceptable level of risk, we may take a number of actions to reduce this risk, including the sale of a portion of our available for sale investment portfolio or the use of risk management strategies such as interest rate swaps and caps. As of June 30, 2011, we were in compliance with all of the limits and policies established by management except for those with respect to the minus 200 basis point scenario which, in the current environment where interest rates are at historically low levels, we believe to be a highly unlikely scenario.

Inflation Risk Management

Inflation has an important impact on the growth of total assets in the banking industry and causes a need to increase equity capital higher than normal levels in order to maintain an appropriate equity-to-assets ratio. We cope with the effects of inflation by managing our interest rate sensitivity position through our asset/liability management program, and by periodically adjusting our pricing of services and banking products to take into consideration current costs.

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Off-Balance Sheet Arrangements and Contractual Obligations

Our off-balance sheet arrangements and contractual obligations at June 30, 2011 are summarized in the table that follows.

	Amount of Commitment Expiration Per Period
(Dollars in thousands)	Total Amounts Committed		One Year or Less		Over One Year Through Three Years		Over Three Years Through Five Years		Over Five Years
Off-balance sheet arrangements
Commitments to extend credit	$	340,846	$	97,959	$	82,022	$	19,910	$	140,955
Standby letters of credit		12,610		2,244		9,966		400		—
Total	$	353,456	$	100,203	$	91,988	$	20,310	$	140,955
Contractual obligations
Time deposits	$	1,933,004	$	1,150,841	$	654,088	$	127,861	$	214
Operating lease obligations		53,038		4,173		7,115		6,302		35,448
Capital lease obligations		20,055		607		1,258		1,320		16,870
Purchase obligations		35,925		5,554		11,613		12,320		6,438
FHLB Advances		244,939		89,491		97,319		47,252		10,877
Long-term debt		97,275		—		—		—		97,275
Total	$	2,384,236	$	1,250,666	$	771,393	$	195,055	$	167,122

We are party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Total amount committed under these financial instruments was $353.5 million and $182.0 million as of June 30, 2011 and December 31, 2010, respectively. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

Our exposure to credit loss in the event of nonperformance by the other party to financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of these instruments. We use the same credit policies in making commitments to extend credit and generally use the same credit policies for letters of credit as for on-balance sheet instruments.

Commitments to extend credit are legally binding agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since some of these commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Unused commercial lines of credit, which comprise a substantial portion of these commitments, generally expire within a year from their date of origination. Other loan commitments generally expire in 30 days. The amount of collateral obtained, if any, by us upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may include security interests in business assets, mortgages on commercial and residential real estate, deposit accounts with Capital Bank, NA or other financial institutions, and securities.

We had unfunded loan commitments and unfunded letters of credit totaling $353.5 million and $182.0 million at June 30, 2011 and December 31, 2010, respectively. We believe the likelihood of these commitments either needing to be totally funded or funded at the same time is low. However, should significant funding requirements occur, we have liquid assets including cash and investment securities along with available borrowing capacity from various sources as discussed below.

Standby and performance letters of credit are conditional commitments issued by us to assure the performance or financial obligations of a customer to a third party. The credit risk involved in issuing such letters of credit is essentially the same as that involved in extending loans to customers. We generally hold collateral and/or obtain personal guarantees supporting these commitments.

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We are obligated under operating leases for office and banking premises which expire in periods varying from one to 22 years. Future minimum lease payments, before considering renewal options that we have in many cases, total $53.0 million and $24.8 million at June 30, 2011 and December 31, 2010, respectively.

Purchase obligations consist of computer and item processing services, and debit and ATM card processing and support services contracted by us under long term contractual relationships and based upon estimated utilization.

Long-term debt includes subordinated debentures with notional amounts of $66.4 million and $33.0 million and carrying values totaling $41.6 and $22.9 million at June 30, 2011 and December 31, 2010, respectively. Structured repurchase agreements with notional amounts of $50.0 million and carrying values of $55.7 million are included at June 30, 2011.

The Bank has invested in FHLB stock for the purpose of maintaining credit lines with the FHLB. The credit availability to the Bank is based on the amount of collateral pledged. FHLB advances totaled $234.3 million at June 30, 2011.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. Application of these principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances.

These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.

Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position. We believe that the critical accounting policies and estimates discussed below involve additional management judgment due to the complexity and sensitivity of the methods and assumptions used.

Business Combinations

We account for transactions that meet the definition of a purchase business combination by recording the assets acquired and liabilities assumed at their fair value upon acquisition. Intangible assets, indemnification contracts and contingent consideration are identified and recognized individually. If the fair value of the assets acquired exceeds the purchase price plus the fair value of the liabilities assumed, a bargain purchase gain is recognized. Conversely, if the purchase price plus the fair value of the liabilities assumed exceeds the fair value of the assets acquired, goodwill is recognized.

Fair Value Measurement

We use estimates of fair value in applying various accounting standards for our consolidated financial statements. Fair value measurements are used in one of four ways: (1) in the consolidated balance sheet with changes in fair value recorded in the consolidated statements of operations and other comprehensive income (loss); (2) in the consolidated balance sheets with changes in fair value recorded in the accumulated other comprehensive loss section of the consolidated statements of changes in shareholders’ equity; (3) in the consolidated balance sheet for instruments carried at lower of cost or fair value with impairment charges recorded in the consolidated statements of operations and other comprehensive income (loss); and (4) in the notes to our consolidated financial statements.

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Fair value is defined as the price at which an asset may be sold or a liability may be transferred in an orderly transaction between willing and able market participants. In general, our policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads (including for our liabilities), relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable.

Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of probable loan losses inherent in our loan portfolio and the difference between the recorded investment and the present values of our most recent estimates of expected cash flows for purchased impaired loans where we have identified additional impairment subsequent to the date of acquisition. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses based on risk characteristics of loans and consideration of other qualitative factors, all of which may be susceptible to significant change.

Accounting for Acquired Loans

We account for our acquisitions using the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value as of their respective acquisition dates. No allowance for loan losses related to the acquired loans is recorded on the acquisition date, as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value, exclusive of the impact of guarantees under any applicable loss sharing agreements with the FDIC. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

Loans acquired in a transfer, including business combinations, with respect to which there is evidence of credit deterioration since origination and it is probable at the date of acquisition that we will not collect all contractually required principal and interest payments, are accounted for under accounting guidance for purchased credit-impaired loans. We have applied this guidance to each of our acquisitions, including our FDIC-assisted acquisitions of the Failed Banks and our open market acquisitions of TIB Financial and Capital Bank Corp. For each acquisition, we have aggregated the purchased credit impaired loans into pools of loans with common risk characteristics. Over the life of these acquired loans, we continue to estimate cash flows expected to be collected on individual loans or on pools of loans sharing common risk characteristics. For each pool of loans, we estimate cash flows expected to be collected over the remaining life of the pool’s loans, based on assumptions about yields, prepayments and magnitude and timing of credit losses, and discount those cash flows to present value using effective interest rates to calculate the carrying value. The difference between our recorded investment, or carrying value, in the loans and our estimates of cumulative lifetime undiscounted expected cash flows represents the accretable yield. The accretable yield represents the amount we expect to recognize as interest income over the remaining life of the loans. The difference between the cash flows that our customers legally owe us under the contractual terms of their loan agreements and our cumulative lifetime expected cash flows represents the non-accretable difference. The non-accretable difference of a pool is a measure of the expected credit loss, prepayments and other factors affecting expected cash flows for that pool.

Each quarter, we estimate the expected cash flows for each pool and evaluate whether the present value of future expected cash flows for each pool has decreased below its recorded investment and, if so, we recognize a provision for loan loss in our consolidated statement of income for that pool and appropriately adjust the amount of accretable yield. The expected cash flows are estimated based on factors which include loan grades established in our ongoing credit review program, likelihood of default based on observations of specific loans during the

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credit review process as well as applicable industry data, loss severity based on updated evaluation of cash flow from available collateral, and the contractual terms of the underlying loan agreement. For any pool where the present value of our most recent estimate of future cumulative lifetime cash flows has increased above its recorded investment, we transfer appropriate estimated cash flows from non-accretable difference to accretable yield, which is then recognized in income on a prospective basis through an increase in the pool’s yield over its remaining life. Generally, improvements in expected cash flows less than 1% of the expected cash flows from a pool are not recorded. This threshold may be revised as we gain greater experience. For further discussion of our acquisitions and loan accounting, see Notes 2 and 5 to our consolidated financial statements.

Accounting for Covered Loans

A significant portion of our loans acquired on July 16, 2010 and covered by the loss sharing agreements with the FDIC have demonstrated evidence of deterioration of credit quality since origination. The accounting for these loans and the related FDIC indemnification asset requires us to estimate the timing and amount of cash flow to be collected from these loans and to continually update estimates of the cash flows expected to be collected over the life of the loans. These estimates are considered to be critical accounting estimates because they involve significant judgment and assumptions as to the amount and timing of cash flows to be collected. Covered loans were placed into homogenous pools at acquisition, and the ongoing credit quality and performance of these loans are analyzed quarterly on a pool basis as described above in “—Accounting for Acquired Loans.”

FDIC Indemnification Asset

Because the FDIC will reimburse us for certain amounts related to certain acquired loans and other real estate owned should we experience a loss, an indemnification asset was also recorded at fair value at the acquisition date of such assets. The indemnification asset is recognized at the same time as the indemnified loans are acquired and measured on the same basis, subject to collectability or contractual limitations. The indemnification asset on the acquisition date reflects the reimbursements expected to be received from the FDIC, using an appropriate discount rate, which reflects counterparty credit risk.

Subsequent to initial recognition, the FDIC indemnification asset continues to be measured on the same basis as the related indemnified loans, and the FDIC indemnification asset is impacted by changes in estimated cash flows associated with these loans. Deterioration in the credit quality on expected cash flows of the loans (immediately recorded as an adjustment to the allowance for loan losses) would immediately increase the FDIC indemnification asset, with the offset recorded through the consolidated statement of income. Increases in the credit quality or cash flows of loans (reflected as an adjustment to yield and accreted into income over the remaining life of the loans) decrease the basis of the FDIC indemnification asset, with such decrease being amortized into income over (i) the life of the loan or (ii) the life of the shared loss agreements, whichever is shorter. Loss assumptions used in the basis of the indemnified loans are consistent with the loss assumptions used to measure the FDIC indemnification asset. Fair value accounting incorporates into the fair value of the FDIC indemnification asset an element of the time value of money, which is accreted back into income over the life of the shared loss agreements.

Upon the determination of an incurred loss, the FDIC indemnification asset will be reduced by the amount owed by the FDIC and a corresponding loss share receivable will be recorded until cash is received from the FDIC. As noted above, the legacy loan portfolios of First National Bank, Metro Bank and Turnberry are covered by loss sharing agreements with the FDIC. Following the acquisition, we assigned responsibility for managing these loan portfolios to our special assets division and implemented policies and systems to ensure compliance with the terms of the loss sharing agreements. During 2011, we collected $58.2 million in reimbursements from the FDIC, representing all of our requests for reimbursement of covered losses from July 16, 2010 through June 30, 2011

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Other Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the collateral at the date of foreclosure based on estimates, including some obtained from third parties, less estimated costs to sell, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management, and the assets are carried at the lower of cost or fair value, less estimated costs to sell. Significant property improvements that enhance the salability of the property are capitalized to the extent that the carrying value does not exceed estimated realizable value. Legal fees, maintenance and other direct costs of foreclosed properties are expensed as incurred. Given the number of properties included in OREO, and the judgment involved in estimating fair value of the properties, accounting for OREO is regarded as a critical accounting policy.

Deferred Tax Asset

Deferred income tax assets and liabilities result from temporary differences between assets and liabilities measured for financial reporting purposes and for income tax return purposes. Realization of tax benefits for deductible temporary differences depends on having sufficient taxable income of an appropriate character within the carryforward periods. Management must evaluate the probability of realizing the deferred tax asset and determine the need for a valuation reserve as of the date of the consolidated financial statements. Given the judgment involved and the amount of our deferred tax asset, this is considered a critical accounting policy. As of June 30, 2011, there was no valuation adjustment relating to our $64.9 million deferred tax asset.

Recent Accounting Pronouncements

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”). The new guidance amends existing guidance by (i) eliminating the option to present components of other comprehensive income (OCI) as part of the statement of changes in shareholders’ equity, (ii) requiring the presentation of each component of net income and each component of OCI either in a single continuous statement or in two separate but consecutive statements, and (iii) requiring the presentation of reclassification adjustments on the face of the statement. The new guidance does not change the option to present components of OCI either before or after related income tax effects, the items that must be reported in OCI, when an item of OCI should be reclassified to net income, or the computation of earnings per share (which continues to be based on net income). This guidance is effective for interim and annual periods beginning on or after December 15, 2011 for public companies, with early adoption permitted and retrospective application required. The adoption of this guidance will not have an impact on the Company’s consolidated financial condition or results of operations but will alter disclosures.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The amended guidance (i) clarifies how a principal market is determined, (ii) establishes the valuation premise for the highest and best use of nonfinancial assets, (iii) addresses the fair value measurement of instruments with offsetting market or counterparty credit risks, (iv) extends the prohibition on blockage factors to all three levels of the fair value hierarchy, and (v) requires additional disclosures including transfers between Level 1 and Level 2 of the fair value hierarchy, quantitative and qualitative information and a description of an entity’s valuation process for Level 3 fair value measurements, and fair value hierarchy disclosures for financial instruments not measured at fair value. This guidance is effective for interim and annual periods beginning on or after December 15, 2011, with early adoption prohibited. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial condition or results of operations.

In April 2011, the FASB issued new guidance impacting Receivables. The new guidance amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring. The amendments clarify the guidance for a creditor’s evaluation of whether it has granted a concession and whether a

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debtor is experiencing financial difficulties. This guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. Management is currently evaluating the impact the standard will have on the consolidated financial statements.

In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations, to amend ASC Topic 805, Business Combinations. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this update are effective prospectively for 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, 2010. Adoption of this update did not have a material impact on the Company’s consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to amend ASC Topic 320, Receivables. The amendments in this update are intended to provide disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Adoption of this update did not have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued new guidance impacting transfers and servicing. The objective of this guidance is to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. This guidance is effective for financial asset transfers occurring after December 31, 2009. The adoption of this guidance was not material to our consolidated financial statements.

In June 2009, the FASB issued new guidance impacting consolidation of variable interest entities. The objective of this guidance is to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. This guidance was effective as of January 1, 2010. The adoption of this guidance was not material to our consolidated financial statements.

In February 2010, the FASB issued new guidance impacting fair value measurements and disclosures. The new guidance requires a gross presentation of purchases and sales of Level 3 activities and adds a new requirement to disclose transfers in and out of Level 1 and Level 2 measurements. The guidance related to the transfers between Level 1 and Level 2 measurements was effective for us on January 1, 2010. The guidance that requires increased disaggregation of the Level 3 activities is effective for us on January 1, 2011.

In March 2010, the FASB issued new guidance impacting receivables. The new guidance clarifies that a modification to a loan that is part of a pool of loans that were acquired with deteriorated credit quality should not result in the removal of the loan from the pool. This guidance is effective for any modifications of loans accounted for within a pool in the first interim or annual reporting period ending after July 15, 2010. The adoption of this guidance was not material to our consolidated financial statements.

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BUSINESS

Our Company

We are a bank holding company incorporated in late 2009 with the goal of creating a regional banking franchise in the southeastern region of the United States through organic growth and acquisitions of other banks, including failed, underperforming and undercapitalized banks. In December 2009 and January 2010, we raised approximately $900 million to make acquisitions through a series of private placements of our common stock. Since then, we have acquired five depository institutions, including the assets and certain deposits of the three Failed Banks from the FDIC. As of June 30, 2011, we operated 82 branches in Florida, North Carolina and South Carolina. We expect to complete the acquisition of a sixth depository institution owned by Green Bankshares, in the third quarter of 2011. Upon completion of our transaction with Green Bankshares, we will operate 146 branches in Tennessee, Florida, North Carolina, South Carolina and Virginia. Through our branches, we offer a wide range of commercial and consumer loans and deposits, as well as ancillary financial services.

We were founded by a group of experienced bankers with a multi-decade record of leading, operating, acquiring and integrating financial institutions. Our executive management team is led by our Chief Executive Officer, R. Eugene Taylor. Mr. Taylor is the former Vice Chairman of Bank of America, where his career spanned 38 years, including tenure as President of the Consumer and Commercial Bank. He also has extensive experience executing and overseeing bank acquisitions, including NationsBank Corp.’s acquisition and integration of Bank of America, Maryland National Bank and Barnett Banks. Our Chief Financial Officer, Christopher G. Marshall, has over 23 years of financial and managerial experience, including service as the Chief Financial Officer of Fifth Third Bancorp and as the Chief Operations Executive for Bank of America’s Global Consumer and Small Business Bank. Our Chief Risk Officer, R. Bruce Singletary, has over 32 years of experience, including 19-years of experience managing credit risk. He has served as Head of Credit for NationsBank Corp. for the Mid-Atlantic region and as Senior Risk Manager for commercial banking for Bank of America’s Florida Bank. Kenneth A. Posner serves as our Chief of Investment Analytics and Research. Mr. Posner spent 13 years as an equity research analyst at Morgan Stanley focusing on a wide range of financial services firms.

After giving pro forma effect to our pending transaction with Green Bankshares, as of June 30, 2011, we had approximately $7.1 billion in total assets, $4.4 billion in loans, $5.4 billion in total deposits and $982.6 million in shareholders’ equity.

Our Acquisitions

Overview

Our banking operations commenced on July 16, 2010, when we purchased approximately $1.2 billion of assets and assumed approximately $960.1 million of deposits of the three Failed Banks from the FDIC. We did not pay the FDIC a premium for the deposits of the Failed Banks. In connection with these acquisition, we entered into loss sharing agreements with the FDIC covering approximately $796.1 million of outstanding loans balances and real estate of the Failed Banks that we acquired. Under the loss sharing arrangements, the FDIC has agreed to absorb 80% of all future credit losses and workout expenses on these assets. On September 30, 2010, we invested approximately $175.0 million in TIB Financial, a publicly held financial services company that had total assets of approximately $1.7 billion and operated 28 branches in southwest Florida. Finally, on January 28, 2011, we invested approximately $181.1 million in Capital Bank Corp., a publicly held financial services company that had approximately $1.7 billion in assets and operated 32 branches in central and western North Carolina. Within a 12-month period, we have integrated and centralized the underwriting, risk and pricing functions of each of our acquired institutions and combined them all onto a single information processing system.

The Failed Banks

On July 16, 2010, we purchased substantially all of the assets and assumed all of the deposits of First National Bank in Spartanburg, South Carolina, Metro Bank in Miami, Florida and Turnberry Bank in Aventura,

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Florida. None of the Failed Banks were affiliated with one another. First National Bank, founded in 1999, was a mid-sized community bank targeting customers located in the Spartanburg, Greenville, Charleston, Columbia and York County markets in South Carolina that operated 13 branches at the time we acquired it from the FDIC. Metro Bank, founded in 1984, was a privately held community bank that operated six branches in Miami, Coral Gables, Sunrise and Lighthouse Point, Florida at the time we acquired it from the FDIC. Turnberry Bank, founded in 1985, was a privately held community bank that operated four branches in Aventura, Coral Gables, Pinecrest and South Miami, Florida at the time we acquired it from the FDIC.

Our acquisition of the Failed Banks resulted in our acquiring assets with an estimated fair value of $1.2 billion, which included $768.6 million of loans, $74.4 million of investment securities, $184.3 million of cash and cash equivalents and a $137.3 million FDIC indemnification asset. We also assumed liabilities with a fair value of $1.1 billion, which included $960.1 million of deposits and $148.6 million of borrowings.

These transactions gave us an initial market presence in Miami, which we targeted because of its size and concentrated business activity, and South Carolina, which we targeted because of its attractive demographic growth trends.

Loss Sharing Agreements

In connection with our acquisition of the Failed Banks, we entered into loss sharing agreements with the FDIC covering approximately $796.1 million of loans and real estate owned of the Failed Banks that we acquired. Under the loss sharing agreements, the FDIC agreed to absorb 80% of all future credit losses and workout expenses on these assets. We will reimburse the FDIC for its share of recoveries with respect to losses for which the FDIC paid us a reimbursement under the loss sharing agreements and 50% of certain fully charged-off assets.

The loss sharing agreements consists of three (one for each Failed Bank) single-family shared-loss agreements and three (one for each Failed Bank) commercial and other loans shared-loss agreements. The single family shared-loss agreements provide for FDIC loss sharing and reimbursement to us for recoveries to the FDIC for ten years from July 16, 2010 for single-family residential loans. The commercial shared-loss agreements provide for FDIC loss sharing for five years from July 16, 2010 and our reimbursement for recoveries to the FDIC for eight years from July 16, 2010 for all other covered assets.

The covered assets that we acquired in connection with our acquisition of the Failed Banks include one-to-four family residential real estate loans (both owner occupied and non-owner occupied), home equity loans and commercial loans.

We have agreed to make a true-up payment, also known as clawback liability, to the FDIC on the date that is 45 days following the last day of the final shared loss month, or upon the final resolution of all covered assets under the loss sharing agreements in the event losses thereunder fail to reach expected levels, not to exceed ten years from the date of our acquisition of the Failed Banks. The estimated fair value of the true-up payment as of the acquisition date was $1.0 million.

Under the loss sharing agreements, we are limited in our ability to dispose of covered assets and we are required to follow specific servicing procedures and to undertake loss mitigation efforts. Additionally, the FDIC has information rights with respect to our performance, requiring us to maintain detailed compliance records.

The carrying value of the FDIC indemnification asset at June 30, 2011 was $72.7 million.

TIB Financial Corp.

On September 30, 2010, we invested approximately $175.0 million in TIB Financial, a publicly held bank holding company headquartered in Naples, Florida that had total assets of approximately $1.7 billion and

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operated 28 branches in southwest Florida. Upon the closing of the TIB Financial investment on September 30, 2010, we owned approximately 99% of the outstanding voting power of TIB Financial. TIB Financial subsequently completed a rights offering to legacy TIB Financial stockholders, which reduced our ownership interest in TIB Financial to approximately 94%. In connection with our TIB Financial investment, we acquired a warrant to purchase an additional $175 million in TIB common stock on substantially the same terms as our initial investment, exercisable in whole or in part until March 30, 2012. On April 29, 2011, we combined TIB Financial’s banking subsidiary, TIB Bank, with our banking subsidiary, NAFH National Bank (whose name has since changed to Capital Bank, N.A.) in an all-stock transaction.

TIB Financial has been executing a community bank business strategy for individuals and businesses in the Florida Keys for 37 years. Prior to TIB Bank’s merger with NAFH National Bank, it had 27 full-service banking offices in Florida that were located in Monroe, Miami-Dade, Collier, Lee and Sarasota counties.

The TIB Financial investment resulted in us acquiring assets with a fair value of $1.7 billion, which included $1.0 billion of loans, $309.3 million of investment securities and $229.7 million of cash and cash equivalents. We also assumed liabilities with a fair value of $1.6 billion, which included $1.3 billion of deposits and $208.8 million of subordinated debt and other borrowings.

In connection with the TIB Financial investment, Messrs. Taylor, Marshall, Foss, Hodges and Singletary were each appointed to the board of directors of TIB Financial. Two existing members of the TIB Financial board, Mr. Howard Gutman and Mr. Brad Boaz, also remain on the TIB Financial board.

This acquisition expanded our geographic reach in Florida to include markets that we believe have particularly attractive deposit customer characteristics and provided a platform to support our future growth.

Capital Bank Corp.

On January 28, 2011, we invested approximately $181.1 million in Capital Bank Corp., a publicly held bank holding company headquartered in Raleigh, North Carolina that had approximately $1.7 billion in assets and operated 32 branches in central and western North Carolina. Upon closing of the Capital Bank Corp. investment, we owned approximately 85% of the voting power of Capital Bank Corp. Also, in connection with the investment, each existing Capital Bank Corp. stockholder received one contingent value right (which we refer to as a “CVR”) per share that entitles the holder to receive up to $0.75 in cash per CVR at the end of a five-year period based on the credit performance of Capital Bank Corp.’s existing loan portfolio. The maximum amount that may be payable under the Capital Bank Corp. CVR at the end of its five-year term is approximately $9.7 million. Capital Bank Corp. subsequently completed a rights offering to legacy Capital Bank Corp. stockholders, which reduced our ownership interest to approximately 83%. On June 30, 2011, we combined Capital Bank Corp.’s banking subsidiary, Capital Bank, with our banking subsidiary, NAFH National Bank, in an all-stock transaction and, simultaneously with the consummation of the transaction, changed the name of NAFH National Bank to Capital Bank, N.A.

Capital Bank Corp., incorporated in 1998, is a community bank engaged in the general commercial banking business, primarily in markets in central and western North Carolina. It operates 32 branch offices in North Carolina: five branch offices in Raleigh, four in Asheville, four in Fayetteville, three in Burlington, three in Sanford, two in Cary and one in each of Clayton, Graham, Hickory, Holly Springs, Mebane, Morrisville, Oxford, Siler City, Pittsboro, Wake Forest and Zebulon.

The Capital Bank Corp. investment resulted in us acquiring assets with a fair value of $1.7 billion, which included $1.1 billion of loans, $225.3 million of investment securities and $208.3 million of cash and cash equivalents. We also assumed liabilities with a fair value of $1.5 billion, which included $1.4 billion of deposits and $143.2 million of subordinated debt and other borrowings.

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In connection with the Capital Bank Corp. investment, Messrs. Taylor, Marshall, Foss, Hodges and Singletary were each appointed to the board of directors of Capital Bank Corp. Two existing members of the Capital Bank Corp. board, Mr. Oscar A. Keller, III and Mr. Charles F. Atkins, also remain on the Capital Bank Corp. board. Also in connection with the Capital Bank Corp. investment, we agreed to appoint two Capital Bank Corp. board members to our Board of Directors. This transaction gave us a strong presence in fast-growing North Carolina markets, including the Raleigh metropolitan area, which, according to data derived from the U.S. Census, is the third fastest growing metropolitan area in the country by population.

Green Bankshares, Inc.

On May 5, 2011, we agreed to invest approximately $217.0 million in Green Bankshares, a publicly held bank holding company headquartered in Greeneville, Tennessee that had approximately $2.3 billion in assets reported as of June 30, 2011 and operated 63 branches across East and Middle Tennessee in addition to one branch in each of Virginia and North Carolina. Total assets at June 30, 2011 included gross loans of $1.6 billion. Also, in connection with the investment, each existing Green Bankshares stockholder will receive one CVR per share that entitles the holder to receive up to $0.75 in cash per CVR at the end of a five-year period based on the credit performance of Green Bankshares’ existing loan portfolio. We estimate that the maximum amount that may be payable under the Green Bankshares CVR at the end of its five-year term to be approximately $9.9 million, based on the number of Green Bankshares common stock outstanding as of May 13, 2011. Upon completion of our investment, we expect to own approximately 90.0% of Green Bankshares’ common stock. Our investment in Green Bankshares is subject to stockholder approvals, regulatory approvals and other customary closing conditions, and is expected to be completed in the third quarter of 2011. Promptly following the completion of our controlling investment in Green Bankshares, we expect to merge GreenBank, Green Bankshares’ banking subsidiary, into Capital Bank in an all-stock transaction similar to the other bank mergers described above.

Green Bankshares is the third-largest bank holding company headquartered in Tennessee and parent company of GreenBank, a Tennessee-chartered commercial bank established in 1890. GreenBank provides general banking services through its branches located in Greene, Blount, Cocke, Hamblen, Hawkins, Knox, Loudon, McMinn, Monroe, Sullivan and Washington Counties in East Tennessee and in Davidson, Lawrence, Macon, Montgomery, Rutherford, Smith, Sumner and Williamson Counties in Middle Tennessee. GreenBank also operates one branch in Madison County, North Carolina and one branch in Bristol, Virginia as well as a mortgage banking operation in Knox County, Tennessee.

Upon completion, the Green Bankshares investment will result in us acquiring assets with a reported carrying value at June 30, 2011 of $2.3 billion, including $1.6 billion of loans, $217.6 million of investment securities and $344.3 million of cash and cash equivalents. We will also assume liabilities with a reported carrying value at June 30, 2011 of $2.2 billion, including $1.9 billion of deposits and $265.2 million of subordinated debt and other borrowings.

The terms of the Green Bankshares investment provide that, upon completion of our investment, we will appoint Messrs. Taylor, Marshall, Foss, Hodges and Singletary to the board of directors of Green Bankshares. Two existing members of the Green Bankshares’ board of directors, to be selected by us, will remain on the Green Bankshares board, with the remaining existing directors resigning. Additionally, we agreed that upon the closing of the Green Bankshares investment, we will also appoint the two legacy Green Bankshares directors to our Board of Directors.

This transaction will extend our reach in the Tennessee metropolitan areas of Nashville and Knoxville.

Reorganization

Prior to the completion of this offering, and assuming the completion of our Green Bankshares investment, we intend to merge GreenBank, the wholly owned bank subsidiary of Green Bankshares, with and into Capital

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Bank, N.A. (formerly known as NAFH National Bank). In addition, concurrent with the completion of this offering, we intend to merge each of our majority-held bank holding company subsidiaries (TIB Financial, Capital Bank Corp. and, assuming the completion of our Green Bankshares investment, Green Bankshares) with the Company. In connection with the mergers of our majority-held subsidiaries, we expect that existing third-party stockholders of these subsidiaries will receive shares of Class A common stock in exchange for their minority existing shares. We estimate that we will issue approximately                                  shares of Class A common stock to the other shareholders of our bank holding company subsidiaries that will be merged with the Company in the reorganization. Following the completion of this offering and the reorganization, we will be a publicly traded bank holding company with a single directly and wholly owned bank subsidiary, Capital Bank, N.A.

The following diagrams illustrate our ownership structure, including our principal subsidiaries, assuming the completion of the Green Bankshares investment, as of the date of this prospectus and immediately after the completion of this offering and the reorganization:

⁽¹⁾  On April 29, 2011, we combined TIB Financial’s banking subsidiary, TIB Bank, with NAFH National Bank in an all-stock transaction (see “—Our Acquisitions—TIB Financial Corp”) and, on June 30, 2011, we combined Capital Bank Corp.’s banking subsidiary, Capital Bank, with NAFH National Bank in an all-stock transaction and, simultaneously with the consummation of the transaction, changed the name of NAFH National Bank to Capital Bank, N.A. (see “—Our Acquisitions—Capital Bank Corporation”).

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Our Business Strategy

Our business strategy is to build a mid-size regional bank by operating, integrating and growing our existing operations as well as to acquire other banks, including failed, underperforming and undercapitalized banks and other complementary assets. We believe recent and continuing dislocations in the southeastern U.S. banking industry have created an opportunity for us to create a mid-sized regional bank that will be able to realize greater economies of scale compared to smaller community banks while still providing more personalized, local service than large-sized banks.

Operating Strategy

Our operating strategy emphasizes relationship banking focused on commercial and consumer lending and deposit gathering. We have organized operations under a line of business operating model, under which we have appointed experienced bankers to oversee loan and deposit production in each of our markets, while centralizing credit, finance, technology and operations functions. Our management team possesses significant executive-level leadership experience at Fortune 500 financial services companies, and we believe this experience is an important advantage in executing this regional, more focused, bank business model.

Organic Loan and Deposit Growth

The primary components of our operating strategy are to originate high-quality loans and low-cost customer deposits. Our executive management team has developed a hands-on operating culture focused on performance and accountability, with frequent and detailed oversight by executive management of key performance indicators. We have implemented a sales management system for our branches that is focused on growing loans and core deposits in each of our markets. We believe that this system holds loan officers and branch managers accountable for achieving loan production goals, which are subject to the conservative credit standards and disciplined underwriting practices that we have implemented as well as compliance, profitability and other standards that we monitor. We also believe that accountability is crucial to our results. Our executive management monitors production, credit quality and profitability measures on a quarterly, monthly, weekly and, in some cases, daily basis and provides ongoing feedback to our business unit leaders. During the first half of 2011, we originated $354.1 million of new commercial and consumer loans, and we grew our core deposits by $181.5 million (or 26.2% annualized growth).

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The current market conditions have forced many banks to focus internally, which we believe creates an opportunity for organic growth by strongly capitalized banks such as ourselves. We seek to grow our loan portfolio by offering personalized customer service, local market knowledge and a long-term perspective. We have selectively hired experienced loan officers with local market knowledge and existing client relationships. Additionally, our executive management team takes an active role in soliciting, developing and maintaining client relationships.

Efficiency and Cost Savings

Another key element of our strategy is to operate efficiently by carefully managing our cost structure and taking advantage of economies of scale afforded by our acquisitions to control operating costs. We have been able to reduce headcount by consolidating duplicative operations of the acquired banks and streamlining management. We expect to recognize additional cost savings once we have integrated Capital Bank Corp. and, if acquired, Green Bankshares, onto our core processing platform. We plan to further improve efficiency by boosting the productivity of our sales force through our focus on accountability and employee incentives and through selective hiring of experienced loan officers with existing books of business.

To evaluate and control operating costs, we monitor certain performance metrics including our efficiency ratio, which equals total non-interest expenses divided by net revenues (net interest income plus non-interest income). Our efficiency ratio has been and is expected to continue to be significantly impacted by certain costs that follow acquisitions of financial institutions. Our efficiency ratio for the six months ended June 30, 2011 was 85.9%, which was impacted by $4.7 million of conversion expenses due to integration of the acquired banks and $2.8 million of foreclosed asset related expense from the resolution of legacy problem assets. Excluding the impact of these items, our adjusted efficiency ratio for the six months ended June 30, 2011 was 76.9%.

Acquisition and Integration Strategy

We seek acquisition opportunities consistent with our business strategy that we believe will produce attractive returns for our stockholders. We plan to pursue acquisitions that position us in southeastern U.S. markets with attractive demographics and business growth trends, expand our branch network in existing markets, increase our earnings power or enhance our suite of products. Our future acquisitions may include distressed assets sold by the FDIC or another seller where our operations, underwriting and servicing capabilities or management experience give us an advantage in evaluating and resolving the assets.

Our acquisition process begins with detailed research of target institutions and the markets they serve. We then draw on our management team’s extensive experience and network of industry contacts in the southeastern region of the United States. Our research and analytics team, led by our Chief of Investment Analytics and Research, maintains lists of priority targets for each of our markets. The team analyzes financial, accounting, tax, regulatory, demographic, transaction structures and competitive considerations for each target and prepares acquisition projections for review by our executive management team and Board of Directors.

As part of our diligence process in connection with potential acquisitions, we undertake a detailed portfolio- and loan-level analysis conducted by a team of experienced credit analysts led by our Chief Risk Officer. In addition, our executive management team engages the target management teams in active dialogue and personally conducts extensive on-site diligence at target branches.

Our executive management team has demonstrated success not only in acquiring financial institutions and combining them onto a common platform, but also in managing the integration of those financial institutions. Our management team develops integration plans prior to the closing of a given transaction that allows us to (1) reorganize the acquired institution’s management team under our line of business model immediately after closing; (2) implement our credit, risk and interest rate risk management, liquidity and compliance and governance policies and procedures; and (3) integrate our target’s technology and processing systems rapidly.

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Using our procedures, we have already integrated credit and operational policies across each of our acquisitions. We reorganized the management of the Failed Banks within three months of closing, and we merged their core processing systems with TIB Financial’s platform within six months. We also fully integrated Capital Bank Corp. in July 2011.

Sound Risk Management

Sound risk management is an important element of our commercial/retail bank business model and is overseen by our Chief Risk Officer, Bruce Singletary, who has over 19 years of experience managing credit risk. Our credit risk policy, which has been implemented across our organization, establishes prudent underwriting guidelines, limits portfolio concentrations by geography and loan type and incorporates an independent loan review function. Mr. Singletary has created a special assets division with 38 employees to work out or dispose of legacy problem assets using a detailed process taking into account a borrower’s repayment capacity, available guarantees, collateral value, interest accrual and other factors. We believe our risk management policies establish conservative regulatory capital ratios, robust liquidity (including contingency planning), limitations on wholesale funding (including brokered CDs, holding company debt and advances from the FHLB), and restrictions on interest rate risk.

Our Competitive Strengths

• Experienced and Respected Management Team with a Successful Track Record. Members of our executive management team and Board of Directors have served in executive leadership roles at Fortune 500 financial services companies, including Bank of America, Fifth Third Bancorp and Morgan Stanley. The executive management team has extensive experience overseeing commercial and consumer banking, mergers and acquisitions, systems integrations, technology, operations, credit and regulatory compliance. Many members of our executive management team are from the southeastern region of the United States and have an extensive network of contacts with banking executives, existing and potential customers, and business and civic leaders throughout the region. We believe our executive management team’s reputation and track record give us an advantage in negotiating acquisitions and hiring and retaining experienced bankers.

• Growth-Oriented Business Model. Our executive management team seeks to foster a strong sales culture with a focus on developing key client relationships, including direct participation in sales calls, and through regular reporting and accountability while emphasizing risk management. Our executive management and line of business executives monitor performance on a quarterly, monthly, weekly and in some cases daily basis, and our compensation plans reward core deposit and responsible commercial loan growth, subject to credit quality, compliance and profitability standards. We have an integrated, scalable core processing platform and centralized credit, finance and technology operations that we believe will support future growth. Our business model contributed to our $354.1 million of commercial and consumer loan originations and $181.5 million in total deposit growth in the first half of 2011.

• Highly Skilled and Disciplined Acquirer. Including our pending transaction with Green Bankshares, we will have executed six acquisitions in just 12 months. We integrated our first four investments into a common core processing platform within six months and integrated the fifth in July 2011. We believe our track record of completing and integrating transactions quickly has helped us negotiate transactions on more economically favorable terms. We have conducted due diligence on more than 50 financial institutions, many of which our diligence process indicated would not meet our strategic objectives.

• Reduced-Risk Legacy Portfolio. Our acquired loan portfolios have been marked-to-market with the application of the acquisition method of accounting, meaning that the carrying value of these assets at the time of their acquisitions reflected our estimate of lifetime credit losses. In addition, as of June 30, 2011, approximately 21% of our loan portfolio was covered by the loss sharing agreements we entered into with the FDIC, resulting in limited credit risk exposure for these assets.

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• Excess Capital and Liquidity. As a result of our private placements and the disciplined deployment of capital, we have ample capital with which to make acquisitions. As of June 30, 2011, we had an 18.1% tangible common equity ratio (which is not a measure recognized under GAAP, but is used by regulators, financial analysts and others to measure core capital strength) and a 17.7% Tier 1 leverage ratio, which provides us with $363.2 million in excess capital relative to the 10% Tier 1 leverage standard required under Capital Bank’s operating agreement with the OCC. As of June 30, 2011, Capital Bank had a 10.5% Tier 1 leverage ratio, a 17.0% Tier 1 risk-based ratio and a 17.5% total risk-based capital ratio. As of June 30, 2011, we had cash and securities equal to 28.5% of total assets, representing $657.2 million of liquidity in excess of our target of 15%, which provides ample liquidity to support our existing banking franchises. Further, our investment portfolio consists primarily of U.S. agency-guaranteed mortgage-backed securities, which have limited credit or liquidity risk. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for a discussion of the use of the tangible common equity ratio in our business and the reconciliation of tangible common equity ratio.

• Scalable Back-Office Systems. As of July 2011, all of our acquired institutions were operating on a single information processing system, which is also the same system used by Green Bankshares. Our systems are designed to accommodate all of our projected future growth and allow us to offer our customers virtually all of the services currently offered by the nation’s largest financial institutions, including state-of-the-art online banking. Enhancements made to our systems are included to improve our commercial and consumer loan origination, electronic banking and direct response marketing processes, as well as enhance cash management, streamlined reporting, reconciliation support and sales support.

Our Market Area

We view our market area as the southeastern region of the United States. Our six acquisitions (including our pending Green Bankshares investment) have established a footprint defined by the Miami-Raleigh-Nashville triangle, which includes the Carolinas, Southwest Florida (Naples and the Keys) and Southeast Florida (Miami-Dade). These markets include a combination of large and fast-growing metropolitan areas that we believe will offer us opportunities for organic loan and deposit growth. According to SNL Financial, the Raleigh MSA has the third highest projected population growth rate in the nation, with over 19% growth projected between 2010 and 2015. Similarly, the Nashville MSA is projected to grow by 10%. The Miami MSA is already considered a large metropolitan area with a population in excess of 5 million. Similar to other markets, even though recent data show a seasonal improvement in home prices, these MSAs have been impacted by the recent economic recession and downturns in home prices, employment and income. Home prices in Charlotte and Miami rose by 2.0% and 0.6 respectively (as measured by S&P/Case-Shiller Home Prices Indices), in the month of June 2011. However, home prices are still down in both cities compared to June 2010 (4.1% decline in Charlotte and 5.1% in Miami).

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Approximately 46% of our current branches are located in our target MSAs. The following table highlights key demographics of our target market areas:

Target Metropolitan Statistical Area	Number of Branches		June 30, 2011 Total Deposits(1)		2010 Total Population(2)		2010-15 Projected Pop. Growth			2010 Median Household Income		2010-15 Projected Household Income Growth
Miami-Fort Lauderdale-Pompano Beach-Homestead, FL		12	$	865,234		5,513		1.4	%		51,835		13.5	%
Charlotte-Gastonia- Rock Hill, NC-SC		1		26,394		1,793		14.8			62,215		13.2
Nashville-Davidson-Murfreesboro-Franklin, TN		21		716,389		1,608		9.6		$	58,639		11.3
Raleigh-Cary, NC		13		380,797		1,162		19.4			68,373		15.4
Columbia, SC		6		122,642		758		8.2			52,348		11.9
Knoxville, TN		10		261,901		703		6.4			48,593		13.8
Durham-Chapel Hill, NC		2		78,441		505		8.8			55,185		13.2
Spartanburg, SC		3		176,517		290		7.7			48,476		10.1
Weighted Average: Target MSAs(3)		68		2,628,315		12,333		9.1			56,504		12.8
Weighted Average: NAFH Consolidated(3)		148		5,395,811		18,119		6.3			62,213		12.7
Aggregate: National						311,213		3.9			54,442		12.4

Source: SNL Financial.

⁽¹⁾ Total deposits as of June 30, 2011 are pro forma giving effect to our pending acquisition of Green Bankshares.

⁽²⁾  Population in thousands.

⁽³⁾  Population growth and median household income metrics are deposit weighted by MSA.

Products and Services

Banking Services by Business Line

We have integrated our acquisitions under a single line of business operating model. Under this model, we have appointed experienced bankers to oversee loan and deposit growth in each of our markets, while we have centralized other functions, including credit, finance, operations, marketing, human resources and information technology.

The Commercial Bank

Our commercial bank business consists of teams of commercial loan officers operating under the leadership of commercial banking executives in Florida and the Carolinas. Upon the closing of the Green Bankshares investment, we plan to appoint a commercial banking executive to oversee production for the Tennessee market. The commercial banking executives are responsible for production goals for loans, deposits and fees. They work with senior credit officers to ensure that loan production is consistent with our loan policies and with financial officers to ensure that loan pricing is consistent with our profitability goals. We focus our commercial bank business on loan originations for established small and middle-market businesses with whom we develop personal relationships that we believe give us a competitive advantage and differentiates us from larger banking institutions. In addition, our commercial lending teams coordinate with personnel in our consumer bank business to provide personal loans and other services to the owners and managers and employees of the bank’s commercial clients. At June 30, 2011, commercial loans totaled $2.1 billion (or 69% of our total loan portfolio). Commercial underwriting is driven by cash flow analysis supported by collateral analysis and review. Our commercial lending teams offer a wide range of commercial loan products, including:

• owner occupied commercial real estate construction and term loans;

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• working capital loans and lines of credit;

• demand, term and time loans; and

• equipment, inventory and accounts receivable financing.

During the first six months of 2011, we originated $266.9 million of new commercial loans. Our commercial lending teams also seek to gather low-cost deposits from commercial customers in connection with extending credit. In addition to business demand, savings and money market accounts, we also provide specialized cash management services and deposit products.

The Consumer Bank

Our consumer bank business consists of Capital Bank’s retail banking branches and associated businesses. Similar to our commercial bank business, we have organized the consumer bank by geographical market, with one division consisting of our Florida branches and the other of our Carolina branches. Each division reports to a consumer banking executive responsible for achieving core deposit and consumer loan growth goals. Upon closing of the Green Bankshares investment, we plan to appoint a consumer banking executive for the Tennessee market. Pricing of our deposit products is reviewed and approved by our asset-liability committee and the standards for consumer loan credit quality are documented in our loan policy and reviewed by our credit executives.

We seek to differentiate our consumer bank business from competitors through the personalized service offered by our branch managers, customer service representatives, tellers and other staff. We offer various services to meet the needs of our customers, including checking, savings and money market accounts, certificates of deposit and debit and credit cards. Our products are designed to foster relationships by rewarding our best customers for desirable activities such as debit card transactions, e-statements and direct deposit. In addition to traditional products and services, we offer competitive technology in Internet banking services, which we plan to further upgrade in order to keep pace with technological improvements. Consumer loan products we offer include:

• home equity lines of credit;

• residential first lien mortgages;

• second lien mortgages;

• new and used auto loans;

• new and used boat loans;

• overdraft protection; and

• unsecured personal credit lines.

Branch managers and their staff are charged with growing core deposits with a special focus on new demand deposit accounts and expected to conduct outbound telephone campaigns, generate qualified referrals, collaborate with business partners in the commercial lending teams and evaluate, and make informed decisions with respect to, existing and prospective customers. In the first six months of 2011, we generated organic core deposit growth of $181.5 million (or 26.2% annualized growth). As of June 30, 2011, consumer loans totaled $865.5 million. During the first six months of 2011, we originated $79.9 million of new consumer loans.

Ancillary Fee-Based Businesses

Mortgage Banking

Through our newly established mortgage banking business, we aim to originate high-quality loans for customers who are willing to establish a deposit relationship with us. The mortgage loans in our portfolio that do

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not meet this criteria are sold in to the secondary market to buyers, such as Fannie Mae and Freddie Mac, and provide an additional source of fee income. Our mortgage banking capabilities include conventional and nonconforming mortgage underwriting and construction and permanent financing.

Private Banking, Trust and Investment Management

We offer private banking and wealth management services to affluent clients, business owners and retirees, building new relationships and expanding existing relationships to grow deposits, loans and fiduciary and investment management fee income. Through private banking, we offer deposit products, commercial and consumer loans, including mortgage financing, and investment accounts providing access to a wide range of mutual funds, annuities and other financial products, as well as access to our subsidiary, Naples Capital Advisors, which is a registered investment advisor with approximately $225 million in assets under management.

Lending Activities

We originate a variety of loans, including loans secured by real estate, loans for construction, loans for commercial purposes, loans to individuals for personal and household purposes, loans to municipalities and loans for new and used cars. A significant portion of our loan portfolio is related to real estate. As of June 30, 2011, loans related to real estate totaled $2.6 billion (or 87% of our total loan portfolio). The economic trends in the regions we serve are influenced by the industries within those regions. Consistent with our emphasis on being a community-oriented financial institution, most of our lending activity is with customers located in and around counties in which we have banking offices. As of June 30, 2011, our owner occupied commercial real estate loans, non-owner occupied commercial real estate loans, residential mortgage loans and commercial and industrial loans represented 21%, 24%, 19% and 9%, respectively, of our $3.0 billion loan portfolio.

We use a centralized risk management process to ensure uniform credit underwriting that adheres to our loan policies as approved annually by our Board of Directors. Lending policies are reviewed on a regular basis to confirm that we are prudent in setting underwriting criteria. Credit risk is managed through a number of methods, including a loan approval process that establishes consistent procedures for the processing and approval of loan requests, risk grading of all commercial loans and certain consumer loans and coding of all loans by purpose, class and collateral type. We seek to focus on underwriting loans that enhance a balanced, diversified portfolio. Management analyzes our commercial real estate concentrations by market and region on a regular basis in an attempt to prevent overexposure to any one type of commercial real estate loan and incorporates third-party real estate and market analysis to monitor market conditions. As of June 30, 2011, the carrying value of our commercial real estate loans in North Carolina, South Carolina and Florida totaled $731.1 million, $282.0 million and $797.7 million, respectively, and reported value of Green Bankshares’ owner occupied real estate loans, which are primarily in Tennessee, totaled $812.9 million. At June 30, 2011, commercial real estate loans in all regions totaled $1.8 billion (35% of which was owner occupied commercial real estate). We have recently tightened underwriting and pricing standards for indirect auto and residential mortgage lending and de-emphasized originations of commercial real estate mortgages.

We believe that early detection of potential credit problems through regular contact with our clients, coupled with consistent reviews of the borrowers’ financial condition, are important factors in overall credit risk management. Our approach to proactively manage credit quality is to aggressively work with customers for whom a problem loan has been identified and assist in resolving issues before a default occurs.

A key component of our growth strategy is to grow our loan portfolio by originating high-quality commercial and consumer loans, other than non-owner occupied real estate loans, that comply with our conservative credit policies and that produce revenues consistent with our financial objectives. From December 31, 2010 to June 30, 2011, our loan portfolio grew organically by $121.3 million (or 8.4% annualized growth), with $354.1 million in new originations partially offset by paydowns, dispositions and charge-offs. Additionally, we are working to reduce excessive concentrations in commercial real estate, which characterized our acquisitions’ legacy portfolios, in order to achieve a more diversified portfolio. It is our long-term goal to reduce the commercial real estate concentration to approximately 20% of our total loan portfolio.

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In addition, we operate an indirect auto lending business which originates loans for new and used cars through relationships with dealers in Southwest Florida, Southeast Florida and the Florida Keys. Loans are approved subject to review of FICO credit scores, vehicle age, and loan-to-value. We are in the process of implementing an expert scoring model which will include additional proprietary underwriting factors. We set pricing for loans based on credit score, vehicle age, and loan term. As of June 30, 2011, we had $42.4 million indirect auto loans.

Deposits

Deposits are the primary source of funds for lending and investing activities and their cost is the largest category of interest expense. Deposits are attracted principally from clients within our branch network through the offering of a wide selection of deposit instruments to individuals and businesses, including non-interest-bearing checking accounts, interest-bearing checking accounts, savings accounts, money market deposit accounts, certificates of deposit and individual retirement accounts. We are focused on reducing our reliance on high-cost certificates of deposit as a source of funds with low-cost deposit accounts. Deposit account terms vary with respect to the minimum balance required, the time period the funds must remain on deposit and service charge schedules. Interest rates paid on specific deposit types are determined based on (1) the interest rates offered by competitors, (2) the anticipated amount and timing of funding needs, (3) the availability and cost of alternative sources of funding and (4) the anticipated future economic conditions and interest rates. Client deposits are attractive sources of funding because of their stability and relatively low cost. Deposits are regarded as an important part of the overall client relationship and provide opportunities to cross-sell other services. In addition, we gather a portion of our deposit base through brokered deposits. At June 30, 2011, total deposits were $3.5 billion of which $3.4 billion (or 98%) were non-brokered deposits and $83.0 million (or 2%) were brokered deposits. At June 30, 2011, our core deposits (total deposits less time deposits) consisted of $461.0 million of non-interest checking, $417.8 million of negotiable order of withdrawal accounts, $173.3 million of savings accounts and $516.3 million of money market deposits. For the foreseeable future, we remain focused on retaining and growing a strong deposit base and transitioning certain of our customers to low-cost banking services as high-cost funding sources, such as high interest certificates of deposit, mature.

Marketing

Our marketing activities support all of our products and services described above. Historically, most of our marketing efforts have supported our real estate mortgage, commercial and retail banking businesses. Our marketing strategy aims to:

• capitalize on our personal relationship approach, which we believe differentiates us from our larger competitors in both the commercial and residential mortgage lending businesses;

• meet our growth objectives based on current economic and market conditions;

• attract core deposits held in checking, savings, money-market and certificate of deposit accounts;

• provide customers with access to our local executives;

• appeal to customers in our region who value quality banking products and personal service;

• pursue commercial and industrial lending opportunities with small to mid-sized businesses that are underserved by our larger competitors;

• cross-sell our products and services to our existing customers to leverage our relationships, grow fee income and enhance profitability;

• utilize existing industry relationships cultivated by our senior management team; and

• adhere to safe and sound credit standards.

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We use a variety of targeted marketing media including the Internet, print, direct mail and financial newsletters. Our online marketing activities include paid advertising, as well as cross-sale marketing through our website and Internet banking services. We believe our marketing strategy will enable us to take advantage of lower average customer acquisition costs, build valuable brand awareness and lower our funding costs.

Information Technology Systems

We have made and continue to make investments in our information technology systems for our banking and lending operations and cash management activities. We seek to integrate our acquisitions quickly and successfully and believe this is a necessary investment in order to enhance our capabilities to offer new products and overall customer experience and to provide scale for future growth and acquisitions. Our enhancements are tailored to improve our commercial and consumer loan origination, electronic banking and direct response marketing processes, as well as enhance cash management, streamlined reporting, reconciliation support and sales support. We work closely with certain third-party service providers to which we outsource certain of our systems and infrastructure. We use the Jack Henry SilverLake System as our banking platform and believe that the scalability of our infrastructure will support our growth strategy and that this platform will support our growth needs. In addition, Green Bankshares uses the Jack Henry SilverLake System, which will help us more quickly integrate the acquired business following the date of acquisition.

Competition

The financial services industry in general and our primary markets of South Florida, Tennessee (after the completion of our Green Bankshares investment) and the Carolinas are highly competitive. We compete actively with national, regional and local financial services providers, including banks, thrifts, credit unions, mortgage bankers and finance companies, money market mutual funds and other financial institutions, some of which are not subject to the same degree of regulation and restrictions imposed upon us. Our largest competitors include Bank of America, Wells Fargo, BB&T, First Citizens, Royal Bank of Canada, SunTrust, Regions, FNB United Corp., Toronto-Dominion, Synovus, First Financial, SCBT, JPMorgan Chase, Citigroup, EverBank and Fifth Third Bancorp. After the completion of our Green Bankshares investment, this list of competitors will also include First Horizon, Pinnacle Financial, First South and U.S. Bancorp.

Competition among providers of financial products and services continues to increase, with consumers having the opportunity to select from a growing variety of traditional and nontraditional alternatives. The primary factors driving commercial and consumer competition for loans and deposits are interest rates, the fees charged, customer service levels and the range of products and services offered. In addition, other competitive factors include the location and hours of our branches and customer service.

Employees

At June 30, 2011, we had over 890 full-time employees and 35 part-time employees. None of our employees are parties to a collective bargaining agreement. We consider our relationship with our employees to be adequate.

Facilities and Real Estate

We currently lease approximately 263,000 square feet of office and operations space in North Carolina, Florida and South Carolina. We operate 37 branches in Florida, 32 in North Carolina and 13 in South Carolina, and, assuming the completion of our Green Bankshares investment, 62 in Tennessee and one in Virginia. Of these branches, 42 were leased and the rest were owned. In addition, the Company owns approximately 110,000 and leases approximately 100,000 square feet of non-branch office space. Management believes the terms of the various leases are consistent with market standards and were arrived at through arm’s-length bargaining.

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Legal Proceedings

On May 12, 2011, a stockholder of Green Bankshares filed a putative class action lawsuit (styled Betty Smith v. Green Bankshares, Inc., et al., Case No. 11-625-III, Davidson County, Tennessee, Chancery Court) against Green Bankshares, GreenBank, Green Bankshares’ Board of Directors and us on behalf of all persons holding common stock of Green Bankshares. This lawsuit was filed following our public announcement on May 5, 2011 of our entering into an investment agreement with Green Bankshares and relates to the proposed investment in Green Bankshares by us. The complaint alleges that the individual defendants breached their fiduciary duties to Green Bankshares by accepting a sale price for the shares to be sold to us that was unfair to stockholders of Green Bankshares. The complaint also alleges that we, Green Bankshares and GreenBank aided and abetted these breaches of fiduciary duty. It seeks an injunction and/or rescission of the Green Bankshares investment and fees and expenses in an unspecified amount.

On May 25 and June 16, 2011, two other stockholders of Green Bankshares filed similar putative class action lawsuits (styled Mark McClinton v. Green Bankshares, Inc,. et al., Case No. 11-CV-284kt, Greene County Circuit Court, Greeneville, Tennessee and Thomas Cook v. Green Bankshares, Inc. et al., Case No. 2:11-cv-00176, Greenville Division, E.D. Tenn., respectively) against Green Bankshares, Green Bankshares’ board of directors and us on behalf of all persons holding common stock of Green Bankshares. The complaints similarly allege that the individual defendants breached their fiduciary duties to Green Bankshares by agreeing to sell shares to us at a price unfair to stockholders of Green Bankshares. The complaints also allege that we and Green Bankshares aided and abetted these breaches of fiduciary duty. In addition, the Cook complaint further alleges that the proxy statement filed with the SEC by Green Bankshares in connection with the transaction was issued with material omissions and misleading statements. Both claims seek an injunction and/or rescission of the Green Bankshares investment and fees and expenses in an unspecified amount.

On July 6, 2011, another shareholder of the Company filed a lawsuit (styled Barbara N. Ballard v. Stephen M. Rownd, et al., Civil Action No. 2:11-cv-00201, E.D. Tenn.) against Green Bankshares, its Board of Directors and NAFH asserting an individual claim that alleges that the individual defendants violated the securities laws by issuing a preliminary proxy statement that contains alleged material misstatements and omissions. The complaint also alleges a class action claim on behalf of all persons holding the Green Bankshares common stock against the individual defendants for breach of fiduciary duty based on these same alleged material misstatements and omissions. The complaint also alleges that Green Bankshares and NAFH aided and abetted the breaches of fiduciary duty. It seeks an injunction and/or rescission of NAFH’s investment in Green Bankshares and fees and expenses in an unspecified amount.

On July 26, 2011, the parties to the above-referenced class action lawsuits reached an agreement in principle to resolve these lawsuits on the basis of the inclusion of certain additional disclosures regarding the NAFH transaction in the Green Bankshares proxy statement filed with the SEC on the same date. The proposed settlement is subject to, among other things, court approval.

From time to time we are a party to various litigation matters incidental to the conduct of our business. We are not presently party to any such legal proceeding the resolution of which we believe would have a material adverse effect on our business, operating results, financial condition or cash flow.

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SUPERVISION AND REGULATION

The U.S. banking industry is highly regulated under federal and state law. These regulations affect the operations of the Company and its subsidiaries. Investors should understand that the primary objectives of the U.S. bank regulatory regime is the protection of depositors and consumers and maintaining the stability of the U.S. financial system, and not the protection of stockholders.

As a bank holding company, we are subject to supervision and regulation by the Federal Reserve. Our national bank subsidiary (which will be our sole bank subsidiary following the reorganization) is subject to supervision and regulation by the OCC, the Consumer Financial Protection Bureau (which we refer to as the “Consumer Bureau”) and the FDIC. In addition, we expect that the additional businesses that we may invest in or acquire will be regulated by various state and/or federal regulators, including the OCC, the Federal Reserve, the Consumer Bureau and the FDIC.

The description below summarizes certain elements of the applicable bank regulatory framework. This description is not intended to describe all laws and regulations applicable to us and our subsidiaries. Banking statutes, regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory agencies and changes in them, including changes in how they are interpreted or implemented, could have material effects on our business. In addition to laws and regulations, state and federal bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance applicable to us and our subsidiaries. These issuances also may affect the conduct of our business or impose additional regulatory obligations. The description is qualified in its entirety by reference to the full text of the statutes, regulations, policies, interpretive letters and other written guidance that are described.

North American Financial Holdings, Inc. as a Bank Holding Company

Any entity that acquires direct or indirect control of a bank must obtain prior approval of the Federal Reserve to become a bank holding company pursuant to the BHCA. We became a bank holding company in connection with the acquisition of the assets and assumption of certain liabilities of the Failed Banks from the FDIC by our newly chartered bank subsidiary, Capital Bank. As a bank holding company, we are subject to regulation under the BHCA and to inspection, examination, supervision and enforcement by the Federal Reserve. While subjecting us to supervision and regulation, we believe that being a bank holding company (as opposed to a non-controlling investor) broadens the investment opportunities available to us among public and private financial institutions, failing and distressed financial institutions, seized assets and deposits and FDIC auctions. Federal Reserve jurisdiction also extends to any company that is directly or indirectly controlled by a bank holding company, such as subsidiaries and other companies in which the bank holding company makes a controlling investment.

Statutes, regulations and policies could restrict our ability to diversify into other areas of financial services, acquire depository institutions and make distributions or pay dividends on our equity securities. They may also require us to provide financial support to any bank that we control, maintain capital balances in excess of those desired by management and pay higher deposit insurance premiums as a result of a general deterioration in the financial condition of Capital Bank or other depository institutions we control. They may also limit the fees and prices we charge for our consumer services.

Capital Bank, N.A. as a National Bank

Capital Bank is a national bank and is subject to supervision (including regular examination) by its primary banking regulator, the OCC. Retail operations of the bank are also subject to supervision and regulation by the Consumer Bureau. Capital Bank’s deposits are insured by the FDIC through the DIF up to applicable limits in the manner and extent provided by law. Capital Bank is subject to the Federal Deposit Insurance Act, as amended (which we refer to as the “FDI Act”), and FDIC regulations relating to deposit insurance and may also be subject to supervision by the FDIC under certain circumstances.

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Recent Developments

Capital Bank was originally formed as NAFH National Bank for the purpose of completing the acquisition of the Failed Banks. On April 29, 2011, we combined TIB Financial’s banking subsidiary, TIB Bank, with NAFH National Bank in an all-stock transaction. On June 30, 2011, we combined Capital Bank Corp.’s banking subsidiary, Capital Bank, with NAFH National Bank in an all-stock transaction and, simultaneously with the consummation of the transaction, changed the name of NAFH National Bank to Capital Bank, N.A.

OCC Operating Agreement and FDIC Order

Capital Bank is subject to specific requirements pursuant to the OCC Operating Agreement, which it entered into with the OCC in connection with our acquisition of the Failed Banks. The OCC Operating Agreement requires, among other things, that Capital Bank maintain various financial and capital ratios and provide notice to, and obtain consent from, the OCC with respect to any additional failed bank acquisitions from the FDIC or the appointment of any new director or senior executive officer of Capital Bank.

Capital Bank (and, with respect to certain provisions, the Company) is also subject to the FDIC Order issued in connection with the FDIC’s approval of our applications for deposit insurance for the Failed Banks. The FDIC Order requires, among other things, that during the first three years following our acquisition of the Failed Banks, Capital Bank must obtain the FDIC’s approval before implementing certain compensation plans, submit updated business plans and reports of material deviations from those plans to the FDIC and comply with the applicable requirements of the FDIC Statement of Policy on Qualifications for Failed Bank Acquisitions. Additionally, the FDIC Order requires that Capital Bank maintains Tier 1 common equity (a non-GAAP measure) to total assets of at least ten percent during such three-year period and after such three-year period to remain “well capitalized.” As of June 30, 2011, Capital Bank’s Tier 1 common equity to total assets was 10.2%. Capital Bank’s Tier 1 common equity and Tier 1 capital were equal as of June 30, 2011.

A failure by us or Capital Bank to comply with the requirements of the OCC Operating Agreement or the FDIC Order could subject us to regulatory sanctions; and failure to comply, or the objection, or imposition of additional conditions by the OCC or the FDIC, in connection with any materials or information submitted thereunder, could prevent us from executing our business strategy and negatively impact our business, financial condition, liquidity and results of operations. As of June 30, 2011, Capital Bank was in compliance with all of the material terms of the OCC Operating Agreement and FDIC Order.

Regulatory Notice and Approval Requirements for Acquisitions of Control

We must generally receive federal regulatory approval before we can acquire an institution or business. Specifically, a bank holding company must obtain prior approval of the Federal Reserve in connection with any acquisition that results in the bank holding company owning or controlling more than 5% of any class of voting securities of a bank or another bank holding company. In acting on such applications of approval, the Federal Reserve considers, among other factors: the effect of the acquisition on competition; the financial condition and future prospects of the applicant and the banks involved; the managerial resources of the applicant and the banks involved; the convenience and needs of the community, including the record of performance under the CRA; and the effectiveness of the applicant in combating money laundering activities. Our ability to make investments in depository institutions will depend on our ability to obtain approval of the Federal Reserve. The Federal Reserve could deny our application based on the above criteria or other considerations. For example, we could be required to sell branches as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition.

Federal and state laws impose additional notice, approval and ongoing regulatory requirements on any investor that seeks to acquire direct or indirect “control” of an FDIC-insured depository institution or bank holding company. These laws include the BHCA and the Change in Bank Control Act. Among other things, these laws require regulatory filings by an investor that seeks to acquire direct or indirect “control” of an FDIC-insured depository institution. The determination whether an investor “controls” a depository institution is based on all of

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the facts and circumstances surrounding the investment. As a general matter, an investor is deemed to control a depository institution or other company if the investor owns or controls 25% or more of any class of voting securities.

Subject to rebuttal, an investor may be presumed to control a depository institution or other company if the investor owns or controls 10% or more of any class of voting securities. If an investor’s ownership of our voting securities were to exceed certain thresholds, the investor could be deemed to “control” us for regulatory purposes. This could subject the investor to regulatory filings or other regulatory consequences.

Broad Supervision and Enforcement Powers

A principal objective of the U.S. bank regulatory regime is to protect depositors by ensuring the financial safety and soundness of banks and other insured depository institutions. To that end, the Federal Reserve, the OCC and the FDIC have broad supervisory and enforcement authority with regard to bank holding companies and banks, including the power to conduct examinations and investigations, issue cease and desist orders, impose fines and other civil and criminal penalties, terminate deposit insurance and appoint a conservator or receiver. The Consumer Bureau similarly has broad regulatory supervision and enforcement authority with regard to consumer protection matters affecting us or our subsidiaries. Bank regulators regularly examine the operations of banks and bank holding companies. In addition, banks and bank holding companies are subject to periodic reporting and filing requirements.

Bank regulators have various remedies available if they determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of a banking organization’s operations are unsatisfactory. The regulators may also take action if they determine that the banking organization or its management is violating or has violated any law or regulation. The regulators have the power to, among other things: enjoin “unsafe or unsound” practices, require affirmative actions to correct any violation or practice, issue administrative orders that can be judicially enforced, direct increases in capital, direct the sale of subsidiaries or other assets, limit dividends and distributions, restrict growth, assess civil monetary penalties, remove officers and directors and terminate deposit insurance.

Engaging in unsafe or unsound practices or failing to comply with applicable laws, regulations and supervisory agreements could subject the Company, its subsidiaries and their respective officers, directors and institution-affiliated parties to the remedies described above and other sanctions. In addition, the FDIC may terminate a bank’s depository insurance upon a finding that the bank’s financial condition is unsafe or unsound or that the bank has engaged in unsafe or unsound practices or has violated an applicable rule, regulation, order or condition enacted or imposed by the bank’s regulatory agency.

Interstate Banking

Interstate Banking for State and National Banks

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act (which we refer to as the “Riegle-Neal Act”), a bank holding company may acquire banks in states other than its home state, subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company not control, prior to or following the proposed acquisition, more than 10% of the total amount of deposits of insured depository institutions nationwide or, unless the acquisition is the bank holding company’s initial entry into the state, more than 30% of such deposits in the state (or such lesser or greater amount set by the state). The Riegle-Neal Act also authorizes banks to merge across state lines, thereby creating interstate branches. The Dodd-Frank Act permits a national or state bank, with the approval of its regulator, to open a branch in any state if the law of the state in which the branch is located would permit the establishment of the branch if the bank were a bank chartered in that state. National banks may provide trust services in any state to the same extent as a trust company chartered by that state.

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FDIC Statement of Policy on Qualifications for Failed Bank Acquisitions

As the agency responsible for resolving failed depository institutions, the FDIC has discretion to determine whether a party is qualified to bid on a failed institution. The FDIC Policy Statement imposes additional restrictions and requirements on certain “private investors” and institutions to the extent that those investors or institutions seek to acquire a failed institution from the FDIC. The FDIC adopted the FDIC Policy Statement on August 16, 2009, and issued guidance regarding the policy statement on January 6, 2010 and April 23, 2010.

The FDIC Policy Statement includes an exception for investors with 5% or less of the total voting power of an acquired depository institution or its bank holding company, provided there is no evidence of concerted action by such investors. In the FDIC Policy Statement Q&A, the FDIC indicated that it will presume that “concerted action” exists where investors with 5% or less of the total voting power of an acquired depository institution or its bank holding company own greater than two-thirds of the total voting power of such acquired depositary institution or its bank holding company in the aggregate. The FDIC Policy Statement Q&A provides that this presumption may be rebutted if the investors or the placement agent provide sufficient evidence that the investors are not participating in concerted action. In evaluating whether this presumption has been rebutted, the FDIC will consider, among other things: (1) whether each investor was among many potential investors contacted for investment and reached an independent decision to invest in the depositary institution or its bank holding company, (2) whether any investors are managed or advised by a common investment manager or advisor, (3) whether any investors are engaged or anticipate engaging, as part of a group consisting of substantially the same entities as the stockholders of the acquired depository institution or holding company, in substantially the same combination of interests, in any additional banking or non-banking activity in the United States, (4) whether any investor has any significant ownership interest in or the right to acquire shares of any other investor, (5) whether there are any agreements or understandings between any investors for the purpose of controlling the depository institution or its bank holding company, (6) whether any investors (or any directors representing investors) will consult one another concerning the voting of the depository institution’s or its bank holding company’s stock, (7) whether any directors representing a particular investor will represent only the investor which nominated him or her or will also represent additional investors and (8) the primary federal banking regulator’s evaluation of whether any investors are acting in concert for purposes of applying Change in Bank Control Act and the BHCA.

For those institutions and investors to which it applies, the FDIC Policy Statement imposes the following provisions, among others. First, institutions are required to maintain a ratio of Tier 1 common equity to total assets of at least 10% for a period of three years, and thereafter maintain a capital level sufficient to be well capitalized under regulatory standards during the remaining period of ownership of the investors. This amount of capital exceeds that required under otherwise applicable regulatory requirements. Second, investors that collectively own 80% or more of two or more depository institutions are required to pledge to the FDIC their proportionate interests in each institution to indemnify the FDIC against any losses it incurs in connection with the failure of one of the institutions. Third, institutions are prohibited from extending credit to investors and to affiliates of investors. Fourth, investors may not employ ownership structures that use entities domiciled in bank secrecy jurisdictions. The FDIC has interpreted this prohibition to apply to a wide range of non-U.S. jurisdictions. In its guidance, the FDIC has required that non-U.S. investors subject to the FDIC Policy Statement invest through a U.S. subsidiary and adhere to certain requirements related to record keeping and information sharing. Fifth, without FDIC approval, investors are prohibited from selling or otherwise transferring their securities in an institution for a three-year period following the time of certain acquisitions. These transfer restrictions do not apply to open-ended investment companies that are registered under the Investment Company Act, issue redeemable securities and allow investors to redeem on demand. Sixth, investors may not enjoy complex and functionally opaque ownership structure to invest in institutions. Seventh, investors that own 10% or more of the equity of a failed institution are not eligible to bid for that institution in an FDIC auction. Eighth, investors may be required to provide information to the FDIC, such as with respect to the size of the capital fund or funds, their diversification, their return profiles, their marketing documents, their management teams and their business models. Ninth, the FDIC Policy Statement does not replace or substitute for otherwise applicable regulations or statutes.

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Limits on Transactions with Affiliates

Federal law restricts the amount and the terms of both credit and non-credit transactions between a bank and its nonbank affiliates. Transactions with any single affiliate may not exceed 10% of the capital stock and surplus of the bank. For a bank, capital stock and surplus refers to Tier 1 and Tier 2 capital, as calculated under the risk-based capital guidelines, plus the balance of the allowance for credit losses excluded from Tier 2 capital. The bank’s transactions with any one affiliate, and with all of its affiliates in the aggregate are limited to 10% and 20%, respectively. of the foregoing capital. Transactions that are extensions of credit may require collateral to be held to provide added security to the bank and the types of permissible collateral may be limited. The Dodd-Frank Act generally enhances the restrictions on transactions with affiliates, including an expansion of what types of transactions are covered to include credit exposures related to derivatives, repurchase agreements and securities lending arrangements and an increase in the amount of time for which collateral requirements regarding covered transactions must be satisfied.

Bank Holding Companies as a Source of Strength

Federal Reserve law requires that a bank holding company serve as a source of financial and managerial strength to each bank that it controls and, under appropriate circumstances, to commit resources to support each such controlled bank. This support may be required at times when the bank holding company may not have the resources to provide the support.

Under the prompt corrective action provisions, if a controlled bank is undercapitalized, then the regulators could require the bank holding company to guarantee the bank’s capital restoration plan. In addition, if the Federal Reserve believes that a bank holding company’s activities, assets or affiliates represent a significant risk to the financial safety, soundness or stability of a controlled bank, then the Federal Reserve could require the bank holding company to terminate the activities, liquidate the assets or divest the affiliates. The regulators may require these and other actions in support of controlled banks even if such actions are not in the best interests of the bank holding company or its stockholders. Because we are a bank holding company, we (and our consolidated assets) are viewed as a source of financial and managerial strength for any controlled depository institutions, like Capital Bank.

The Dodd-Frank Act also directs federal bank regulators to require that all companies that directly or indirectly control an insured depository institution serve as sources of financial strength for the institution. The term “source of financial strength” is defined under the Dodd-Frank Act as the ability of a company to provide financial assistance to its insured depository institution subsidiaries in the event of financial distress. The appropriate federal banking agency for such a depository institution may require reports from companies that control the insured depository institution to assess their abilities to serve as sources of strength and to enforce compliance with the source-of-strength requirements. The appropriate federal banking agency may also require a holding company to provide financial assistance to a bank with impaired capital. The Dodd-Frank Act requires that federal banking regulators propose implementing regulations no later than July 21, 2011. Under this requirement, in the future we could be required to provide financial assistance to Capital Bank should it experience financial distress. Based on our ownership of a national bank subsidiary, the OCC could assess us if the capital of Capital Bank were to become impaired. If we failed to pay the assessment within three months, the OCC could order the sale of our stock in Capital Bank to cover the deficiency.

In addition, capital loans by us to Capital Bank will be subordinate in right of payment to deposits and certain other indebtedness of Capital Bank. In the event of our bankruptcy, any commitment by us to a federal bank regulatory agency to maintain the capital of Capital Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

Depositor Preference

The FDI Act provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims of depositors of the institution (including the claims of the FDIC as subrogee of insured

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depositors) and certain claims for administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against the institution. If our insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, nondeposit creditors, including us, with respect to any extensions of credit they have made to such insured depository institution.

Liability of Commonly Controlled Institutions

FDIC-insured depository institutions can be held liable for any loss incurred, or reasonably expected to be incurred, by the FDIC due to the default of an FDIC-insured depository institution controlled by the same bank holding company and for any assistance provided by the FDIC to an FDIC-insured depository institution that is in danger of default and that is controlled by the same bank holding company. “Default” means generally the appointment of a conservator or receiver for the institution. “In danger of default” means generally the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. The cross-guarantee liability for a loss at a commonly controlled institution would be subordinated in right of payment to deposit liabilities, secured obligations, any other general or senior liability and any obligation subordinated to depositors or general creditors, other than obligations owed to any affiliate of the depository institution (with certain exceptions).

Dividend Restrictions

The Company is a legal entity separate and distinct from each of its subsidiaries. Our ability to pay dividends and make other distributions may depend upon the receipt of dividends from our bank subsidiary and is limited by federal and state law. The specific limits depend on a number of factors, including the bank’s type of charter, recent earnings, recent dividends, level of capital and regulatory status. The regulators are authorized, and under certain circumstances are required, to determine that the payment of dividends or other distributions by a bank would be an unsafe or unsound practice and to prohibit that payment. For example, the FDI Act generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be undercapitalized.

Dividends that may be paid by a national bank without the express approval of the OCC are limited to that bank’s retained net profits for the preceding two calendar years plus retained net profits up to the date of any dividend declaration in the current calendar year. Retained net profits, as defined by the OCC, consist of net income less dividends declared during the period. State-chartered subsidiary banks are also subject to state regulations that limit dividends. Nonbank subsidiaries are also limited by certain federal and state statutory provisions and regulations covering the amount of dividends that may be paid in any given year.

Currently, the OCC Operating Agreement prohibits Capital Bank from paying a dividend to us for three years following our acquisition of the Failed Banks and, once the three-year period has elapsed, imposes other restrictions on Capital Bank’s ability to pay dividends, including requiring prior approval from the OCC before any distribution is made.

The ability of a bank holding company to pay dividends and make other distributions can also be limited. The Federal Reserve has authority to prohibit a bank holding company from paying dividends or making other distributions. The Federal Reserve has issued a policy statement that a bank holding company should not pay cash dividends unless its net income available to common stockholders has been sufficient to fully fund the dividends and the prospective rate of earnings retention appears to be consistent with the holding company’s capital needs, asset quality and overall financial condition. Accordingly, a bank holding company should not pay cash dividends that exceed its net income or that can only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing. The Dodd-Frank Act imposes, and Basel III (described below) once in effect will impose, additional restrictions on the ability of banking institutions to pay dividends.

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Regulatory Capital Requirements

In General

Bank regulators view capital levels as important indicators of an institution’s financial soundness. FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. The final supervisory judgment on an institution’s capital adequacy is based on the regulator’s individualized assessment of numerous factors.

As a bank holding company, we are subject to various regulatory capital adequacy requirements administered by the Federal Reserve. In addition, the OCC imposes capital adequacy requirements on our subsidiary bank. The FDIC also may impose these requirements on Capital Bank and other depository institution subsidiaries that we may acquire or control in the future. The FDI Act requires that the federal regulatory agencies adopt regulations defining five capital tiers for banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial condition.

Quantitative measures, established by the regulators to ensure capital adequacy, require that a bank holding company maintain minimum ratios of capital to risk-weighted assets. There are three categories of capital under the guidelines. With the implementation of the Dodd-Frank Act, certain changes have been made as to the type of capital that falls under each of these categories. For us, as a bank holding company, Tier 1 capital includes common shareholders’ equity, qualifying preferred stock and trust preferred securities issued before May 19, 2010, less goodwill and certain other deductions (including a portion of servicing assets and the unrealized net gains and losses, after taxes, on securities available for sale). Tier 2 capital includes preferred stock and trust preferred securities not qualifying as Tier 1 capital, subordinated debt, the allowance for credit losses and net unrealized gains on marketable equity securities, subject to limitations by the guidelines. Tier 2 capital is limited to the amount of Tier 1 capital (i.e., at least half of the total capital must be in the form of Tier 1 capital). Tier 3 capital includes certain qualifying unsecured subordinated debt. See “—Changes in Laws, Regulations or Policies and the Dodd-Frank Act.”

Under the guidelines, capital is compared with the relative risk related to the balance sheet. To derive the risk included in the balance sheet, a risk weighting is applied to each balance sheet asset and off-balance sheet item, primarily based on the relative credit risk of the asset or counterparty. For example, claims guaranteed by the U.S. government or one of its agencies are risk-weighted at 0% and certain real-estate related loans risk-weighted at 50%. Off-balance sheet items, such as loan commitments and derivatives, are also applied a risk weight after calculating balance sheet equivalent amounts. A credit conversion factor is assigned to loan commitments based on the likelihood of the off-balance sheet item becoming an asset. For example, certain loan commitments are converted at 50% and then risk-weighted at 100%. Derivatives are converted to balance sheet equivalents based on notional values, replacement costs and remaining contractual terms. For certain recourse obligations, direct credit substitutes, residual interests in asset securitization and other securitized transactions that expose institutions primarily to credit risk, the capital amounts and classification under the guidelines are subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Banks and bank holding companies currently are required to maintain Tier 1 capital and the sum of Tier 1 and Tier 2 capital equal to at least 6% and 10%, respectively, of their total risk-weighted assets (including certain off-balance sheet items, such as standby letters of credit) to be deemed “well capitalized.” The federal bank regulatory agencies may, however, set higher capital requirements for an individual bank or when a bank’s particular circumstances warrant. At this time, the bank regulatory agencies are more inclined to impose higher capital requirements in order to meet well-capitalized standards, and future regulatory change could impose higher capital standards as a routine matter.

The Federal Reserve may also set higher capital requirements for holding companies whose circumstances warrant it. For example, holding companies experiencing internal growth or making acquisitions are expected to

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maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. Also, the Federal Reserve considers a “tangible Tier 1 leverage ratio” (deducting all intangibles) and other indications of capital strength in evaluating proposals for expansion or engaging in new activities. In addition, the federal bank regulatory agencies have established minimum leverage (Tier 1 capital to adjusted average total assets) guidelines for banks within their regulatory jurisdictions. These guidelines provide for a minimum leverage ratio of 5% for banks to be deemed “well capitalized.” Our regulatory capital ratios and those of Capital Bank are in excess of the levels established for “well-capitalized” institutions.

As an additional means to identify problems in the financial management of depository institutions, the FDI Act requires federal bank regulatory agencies to establish certain non-capital safety and soundness standards for institutions for which they are the primary federal regulator. The standards relate generally to operations and management, asset quality, interest rate exposure and executive compensation. The agencies are authorized to take action against institutions that fail to meet such standards.

In addition, the Dodd-Frank Act requires the federal banking agencies to adopt capital requirements that address the risks that the activities of an institution pose to the institution and the public and private stakeholders, including risks arising from certain enumerated activities. The federal banking agencies may change existing capital guidelines or adopt new capital guidelines in the future pursuant to the Dodd-Frank Act, the implementation of Basel III (described below) or other regulatory or supervisory changes. We cannot be certain what the impact of changes to existing capital guidelines will have on us or Capital Bank.

Basel I, Basel II and Basel III Accords

The current risk-based capital guidelines that apply to us and our subsidiary bank are based on the 1988 capital accord, referred to as Basel I, of the International Basel Committee on Banking Supervision (which we refer to as the “Basel Committee”), a committee of central banks and bank supervisors, as implemented by federal bank regulators. In 2008, the bank regulatory agencies began to phase-in capital standards based on a second capital accord issued by the Basel Committee, referred to as Basel II, for large or “core” international banks and bank holding companies (generally defined for U.S. purposes as having total assets of $260 billion or more or consolidated foreign exposures of $10 billion or more). Because we do not anticipate controlling any large or “core” international bank in the foreseeable future, Basel II will not apply to us.

On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee, announced agreement on the calibration and phase-in arrangements for a strengthened set of capital requirements, known as Basel III. While the timing and scope of any U.S. implementation of Basel III remains uncertain, the following items provide a brief description of the relevant provisions of Basel III and their potential impact on our capital levels if applied to us and Capital Bank.

New Minimum Capital Requirements. Subject to implementation by the U.S. federal banking agencies, Basel III would be expected, among other things, to increase required capital ratios of banking institutions to which it applies, as follows:

• Minimum Common Equity. The minimum requirement for common equity, the highest form of loss absorbing capital, would be raised from the current 2.0% level, before the application of regulatory adjustments, to 3.5% as of January 11, 2013 and 4.5% by January 1, 2015 after the application of stricter adjustments. The “capital conversion buffer”, discussed below, would cause required total common equity to rise to 7.0% by January 1, 2019 (4.5% attributable to the minimum required common equity plus 2.5% attributable to the “capital conservation buffer”).

• Minimum Tier 1 Capital. The minimum Tier 1 capital requirement, which includes common equity and other qualifying financial instruments based on stricter criteria, would increase from 4.0% to 4.5% by January 1, 2013, and 6.0% by January 1, 2015. Total Tier 1 capital would rise to 8.5% by January 1, 2019 (6.0% attributable to the minimum required Tier 1 capital ratio plus 2.5% attributable to the capital conservation buffer, as discussed below).

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• Minimum Total Capital. The minimum Total Capital (Tier 1 and Tier 2 capital) requirement would increase to 8.0% (10.5% by January 1, 2019, including the capital conservation buffer).

• Capital Conservation Buffer. The capital conservation buffer would add 2.5% to the regulatory minimum common equity requirement (adding 0.625% during each of the three years beginning in January 1, 2016 through January 1, 2019). The buffer would be added to common equity, after the application of deductions. The purpose of the conservation buffer is to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. It is expected that, while banks would be allowed to draw on the buffer during such periods of stress, the closer their regulatory capital ratios approach the minimum requirement, the greater the constraints that would be applied to earnings distributions.

• Countercyclical Buffer. Basel III expects regulators to require, as appropriate to national circumstances, a “countercyclical buffer” within a range of 0% to 2.5% of common equity or other fully loss absorbing capital. The purpose of the countercyclical buffer is to achieve the broader goal of protecting the banking sector from periods of excess aggregate credit growth. For any given country, it is expected that this buffer would only be applied when there is excess credit growth that is resulting in a perceived system-wide build up of risk. The countercyclical buffer, when in effect, would be introduced as an extension of the conservation buffer range.

• Regulatory Deductions from Common Equity. The regulatory adjustments (i.e., deductions and prudential filters), including minority interests in financial institutions, mortgage-servicing rights, and deferred tax assets from timing differences, would be deducted in increasing percentages beginning January 1, 2014, and would be fully deducted from common equity by January 1, 2018. Certain instruments that no longer qualify as Tier 1 capital, such as trust preferred securities, also would be subject to phaseout over a 10-year period beginning January 1, 2013.

• Non-Risk-Based Leverage Ratios. These capital requirements are supplemented by a nonrisk-based leverage ratio that will serve as a backstop to the risk-based measures described above. In July 2010, the Governors and Heads of Supervision agreed to test a minimum Tier 1 leverage ratio of 3.0% during the parallel run period. Based on the results of the parallel run period, any final adjustments would be carried out in the first half of 2017 with a view to adopting the 3.0% leverage ratio on January 1, 2018, based on appropriate review and calibration.

Basel III also introduces a non-risk adjusted Tier 1 leverage ratio of 3%, based on a measure of total exposure that includes balance sheet assets, net of provisions and valuation adjustments, as well as potential future exposure to off-balance sheet items, such as derivatives. Basel III also includes both short- and long-term liquidity standards. The phase-in of the new rules is to commence on January 1, 2013, with the phase-in of the capital conservation buffer commencing on January 1, 2015 and the rules to be fully phased-in by January 1, 2019.

In November 2010, Basel III was endorsed by the Group of Twenty (G-20) Finance Ministers and Central Bank Governors and will be subject to individual adoption by member nations, including the United States. On December 16, 2010, the Basel Committee issued the text of the Basel III rules, which presents the details of global regulatory standards on bank capital adequacy and liquidity agreed by the Basel Committee and endorsed by the G-20 leaders. In January 2011, the Basel Committee issued further guidance on the qualification criteria for inclusion in Tier 1 capital. The federal banking agencies will likely implement changes to the current capital adequacy standards applicable to us and our bank subsidiary in light of Basel III. If adopted by federal banking agencies, Basel III could lead to higher capital requirements, including a restrictive leverage ratio and new liquidity ratios. The ultimate impact of the new capital and liquidity standards on us and our bank subsidiary is currently being reviewed and will depend on a number of factors, including the rulemaking and implementation by the U.S. banking regulators. We cannot determine the ultimate effect that potential legislation, or subsequent regulations, if enacted, would have upon our earnings or financial position.

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Prompt Corrective Action

The FDI Act requires federal bank regulatory agencies to take “prompt corrective action” with respect to FDIC-insured depository institutions that do not meet minimum capital requirements. A depository institution’s treatment for purposes of the prompt corrective action provisions will depend upon how its capital levels compare to various capital measures and certain other factors, as established by regulation.

Under this system, the federal banking regulators have established five capital categories, well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, in which all institutions are placed. The federal banking regulators have also specified by regulation the relevant capital levels for each of the other categories. Federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized.

Federal Reserve Board regulations require that each bank maintain reserve balances on deposits with the Federal Reserve Bank.

Reserve Requirements

Pursuant to regulations of the Federal Reserve, all banks are required to maintain average daily reserves at mandated ratios against their transaction accounts. In addition, reserves must be maintained on certain non-personal time deposits. These reserves must be maintained in the form of vault cash or in an account at a Federal Reserve Banks.

Deposit Insurance Assessments

FDIC-insured banks are required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system whereby FDIC-insured depository institutions pay insurance premiums at rates based on their risk classification. An institution’s risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators. The FDIC recently raised assessment rates to increase funding for the DIF, which is currently underfunded.

The Dodd-Frank Act makes permanent the general $250,000 deposit insurance limit for insured deposits. In addition, federal deposit insurance for the full net amount of deposits in noninterest-bearing transaction accounts was extended to January 1, 2013 for all insured banks.

The Dodd-Frank Act changes the deposit insurance assessment framework, primarily by basing assessments on an institution’s total assets less tangible equity (subject to risk-based adjustments that would further reduce the assessment base for custodial banks) rather than domestic deposits, which is expected to shift a greater portion of the aggregate assessments to large banks, as described in detail below. The Dodd-Frank Act also eliminates the upper limit for the reserve ratio designated by the FDIC each year, increases the minimum designated reserve ratio of the DIF from 1.15% to 1.35% of the estimated amount of total insured deposits by September 30, 2020, and eliminates the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds.

The Dodd-Frank Act requires the DIF to reach a reserve ratio of 1.35% of insured deposits by September 30, 2020. On December 20, 2010, the FDIC raised the minimum designated reserve ratio of DIF to 2%. The ratio is higher than the minimum reserve ratio of 1.35% as set by the Dodd-Frank Act. Under the Dodd-Frank Act, the FDIC is required to offset the effect of the higher reserve ratio on insured depository institutions with consolidated assets of less than $10 billion.

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On February 7, 2011, the FDIC approved a final rule on Assessments, Dividends, Assessment Base and Large Bank Pricing. The final rule, mandated by the Dodd-Frank Act, changes the deposit insurance assessment system from one that is based on domestic deposits to one that is based on average consolidated total assets minus average tangible equity. Because the new assessment base under the Dodd-Frank Act is larger than the current assessment base, the final rule’s assessment rates are lower than the current rates, which achieves the FDIC’s goal of not significantly altering the total amount of revenue collected from the industry. In addition, the final rule adopts a “scorecard” assessment scheme for larger banks and suspends dividend payments if the DIF reserve ratio exceeds 1.5% but provides for decreasing assessment rates when the DIF reserve ratio reaches certain thresholds. The final rule also determines how the effect of the higher reserve ratio will be offset for institutions with less than $10 billion of consolidated assets.

Continued action by the FDIC to replenish the DIF as well as changes contained in the Dodd-Frank Act may result in higher assessment rates. Capital Bank may be able to pass part or all of this cost on to its customers, including in the form of lower interest rates on deposits, or fees to some depositors, depending on market conditions.

The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution’s regulatory agency. If deposit insurance for a banking business we invest in or acquire were to be terminated, that would have a material adverse effect on that banking business and potentially on the Company as a whole.

Permitted Activities and Investments by Bank Holding Companies

The BHCA generally prohibits a bank holding company from engaging in activities other than banking or managing or controlling banks except for activities determined by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Provisions of the Gramm-Leach-Bliley Financial Modernization Act of 1999 (which we refer to as the “GLB Act”) expanded the permissible activities of a bank holding company that qualifies as a financial holding company. Under the regulations implementing the GLB Act, a financial holding company may engage in additional activities that are financial in nature or incidental or complementary to financial activity. Those activities include, among other activities, certain insurance and securities activities. We have not yet determined whether it would be appropriate or advisable in the future to become a financial holding company.

Privacy Provisions of the GLB Act and Restrictions on Cross-Selling

Federal banking regulators, as required under the GLB Act, have adopted rules limiting the ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated third parties. The rules require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to nonaffiliated third parties. The privacy provisions of the GLB Act affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors.

Federal financial regulators have issued regulations under the Fair and Accurate Credit Transactions Act, which have the effect of increasing the length of the waiting period, after privacy disclosures are provided to new customers, before information can be shared among different companies that we own or may come to own for the purpose of cross-selling products and services among companies we own. A number of states have adopted their own statutes concerning financial privacy and requiring notification of security breaches.

Anti-Money Laundering Requirements

Under federal law, including the Bank Secrecy Act, the PATRIOT Act and the International Money Laundering Abatement and Anti-Terrorist Financing Act, certain types of financial institutions, including insured depository institutions, must maintain anti-money laundering programs that include established internal policies,

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procedures and controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function. Among other things, these laws are intended to strengthen the ability of U.S. law enforcement agencies and intelligence communities to work together to combat terrorism on a variety of fronts. Financial institutions are prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and customer identification in their dealings with non-U.S. financial institutions and non-U.S. customers. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious information maintained by financial institutions. Bank regulators routinely examine institutions for compliance with these obligations and they must consider an institution’s compliance in connection with the regulatory review of applications, including applications for banking mergers and acquisitions. The regulatory authorities have imposed “cease and desist” orders and civil money penalty sanctions against institutions found to be violating these obligations.

The OFAC is responsible for helping to insure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress. OFAC publishes lists of persons, organizations and countries suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons. If we or Capital Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, we or Capital Bank must freeze or block such account or transaction, file a suspicious activity report and notify the appropriate authorities.

Consumer Laws and Regulations

Banks and other financial institutions are subject to numerous laws and regulations intended to protect consumers in their transactions with banks. These laws include, among others, laws regarding unfair and deceptive acts and practices and usury laws, as well as the following consumer protection statutes: Truth in Lending Act, Truth in Savings Act; Electronic Funds Transfer Act, Expedited Funds Availability Act, Equal Credit Opportunity Act, Fair and Accurate Credit Transactions Act, Fair Housing Act, Fair Credit Reporting Act, Fair Debt Collection Act, GLB Act, Home Mortgage Disclosure Act, Right to Financial Privacy Act and Real Estate Settlement Procedures Act.

Many states and local jurisdictions have consumer protection laws analogous, and in addition, to those listed above. These federal, state and local laws regulate the manner in which financial institutions deal with customers when taking deposits, making loans or conducting other types of transactions. Failure to comply with these laws and regulations could give rise to regulatory sanctions, customer rescission rights, action by state and local attorneys general and civil or criminal liability.

The Dodd-Frank Act creates the Consumer Bureau, a new independent bureau that will have broad authority to regulate, supervise and enforce retail financial services activities of banks and various non-bank providers. The Consumer Bureau will have authority to promulgate regulations, issue orders, guidance and policy statements, conduct examinations and bring enforcement actions with regard to consumer financial products and services. In general, banks with assets of $10 billion or less, such as Capital Bank, will be subject to regulation of the Consumer Bureau but will continue to be examined for consumer compliance by their bank regulator. However, given our growth and bank acquisition strategy, if our total assets were to exceed $10.0 billion, then we will become subject to the Consumer Bureau’s exclusive examination authority and primary enforcement authority.

The Community Reinvestment Act

The CRA is intended to encourage banks to help meet the credit needs of their service areas, including low- and moderate-income neighborhoods, consistent with safe and sound operations. The regulators examine banks and assign each bank a public CRA rating. A bank’s record of fair lending compliance is part of the resulting CRA examination report. The CRA then requires bank regulators to take into account the bank’s record in meeting the needs of its service area when considering an application by a bank to establish a branch or to

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conduct certain mergers or acquisitions. The Federal Reserve is required to consider the CRA records of a bank holding company’s controlled banks when considering an application by the bank holding company to acquire a bank or to merge with another bank holding company.

When we apply for regulatory approval to make certain investments, the regulators will consider the CRA record of the target institution and our depository institution subsidiary. An unsatisfactory CRA record could substantially delay approval or result in denial of an application.

Changes in Laws, Regulations or Policies and the Dodd-Frank Act

Various federal, state and local legislators introduce from time to time measures or take actions that would modify the regulatory requirements or the examination or supervision of banks or bank holding companies. Such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks and other financial institutions, all of which could affect our investment opportunities and our assessment of how attractive such opportunities may be. We cannot predict whether potential legislation will be enacted and, if enacted, the effect that it or any implementing regulations would have on our business, results of operations or financial condition.

The Dodd-Frank Act, which was signed into law on July 21, 2010, will have a broad impact on the financial services industry, imposing significant regulatory and compliance changes, increased capital, leverage and liquidity requirements and numerous other provisions designed to improve supervision and oversight of the financial services sector. The following items briefly describe some of the key provisions of the Dodd-Frank Act:

• Source of Strength. The Dodd-Frank Act requires all companies that directly or indirectly control a depository institution to serve as a source of strength for the institution.

• Limitation on Federal Preemption. The Dodd-Frank Act may limit the ability of national banks to rely upon federal preemption of state consumer financial laws. Under the Dodd-Frank Act, the OCC will have the ability to make preemption determinations only if certain conditions are met and on a case-by-case basis. The Dodd-Frank Act also eliminates the extension of preemption to operating subsidiaries of national banks. However, the Dodd-Frank Act preserves certain preemption standards articulated by the U.S. Supreme Court and existing interpretations thereunder, as well as express preemption provisions in other federal laws (such as the Equal Credit Opportunity Act and the Truth in Lending Act) that specifically address the application of state law in relation to that federal law. The Dodd-Frank Act authorizes state enforcement authorities to bring lawsuits under state law against national banks and authorizes suits by state attorney generals against national banks to enforce rules issued by the Consumer Bureau. With this broad grant of enforcement authority to states, institutions, including national banks, could be subject to varying and potentially conflicting interpretations of federal law by various state attorney generals, state regulators and the courts.

• Mortgage Loan Origination and Risk Retention. The Dodd-Frank Act imposes new standards for mortgage loan originations on all lenders, including banks, in an effort to require steps to verify a borrower’s ability to repay. The Dodd-Frank Act also generally requires lenders or securitizers to retain an economic interest in the credit risk relating to loans the lender sells or mortgages and other asset-backed securities that the securitizer issues. The risk retention requirement generally will be 5%, but could be increased or decreased by regulation.

• Consumer Financial Protection Bureau. The Dodd-Frank Act creates the Consumer Bureau within the Federal Reserve. The Consumer Bureau is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services. The Consumer Bureau has rulemaking authority over many of the statutes governing products and services offered to bank customers. For banking organizations with assets of more than $10 billion, the Consumer Bureau has exclusive rulemaking and examination and primary enforcement authority under federal consumer financial laws. In addition, the

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Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the Consumer Bureau.

• Deposit Insurance. The Dodd-Frank Act makes permanent the general $250,000 deposit insurance limit for insured deposits. The Dodd-Frank Act also provides unlimited deposit coverage for non-interest-bearing transaction accounts until January 1, 2013. Amendments to the FDI Act also revise the assessment base against which an insured depository institution’s deposit insurance premiums paid to DIF will be calculated. Under these amendments, the assessment base will no longer be the institution’s deposit base, but rather its average consolidated total assets less its average tangible equity. Additionally, the Dodd-Frank Act makes changes to the minimum designated reserve ratio of the DIF, increasing the minimum from 1.15% to 1.35% of the estimated amount of total insured deposits and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds.

• Transactions with Affiliates and Insiders. The Dodd-Frank Act generally enhances the restrictions on transactions with affiliates under Sections 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered credit transactions must be satisfied. Insider transaction limitations are expanded through the strengthening of loan restrictions to insiders and the expansion of the types of transactions subject to the various limits, including derivatives transactions, repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution’s board of directors.

• Corporate Governance. The Dodd-Frank Act addresses many investor protection, corporate governance and executive compensation matters that will affect most U.S. publicly traded companies, including the Company. The Dodd-Frank Act (1) grants stockholders of U.S. publicly traded companies an advisory vote on executive compensation; (2) enhances independence requirements for compensation committee members; (3) requires companies listed on national securities exchanges to adopt incentive-based compensation clawback policies for executive officers; and (4) provides the SEC with authority to adopt proxy access rules that would allow stockholders of publicly traded companies to nominate candidates for election as a director and have those nominees included in a company’s proxy materials.

• Interchange Fees. Under the so-called Durbin Amendment of the Dodd-Frank Act, interchange transaction fees that a card issuer receives or charges for an electronic debit transaction must be “reasonable and proportional” to the cost incurred by the card issuer in processing the transaction. Banks that have less than $10 billion in assets are exempt from the interchange transaction fee limitation. On June 29, 2011, the Federal Reserve issued a final rule establishing standards for determining whether the amount of any interchange transaction fee is reasonable and proportional, taking into consideration fraud prevention costs, and prescribing regulations to ensure that network fees are not used, directly or indirectly, to compensate card issuers with respect to electronic debit transactions or to circumvent or evade the restrictions that interchange transaction fees be reasonable and proportional. Under the final rule, the maximum permissible interchange fee that an issuer may receive for an electronic debit will be the sum of $0.21 per transaction and five basis points multiplied by the value of the transaction. The Federal Board also approved on June 29, 2011 an interim final rule that allows for an upward adjustment of no more than $0.01 to an issuer’s debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards set out in the interim final rule. The Dodd-Frank Act also bans card issuers and payment card networks from entering into exclusivity arrangements for debit card processing and prohibits card issuers and payment networks from inhibiting the ability of merchants to direct the routing of debit card transactions over networks of their choice. Finally, merchants will be able to set minimum dollar amounts for the use of a credit card and provide discounts to consumers who pay with various payment methods, such as cash.

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Many of the requirements of the Dodd-Frank Act will be implemented over time, and most will be subject to regulations implemented over the course of several years. Given the uncertainty surrounding the manner in which many of the Dodd-Frank Act’s provisions will be implemented by the various regulatory agencies and through regulations, the full extent of the impact on our operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business.

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MANAGEMENT

Executive Officers and Directors

The following table sets forth information regarding our executive officers and directors as of September 1, 2011.

Name	Age		Position
Executive Officers:
R. Eugene Taylor		64	Chairman and Chief Executive Officer
Christopher G. Marshall		52	Chief Financial Officer
R. Bruce Singletary		61	Chief Risk Officer
Kenneth A. Posner		48	Chief of Investment Analytics and Research
Directors:
R. Eugene Taylor		64	Chairman and Chief Executive Officer
Richard M. DeMartini		58	Director
Peter N. Foss		67	Director
William A. Hodges		62	Director
Jeffrey E. Kirt		38	Director
Marc D. Oken		64	Director

Executive Officers

R. Eugene Taylor, Chairman and Chief Executive Officer

Gene Taylor has served as Chairman of our Board of Directors and as our Chief Executive Officer since our founding in 2009. Mr. Taylor spent 38 years at Bank of America Corp. and its predecessor companies, most recently as the Vice Chairman of the firm and President of Global Corporate & Investment Banking. Mr. Taylor also served on Bank of America’s Risk & Capital and Management Operating Committees. He originally joined Bank of America in 1969 as a credit analyst. He served in branch offices, marketing and management positions across North Carolina and Florida. In 1990, Mr. Taylor was named President of the Florida Bank and, in 1993, President of NationsBank Corp. in Maryland, Virginia and the District of Columbia. In 1998, Mr. Taylor was appointed to lead Consumer and Commercial Banking operations in the legacy Bank of America Western U.S. footprint. He subsequently returned to Charlotte, North Carolina to create a national banking unit and, in 2001, was named President of Bank of America Consumer & Commercial Banking. In 2004, Mr. Taylor assumed responsibility for the organization’s combined commercial banking businesses known as Global Business & Financial Services, before being named Vice Chairman of Bank of America and President of Global Corporate & Investment Banking in 2005. Most recently, Mr. Taylor served as a Senior Advisor at Fortress Investment Group LLC. Mr. Taylor serves as a director of Capital Bank Corp. and TIB Financial, our two subsidiary bank holding companies in which we have a controlling interest. Mr. Taylor is a Florida native and received his Bachelor of Science in Finance from Florida State University. Mr. Taylor brings to our Board of Directors valuable and extensive experience from managing and overseeing a broad range of operations during his tenure at Bank of America. His experience in leadership roles and activities in the Southeast qualifies him to serve as the Chairman of our Board of Directors.

Christopher G. Marshall, Chief Financial Officer

Chris Marshall has served as our Chief Financial Officer since our founding in 2009. From May to October 2009, Mr. Marshall served as a Senior Advisor to the Chief Executive Officer and Chief Restructuring Officer at GMAC, Inc. From July 2008 through March 2009, he also served as an advisor to The Blackstone Group L.P., providing advice and analysis for potential investments in the banking sector. From 2006 through 2008 Mr. Marshall served as the Chief Financial Officer of Fifth Third Bancorp. Mr. Marshall served as Chief Operations Executive of Bank of America’s Global Consumer and Small Business Bank from 2004 to 2006. Mr. Marshall also served as Bank of America’s Chief Financial Officer of the Consumer Products Group from

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2003 to 2004, Chief Operating Officer of Technology and Operations from 2002 to 2003 and Chief Financial Officer of Technology and Operations from 2001 to 2002. Prior to joining Bank of America, Mr. Marshall served as Chief Financial Officer and Chief Operating Officer of Honeywell International Inc. Global Business Services from 1999 to 2001, where he was a key member of the integration team for the merger with AlliedSignal Inc., overseeing the integration of all finance, information technology and corporate and administrative functions. From 1995 to 1999, he served as Chief Financial Officer of AlliedSignal Technical Services Corporation. Prior to that, from 1987 to 1995, Mr. Marshall held several managerial positions at TRW, Inc. Mr. Marshall serves as a director of Capital Bank Corp. and TIB Financial, our two subsidiary bank holding companies in which we have a controlling interest. Mr. Marshall earned a Bachelor of Science degree in Business Administration from the University of Florida and obtained a Master of Business Administration degree from Pepperdine University.

R. Bruce Singletary, Chief Risk Officer

Bruce Singletary has served as our Chief Risk Officer since our founding in 2009. Mr. Singletary spent 32 years at Bank of America and its predecessor companies with the last 19 years in various credit risk roles. Mr. Singletary originally joined C&S National Bank as a credit analyst in Atlanta, Georgia in 1974. He served in various middle market line and credit functions. In 1991, Mr. Singletary was named Senior Credit Policy Executive of C&S Sovran, which was renamed NationsBank Corp. in January 1992 after its acquisition by North Carolina National Bank, for the geographic areas of Maryland, Virginia and the District of Columbia. Mr. Singletary led the credit function of NationsBank Corp. from 1992 to 1998 alongside Mr. Taylor, who served as President of this region from 1993 to 1998. In 1998, Mr. Singletary relocated to Florida to establish a centralized underwriting function to serve middle market commercial clients in the southeastern region of the United States. In 2000, Mr. Singletary assumed credit responsibility for Bank of America’s middle market leveraged finance portfolio for the eastern half of the United States. In 2004, Mr. Singletary served as Senior Risk Manager for commercial banking for Bank of America’s Florida Bank. Mr. Singletary serves as a director of Capital Bank Corp. and TIB Financial, our two subsidiary bank holding companies in which we have a controlling interest. Mr. Singletary earned a Bachelor of Science degree in Industrial Management from Clemson University and obtained a Master of Business Administration degree from Georgia State University.

Kenneth A. Posner, Chief of Investment Analytics and Research

Ken Posner has served as our Chief of Investment Analytics since our founding in 2009. Mr. Posner served as a consultant to Fortress Investment Group LLC from 2008 through most of 2009, where he developed acquisition strategies for distressed banks and thrifts, conducted due diligence of specific targets and prepared business plans for bank acquisition targets. Prior to Fortress, Mr. Posner was a Managing Director of Morgan Stanley, where from 1995 through 2008, he was an equity research analyst conducting research and recommending equity, debt and derivative investment strategies for a wide range of financial services firms. From 1985 to 1989, he served in the United States Army rising to the rank of Captain. Mr. Posner earned a Bachelor of Arts degree in English from Yale College, a Master of Business Administration with honors from the University of Chicago and Certified Public Accountant, Chartered Financial Analyst and Financial Risk Management designations.

Board of Directors

Our Board of Directors currently consists of six members, Messrs. Taylor, DeMartini, Foss, Hodges, Kirt and Oken. All of the directors other than Mr. Taylor qualify as independent directors under the corporate governance standards of Nasdaq. Beginning at our next annual meeting, each member of our Board of Directors will serve a one-year term or until their successor has been elected and qualified.

Richard M. DeMartini

Richard DeMartini has been a member of our Board of Directors since our founding in 2009. Mr. DeMartini joined Crestview Partners in 2005 and became a Managing Director of Crestview in 2006. Mr. DeMartini currently serves as a director of Munder Capital Management, a registered investment adviser, and is on the

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Board of Directors of Martin Currie Ltd., a UK registered investment advisory firm, which are Crestview Partners portfolio companies. Mr. DeMartini also serves as a director of Partners Capital. Mr. DeMartini retired as President of Bank of America’s Asset Management Group in December 2004. He was also a member of the Risk and Capital Committee and the Operating Committee at Bank of America, which he joined in 2001. Prior to joining Bank of America in 2001, Mr. DeMartini served as Chairman and Chief Executive Officer of the International Private Client Group at Morgan Stanley Dean Witter. He also was a member of the Morgan Stanley Dean Witter Management Committee. Mr. DeMartini’s career at Morgan Stanley Dean Witter spanned more than 26 years and included roles as President of Individual Asset Management, Co-President of Dean Witter & Company, Inc. and Chairman of Discover Card. He has been a member of the investment community since joining Dean Witter in 1975. He has served as Chairman of the Board of Directors of The NASDAQ Stock Market, Inc. and Vice Chairman of the Board of Directors of the National Association of Securities Dealers, Inc. Mr. DeMartini earned a Bachelor of Science degree in Marketing from San Diego State University.

Mr. DeMartini’s extensive experience as both an investor in and executive of financial institutions qualifies him to serve on our Board of Directors. His experience helps us to identify investment opportunities and manage both growth and risk in our existing business. Mr. DeMartini serves as the representative of Crestview-NAFH, LLC (who we refer to as “Crestview-NAFH”) on our Board of Directors. See “Certain Relationships and Related Party Transactions—Arrangements with Crestview-NAFH, LLC and Affiliates of Oak Hill Advisors, L.P.”

Peter N. Foss

Peter Foss has been a member of our Board of Directors since our founding in 2009. Mr. Foss has been President of the General Electric Company’s Olympic Sponsorship and Corporate Accounts since 2003. In addition, Mr. Foss is General Manager for Enterprise Selling, with additional responsibilities for Sales Force Effectiveness and Corporate Sales Programs. He has been with GE for 32 years and, prior to his current position, served for six years as the President of GE Polymerland, a commercial organization representing GE Plastics in the global marketplace. Prior to GE Polymerland, Mr. Foss served in various commercial roles in the company, including introducing LEXAN^® film in the 1970s, was the Market Development Manager on the ULTEM^® introduction team in 1982. He has also served as the Regional General Manager for four of the GE Plastics regions, including leading the GE Plastics effort in Mexico in the mid-1990s. Mr. Foss serves as a director of Capital Bank Corp. and TIB Financial, our two subsidiary bank holding companies in which we have a controlling interest. Mr. Foss earned a Bachelor of Science degree in Chemistry from Massachusetts College of Pharmacy, Boston.

Mr. Foss’s extensive managerial and sales experience qualifies him to serve on our Board of Directors. His experience assists us in developing plans to expand and energize our sales and marketing activities.

William A. Hodges

Bill Hodges has been a member of our Board of Directors since our founding in 2009. Mr. Hodges has been President and Owner of LKW Properties LLC, a Charlotte-based residential land developer and homebuilder, since 2005. Prior to that, Mr. Hodges worked for over 30 years in various functions at Bank of America and its predecessors. From 2004 to 2005, he served as Chairman of Bank of America’s Capital Commitment Committee. Mr. Hodges served as Managing Director and Head of Debt Capital Markets from 1998 to 2004 and as Managing Director and Head of the Real Estate Finance Group from 1996 to 1998. Prior to Bank of America’s merger with NationsBank Corp., he served as Washington, D.C. Market President and Head of MidAtlantic Commercial Banking for NationsBank Corp. from 1992 to 1996. Mr. Hodges began his career at North Carolina National Bank, where he worked for 20 years in various roles, including Chief Credit Officer of Florida operations and as manager of the Real Estate Banking and Special Assets Groups. Mr. Hodges serves as a director of Capital Bank Corp. and TIB Financial, our two subsidiary bank holding companies in which we have a controlling interest. Mr. Hodges earned a Bachelor of Arts degree in History from the University of North Carolina at Chapel Hill and a Master of Business Administration degree in finance from Georgia State University.

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Mr. Hodges’s substantial experience in the banking and real estate sectors qualifies him to serve on our Board of Directors.

Jeffrey E. Kirt

Jeffrey Kirt has been a member of our Board of Directors since 2010. Mr. Kirt is a Managing Director at Oak Hill Advisors, L.P. where he has responsibility for investment research and analysis in several sectors including financials, aerospace, autos, defense and transportation. In addition, he has responsibility for the origination and execution of distressed debt and equity transactions. Mr. Kirt previously worked in the Leveraged Finance and High Yield Capital Markets groups at UBS Securities, LLC and the High Yield Capital Markets group at USBancorp Libra. He earned a B.A., with distinction, from Yale University. Mr. Kirt currently serves on the Boards of Directors of Avolon Aerospace Ltd. and Cooper-Standard Holdings, Inc.

Mr. Kirt’s finance and investment experience assists us in identifying future investment opportunities and qualifies him to serve on our Board of Directors. Mr. Kirt serves as the representative of certain affiliates of Oak Hill Advisors, L.P. (who we collectively refer to as “Oak Hill”) on our Board of Directors. See “Certain Relationships and Related Party Transactions—Arrangements with Crestview-NAFH, LLC and Affiliates of Oak Hill Advisors, L.P.”

Marc D. Oken

Marc Oken has been a member of our Board of Directors since our founding in 2009. Mr. Oken is the Co-Founder and Managing Partner of Falfurrias Capital Partners and he currently oversees the operations of the firm. Mr. Oken is the former Chief Financial Officer of Bank of America. Also, during his tenure with Bank of America as a senior financial executive, Mr. Oken had significant involvement in all of Bank of America’s acquisition activities. In the Fleet Boston Financial Corporation and MBNA acquisitions, he held the additional role of Transition Executive and was responsible for integration of the companies. Prior to his career with Bank of America, Mr. Oken was a Partner with Price Waterhouse and served as a Professional Accounting Fellow at the SEC. Mr. Oken is the Chairman of the Board of Directors of Bojangles’, a private company controlled by a Falfurrias Capital-led investor group. He also serves on the Board of Directors of Marsh & McLennan Companies, Sonoco Products Company and is a former director of Star Scientific, Inc. Mr. Oken earned a Bachelor of Science degree in Business Administration from Loyola College and obtained a Master of Business Administration degree from the University of West Florida.

Mr. Oken’s qualifications to serve on our Board of Directors include his extensive experience integrating acquisitions as well as his expertise in financial and accounting matters for complex organizations.

Committees of our Board of Directors

Audit Committee

The members of the Audit Committee are Messrs. Foss, Hodges and Kirt, each of whom is an “independent” member of our Board of Directors as defined under the Nasdaq rules and Rule 10A-3 of the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”). Mr. Foss is the chairperson of our Audit Committee. Mr. Kirt serves as our Audit Committee “financial expert,” as that term is defined under the SEC rules implementing Section 407 of the Sarbanes-Oxley Act of 2002 and has experience that results in his financial sophistication as defined under the Nasdaq rules.

Our Audit Committee is responsible for, among other things:

• reviewing our financial statements, significant accounting policies changes, material weaknesses identified by outside auditors and risk management issues;

• serving as an independent and objective body to monitor and assess our compliance with legal and regulatory requirements, our financial reporting processes and related internal control systems and the performance of our internal audit function;

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• overseeing the audit and other services of our outside auditors and being directly responsible for the appointment, independence, qualifications, compensation and oversight of the outside auditors;

• discussing any disagreements between our management and the outside auditors regarding our financial reporting; and

• preparing the Audit Committee report for inclusion in our proxy statement for our annual meeting.

Risk Committee

The members of the Risk Committee are Messrs. Hodges, Kirt and Taylor. Mr. Hodges is the chairperson of our Risk Committee. Among other things, our Risk Committee is responsible for:

• overseeing our enterprise-wide risk management practices;

• monitoring and reviewing with management our risk tolerance, ways in which risk is measured and major risk exposures, including any risk concentrations and risk interrelationships, as well as the likelihood of occurrence, the potential impact of those risks and mitigating measures; and

• meeting periodically with management to discuss our risk policies and the steps taken to ensure appropriate processes are in place to identify, manage and control risks associated with our business objectives.

Compensation Committee

The members of the Compensation Committee are Messrs. DeMartini, Foss and Oken, each of whom qualifies as an “independent” director as defined under the applicable rules and regulations of the SEC, Nasdaq and the Internal Revenue Service. Mr. Oken is the chairperson of our Compensation Committee.

Among other things, our Compensation Committee is responsible for:

• determining the compensation of our executive officers and board;

• reviewing our executive compensation policies and plans, including performance goals;

• administering and implementing our equity compensation plans; and

• preparing a report on executive compensation for inclusion in our proxy statement for our annual meeting.

During 2010, our Compensation Committee consisted of Messrs. DeMartini, Foss and Oken. None of them has at any time been an officer or employee of the Company or had any relationship with us of the type that is required to be disclosed under Item 404 of Regulation S-K. None of our executive officers serves or has served as a member of our Board of Directors, Compensation Committee or other board committee performing equivalent functions of another entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

Nominating and Governance Committee

The members of the Nominating and Governance Committee are Messrs. DeMartini, Kirt and Oken, each of whom qualifies as an “independent” director as defined under the applicable rules and regulations of the SEC, Nasdaq and the Internal Revenue Service. Mr. Kirt is the chairperson of our Nominating and Governance Committee.

Among other things, the Nominating and Governance Committee is responsible for:

• identifying individuals qualified to become members of our Board of Directors and recommending director candidates for election or re-election to our Board of Directors;

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• assessing the performance of the Board of Directors; and

• monitoring our corporate governance principles and practices.

Code of Business Conduct and Ethics

Our Board of Directors has adopted a code of business conduct and ethics (which we refer to as the “Code of Ethics”) that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The Code of Ethics is available free of charge upon written request to Nancy A. Snow, Capital Bank Corp., 333 Fayetteville Street, Suite 700, Raleigh, NC 27601. If we amend or grant any waiver from a provision of our Code of Ethics that applies to our executive officers, we will publicly disclose such amendment or waiver on our website and as required by applicable law, including by filing a Current Report on Form 8-K.

Compensation Discussion and Analysis

Executive Compensation

The following Compensation Discussion and Analysis provides information regarding the objectives and elements of our compensation philosophy, policies and practices with respect to the compensation of our executive officers who appear in the “—Summary Compensation Table” below (who we refer to collectively throughout this section as our “named executive officers”). Our named executive officers for the fiscal year ended December 31, 2010 were:

• R. Eugene Taylor, President and Chief Executive Officer;

• Christopher G. Marshall, Chief Financial Officer;

• R. Bruce Singletary, Chief Risk Officer; and

• Kenneth A. Posner, Chief of Investment Analytics and Research.

Executive management and the Compensation Committee of our Board of Directors work together to establish, review and evaluate our compensation plans, policies and programs. The Compensation Committee is comprised entirely of independent directors and administers the executive compensation program in a manner consistent with our compensation philosophy. The Compensation Committee, which is generally responsible for the design and administration of our executive compensation program, acts independently, yet in conjunction with the Board of Directors and executive management, and maintains a philosophy that encompasses both long-term and short-term objectives while discouraging excessive risk taking.

Objectives of Our Executive Compensation Program

The primary objective of our compensation program is the same objective that we have for our overall operations: to create long-term value for our stockholders. The primary components of compensation that support this philosophy are:

• Align executive compensation with stockholder value. Within our overall compensation strategy, we utilize equity compensation tools to align the financial interests and objectives of our named executive officers with those of our stockholders.

• Attract, retain and motivate high-performing executive talent. We operate in a competitive employment environment and our employees, led by our named executive officers, are essential to our success. The compensation of our named executive officers, while designed to be competitive within the marketplace for similar positions with bank holding companies of comparable size, is also designed to motivate the named executive officers to maximize our performance.

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• Link pay to performance. Our compensation program is designed to provide a strong correlation between the performance of the named executive officers and the compensation they receive. We do this by utilizing a compensation program designed to reward our executives based on our overall performance and the executives’ abilities to achieve the performance priorities set forth by the Compensation Committee.

Setting Executive Compensation

Determination of Executive Compensation

The compensation of our named executive officers is largely based on arrangements that were negotiated at the time of our private placements. The founding members of the executive management team directly negotiated the terms of their compensation with the investors at that time. The foundation for the total compensation packages offered to our named executive officers is based on an assessment of each named executive officer’s individual responsibilities, a determination of the executives’ contributions to our performance and to our success in reaching our strategic goals. Compensation paid in the financial sector generally and in bank holding companies in particular, is discussed by the Compensation Committee in determining compensation for our named executive officers.

Executive management provides input as to our strategic goals for future performance periods, which could affect their annual compensation. However, the Compensation Committee carefully reviews the recommended levels before giving its final approval to such strategic goals. The combination of the proposal from executive management and the Compensation Committee’s review is essential in order to ensure that the goals are set accurately to provide our named executive officers with goals that are set at a high level and are motivating, but are also obtainable.

Compensation Mix

The compensation arrangements offered to our named executive officers are meant to be balanced packages that provide adequate and competitive compensation for the individual named executive officer’s position in the Company. The mix of compensation elements is intended to provide the named executive officers with a steady source of income, encourage and reward achievement of short-term and long-term performance objectives, align executives’ interests with those of stockholders and promote retention.

Role of Compensation Committee

The Compensation Committee is responsible for setting compensation for our named executive officers. While some of the key terms of each named executive officer’s compensation were determined at the time of our private placements, the Compensation Committee sets performance goals for our named executive officers and reviews all other compensation and benefits for the named executive officers on an annual basis. None of the members of the Compensation Committee in 2010 has at any time been an officer or employee of the Company.

Role of Compensation Consultant

We did not engage a compensation consultant in 2010. However, we may revisit the use of a compensation consultant following completion of this offering.

Benchmarking

Our Board of Directors does not currently use benchmarking or peer group analysis in making compensation decisions. However, we may revisit the use of benchmarking and peer group analysis following the completion of this offering.

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Compensation Risk Oversight

While our Compensation Committee is responsible for the oversight of our compensation of employees and directors, our Audit Committee is responsible for our risk management, including risk as it relates to compensation. Additionally, Mr. Singletary, our Chief Risk Officer, is responsible for developing a risk management framework to identify, manage and mitigate our risks, including compensation practices. In addition, we are subject to regulatory oversight and reviews, whereby our compensation practices are subject to the review of our regulators and any restrictions or requirements that may be imposed upon us. Based on a review by the Audit Committee and our Board of Directors, we do not believe that our overall compensation policies and practices create risks that are reasonably likely to have a material adverse effect on us.

Principal Components of Compensation

The principal components of our executive compensation program applicable to our named executive officers for the fiscal year ended December 31, 2010 were as follows:

Base Salary

Base salaries for our named executive officers are designed to compensate the executive for scope of responsibilities and consideration is given to the experience, education, personal qualities and other qualifications of that individual that are essential for the specific role the executive serves, while remaining generally competitive with the base salary ranges at other banking organizations.

Annual Bonus Program

Our named executive officers currently participate in a discretionary annual bonus program. In awarding discretionary bonus payments, the Compensation Committee considers a variety of factors, including a review of the performance of our named executive officers during the applicable performance year in achieving certain performance targets and the past, present and expected future contributions of an employee to our overall success, safety and soundness of the organization. The specific factors considered by the Compensation Committee in evaluating those contributions may include, among other things: overall individual performance, organizational performance, achievement of specific milestones (including, but not limited to, successful acquisition of target companies, generating organic loan and deposit growth), individual contribution to organizational performance and level of individual responsibilities. The relevant factors that the Compensation Committee will consider in a performance year are generally communicated to the named executive officers prior to, or at, the beginning of each performance period, at which time the achievement of such performance targets is substantially uncertain.

Long-Term Incentive Program

Our named executive officers may be awarded equity awards at the discretion of the Compensation Committee under the 2010 Equity Incentive Plan, which was adopted in connection with our private placements and is more fully described below. Stock options and shares of restricted stock were granted in March 2011 under the 2010 Equity Incentive Plan in order to provide the Chief Executive Officer and other named executive officers with long-term incentives for profitable growth and to further align the interests of our named executive officers with the interests of our stockholders. These equity awards are structured to be long-term rewards, thereby increasing the performance and retention of our named executive officers.

The stock options granted to our named executive officers in March 2011 will, subject to continuous employment through the applicable vesting date, vest in two equal installments, with one half of the options vesting on December 22, 2011 and the other half vesting on December 22, 2012. Our named executive officers were also granted shares of restricted stock in March 2011 that are subject to performance vesting. The performance vesting is based on our reaching specified incremental share prices in order for the shares of restricted stock to vest. The vesting of all of our equity awards is contingent upon achieving a qualified investment transaction, which was achieved on September 30, 2010.

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Benefits

Our named executive officers are not entitled to any perquisites. Named executive officers are provided with benefits, including participation in our 401(k) defined contribution program and insurance benefit programs, that are offered to other eligible employees.

2010 Compensation for Our Named Executive Officers

Base Salary

Base salaries for our named executive officers for 2010 were as follows: Mr. Taylor—$650,000; Mr. Marshall—$438,000; Mr. Singletary—$300,000; and Mr. Posner—$225,000.

Annual Cash Bonuses

Our named executive officers each received annual cash bonuses at target level based on performance in 2010. Based on an assessment of the performance of the named executive officer in relation to our performance, the achievement of certain milestones and individual performance of each of the named executive officers, the Compensation Committee approved the following discretionary annual bonus payments for 2010: Mr. Taylor—$650,000; Mr. Marshall—$438,000; Mr. Singletary—$300,000; and Mr. Posner—$225,000.

In making its annual bonus determination for named executive officers, the Compensation Committee considers individual and company performance but does not predetermine the applicable considerations, quantify the weight given to any specific performance goal or otherwise follow a formulaic calculation. Rather, the Compensation Committee engages in an overall assessment of appropriate bonus levels based on a subjective interpretation of all the relevant criteria.

Long-Term Incentive-Based Compensation

All of the equity awards that have been granted to our named executive officers were granted under the 2010 Equity Incentive Plan adopted in connection with our private placements as set forth below. We granted equity awards to our named executive officers in accordance with the terms of the private placements in order to further align their interests and objectives with those of our stockholders.

No long-term incentive-based compensation was granted to our named executive officers in 2010.

In March 2011, we granted stock options and performance-based restricted stock to each of the named executive officers in the following amounts:

• Mr. Taylor—stock option to acquire 1,251,112 shares and 536,191 shares of restricted stock;

• Mr. Marshall—stock option to acquire 469,167 shares and 201,072 shares of restricted stock;

• Mr. Singletary—stock option to acquire 312,778 shares and 134,048 shares of restricted stock; and

• Mr. Posner—stock option to acquire 78,194 shares and 33,512 shares of restricted stock.

The stock options granted to named executive officers in March 2011 vest in two equal installments, with one half of the options vesting on December 22, 2011 and the other half vesting on December 22, 2012. The performance-based restricted stock vest in three tranches based on the achievement of specified share prices. One-third of the shares of restricted stock vest if our share price equals or exceeds $25 per share, an additional one-third of the shares of restricted stock vest if our share price equals or exceeds $28 per share and the final third of the shares of restricted stock vest if our share price equals or exceeds $32 per share (with the per share prices based on the average closing price of a share of our common stock on the applicable exchange for any consecutive 30-day trading period). The vesting of all of these equity awards is contingent upon achieving a qualified investment transaction, which was achieved on September 30, 2010.

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Employment Agreements

Effective December 22, 2009, we entered into an employment agreement with Mr. Taylor. The employment agreement, which is more fully described in “—Employment Agreements with Named Executive Officers” below, provides for an annual base salary, bonus opportunity, terms relating to his initial equity grants and severance. Upon a termination of employment without “cause” (as defined below), resignation for “good reason” (as defined below) or termination of employment due to death or disability, Mr. Taylor is entitled to two times the sum of his annual base salary and the greater of his target annual incentive award and the annual incentive award paid in the prior year. Mr. Taylor’s severance provisions are more fully described in “—Potential Payments upon Termination or Change-in-Control” below.

It is currently expected that prior to the completion of this offering the Company will enter into agreements with each of Messrs. Marshall, Singletary and Posner that, among other things, will provide for cash severance benefits equal to 1.5 times the executive’s base salary and target bonus and 18 months of welfare benefits continuation upon a qualifying termination of employment and contain a golden parachute excise tax gross-up provision and restrictive covenants, including non-competition and employee and customer non-solicitation restrictions, similar to those under Mr. Taylor’s agreement.

Stock Ownership Guidelines

In connection with our private placements, each of the named executive officers purchased shares of our common stock. Because the common stock is not publicly traded and is subject to certain transfer limitations pursuant to a subscription agreement, the named executive officers are limited in their ability to divest themselves of the equity and, as a result, are essentially subject to equity ownership requirements. See “Certain Relationships and Related Party Transactions—Agreements with our Founders.” Once the provisions of the subscription agreement are satisfied, the named executive officer will no longer have any transfer limitation on the common stock acquired in our private placements. Our directors and executive officers do not have any other stock ownership guidelines.

Section 162(m)

From and after the time that our compensation programs become subject to Section 162(m) of the Internal Revenue Code, we intend to consider the structure of base salary and bonus compensation in order to maintain the deductibility of compensation under Section 162(m) of the Internal Revenue Code. However, the Compensation Committee will take into consideration other factors, together with Section 162(m) considerations, in making executive compensation decisions and could, in certain circumstances, approve and authorize compensation that is not fully tax deductible. Transition provisions under Section 162(m) may apply for a transition period following the completion of this offering to certain compensation arrangements that were entered into by a corporation before it was publicly held.

Compensation Program Following this Offering

The design of our compensation program following this offering is an ongoing process, however, we expect that our compensation program will continue to be based on the same general principles. We believe that, following this offering, we will have more flexibility in designing compensation programs to attract, motivate and retain our executives, including permitting us to regularly compensate executives with non-cash compensation reflective of our stock performance in relation to a comparative group in the form of publicly traded equity.

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Summary Compensation Table

SUMMARY COMPENSATION TABLE

The following summary compensation table sets forth the total compensation paid or accrued during the fiscal year ending on December 31, 2010, for our named executive officers.

Name and Principal Position

Year

Salary ($)

Bonus ($)

Stock Awards ($)(1)

Option Awards ($)(1)

Non-Equity Incentive Plan Compensation ($)

Nonqualified Deferred Compensation Earnings ($)

All Other Compensation ($)

Total ($)

R. Eugene Taylor,

Chairman and Chief Executive Officer

2010

650,000

650,000

–

–

–

–

–

1,300,000

Christopher G. Marshall,

Chief Financial Officer

2010

438,000

438,000

–

–

–

–

–

876,000

R. Bruce Singletary,

Chief Risk Officer

2010

300,000

300,000

–

–

–

–

–

600,000

Kenneth A. Posner,

Chief of Investment Analytics and Research

2010

225,000

225,000

–

–

–

–

–

450,000

⁽¹⁾  No stock awards or option awards were granted to the named executive officers in 2009 or 2010. In March of 2011, each of our named executive officers was granted stock options and performance-based restricted stock. These grants are more fully described in “—Grants of Plan-Based Awards” below.

Grants of Plan-Based Awards

No plan-based awards were granted to named executive officers during 2010.

In March of 2011, we granted stock options and performance-based restricted stock to each of the named executive officers in the following amounts:

• Mr. Taylor—stock option to acquire 1,251,112 shares and 536,191 shares of restricted stock;

• Mr. Marshall—stock option to acquire 469,167 shares and 201,072 shares of restricted stock;

• Mr. Singletary—stock option to acquire 312,778 shares and 134,048 shares of restricted stock; and

• Mr. Posner—stock option to acquire 78,194 shares and 33,512 shares of restricted stock.

The stock options granted to named executive officers in March 2011 vest in two equal installments, with one half of the options vesting on December 22, 2011 and the other half vesting on December 22, 2012. The performance-based restricted stock vest in three tranches based on the achievement of specified share prices. One-third of the shares of restricted stock vest if our share price equals or exceeds $25 per share, an additional one-third of the shares of restricted stock vest if our share price equals or exceeds $28 per share and the final third of the shares of restricted stock vest if our share price equals or exceeds $32 per share (with the per share prices based on the average closing price of a share of our common stock on the applicable exchange for any consecutive 30-day trading period). The vesting of all of these equity awards is contingent upon achieving a qualified investment transaction, which was achieved on September 30, 2010.

Outstanding Equity Awards at 2010 Fiscal Year-End

There were no equity awards outstanding on December 31, 2010 for our named executive officers.

In March of 2011, each of our named executive officers was granted stock options and performance-based restricted stock. These grants are more fully described in “—Grants of Plan-Based Awards” above.

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Employment Agreements with Named Executive Officers

Mr. Taylor’s Employment Agreement

Effective December 22, 2009, we entered into a three-year employment agreement with Mr. Taylor, our Chief Executive Officer, that will automatically renew for a one-year period following the expiration of the initial three-year term and for additional one-year periods after each subsequent anniversary, unless either party provides a notice of non-renewal 90 days prior to the expiration of the initial term or any subsequent term. The employment agreement provides that Mr. Taylor will receive an annual base salary of $650,000, an annual bonus with a target opportunity of 100% of his annual base salary, the actual amount of which is to be determined by the Compensation Committee and Mr. Taylor will participate in the same benefit programs as our other employees. Pursuant to the terms of his employment agreement, Mr. Taylor was granted 1,251,112 stock options, 50% of which will vest on December 22, 2011 and the remaining 50% of which will vest on December 22, 2012. Additionally, Mr. Taylor received 536,191 shares of restricted common stock, which vest based on the achievement of performance goals relating to increases in the price of a share of common stock (with 33.3% (178,730) of the performance shares vesting when our stock price equals or exceeds $25 per share, 33.3% (178,730) of the performance shares vesting when our stock price equals or exceeds $28 per share and 33.3% (178,731) of the performance shares vesting when our stock price equals or exceeds $32 per share). The vesting of Mr. Taylor’s restricted shares is also subject to his continued employment with us and the occurrence of a qualified investment transaction, which occurred on September 30, 2010. In the event of the termination of Mr. Taylor’s employment by us without “cause”, by Mr. Taylor for “good reason” or due to death or disability, Mr. Taylor would be entitled to severance and accelerated vesting of certain equity awards. Mr. Taylor’s employment agreement also provides that Mr. Taylor will be subject to restrictive covenants, including noncompetition and nonsolicitation of employees or customers, while employed by us and for the one-year period following his termination of employment with us. The severance provisions of Mr. Taylor’s employment agreement are more fully described in “—Potential Payments upon Termination or Change-in-Control” below.

Employment Agreements with Other Named Executive Officers

It is currently expected that, prior to the completion of this offering, we will enter into agreements with each of Messrs. Marshall, Singletary and Posner that, among other things, will provide for cash severance benefits equal to 1.5 times the executive’s base salary and target bonus and 18 months of welfare benefits continuation upon a qualifying termination of employment and contain a golden parachute excise tax gross-up provision and restrictive covenants, including non-competition and employee and customer non-solicitation restrictions, similar to those under Mr. Taylor’s agreement.

Potential Payments upon Termination or Change-in-Control

Termination of Employment

Severance Under Mr. Taylor’s Employment Agreement. If Mr. Taylor’s employment is terminated (1) by us without “cause” or due to “disability” (as defined below), (2) by Mr. Taylor for “good reason” or (3) upon Mr. Taylor’s death during the employment period, subject to his execution (other than upon his death) and nonrevocation of a release of claims against us and our affiliated entities, Mr. Taylor will be entitled to be paid any earned but unpaid base salary and bonuses and a lump sum cash amount equal to the sum of (a) two times his annual base salary immediately prior to the date of the qualifying termination and (b) two times the higher of his target annual bonus for the year of termination and the annual bonus paid or payable to Mr. Taylor in respect of the year prior to the year of the qualifying termination. In addition, upon a qualifying termination, all of Mr. Taylor’s unvested outstanding stock options granted under his employment agreement will immediately vest and 50% of each tranche of unvested performance shares granted under his employment agreement will immediately vest. The remaining portion of the unvested performance shares granted under Mr. Taylor’s employment agreement will remain outstanding and continue to be eligible to vest based on the achievement of the performance goals pursuant to the current vesting schedule.

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Mr. Taylor is subject to noncompetition and nonsolicitation restrictions while employed by us and for one year following a termination of his employment and is subject to a standard, ongoing confidentiality obligation.

In addition, Mr. Taylor may be entitled to a golden parachute excise tax gross-up payment in certain cases. However, in the event that the total parachute payments made to Mr. Taylor do not exceed a certain threshold (110% of his base amount (as defined in Section 280G of the Internal Revenue Code)), payment to him will be cut back so that no excise tax is imposed.

Severance for Other Named Executive Officers. As of December 31, 2010, our named executive officers other than Mr. Taylor were not eligible for severance upon any termination of employment. It is currently expected that, prior to the completion of this offering, we will enter into agreements with each of Messrs. Marshall, Singletary and Posner that, among other things, will provide for cash severance benefits equal to 1.5 times the executive’s base salary and target bonus and 18 months of welfare benefits continuation upon a qualifying termination of employment and contain a golden parachute excise tax gross-up provision and restrictive covenants, including non-competition and employee and customer non-solicitation restrictions, similar to those under Mr. Taylor’s agreement.

Vesting of Equity Awards Held by Named Executive Officers under the 2010 Equity Incentive Plan. The employment agreement with Mr. Taylor provides that upon a termination of employment by us without “cause”, a resignation of employment by him for “good reason” or termination of employment due to death or disability, all of the unvested outstanding stock options granted to Mr. Taylor will immediately vest and 50% of each tranche of unvested performance shares granted under his employment agreement will immediately vest. The remaining portion of the unvested performance shares granted to Mr. Taylor will remain outstanding and continue to be eligible to vest based on the achievement of the performance goals pursuant to the current vesting schedule. Pursuant to the terms of the equity award agreements with Messrs. Marshall, Singletary and Posner, upon a termination of employment for any reason, equity awards that have not vested prior to the date of termination will be forfeited.

For the purposes of Mr. Taylor’s employment agreement, “good reason” generally means (1) material diminution of annual base salary or target incentive payment, (2) material diminution in position, authority, duties or responsibilities, (3) any material failure by us to comply with the compensation related provisions of the employment agreement, (4) any relocation of the executive’s principal place of business to a location more than 30 miles from the executive’s principal place of business immediately prior to the move other than the initial relocation in connection with the establishment of our headquarters or (5) any material breach of the employment agreement.

For the purposes of Mr. Taylor’s employment agreement, “cause” generally means the executive’s (1) willful misconduct or willful neglect in the performance of his duties, (2) willful failure to adhere materially to the clear directions of the Board of Directors, (3) conviction of or formal admission to or plea of guilty or nolo contendere to a charge of commission or a felony or (4) willful breach of any material term of the employment agreement.

For the purposes of Mr. Taylor’s employment agreement, “disability” generally means the inability of the executive to perform his duties with us on a full-time basis as a result of incapacity due to mental or physical illness, which inability exists for 180 days during any rolling 12-month period, as determined by a physician selected by us or our insurers and acceptable to the executive or the executive’s legal representative.

Change in Control

We have not entered into individual agreements or arrangement with our named executive officers that provide for enhanced severance or benefits upon a change in control of the Company, other than the golden parachute excise tax gross-up payment that Mr. Taylor is entitled to under certain circumstances. In addition, it is currently expected

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that the agreements that will be entered into between us and each of Messrs. Marshall, Singletary and Posner prior to this offering will include a golden parachute excise tax gross-up provision similar to the provisions contained in Mr. Taylor’s agreement.

Upon a “change in control” (as defined below) of the Company, the unvested stock options held by the named executive officers immediately vest and become exercisable and unvested performance shares held by the named executive officers will vest based on performance, as determined by the Compensation Committee.

A change in control is generally deemed to occur under the 2010 Equity Incentive Plan upon:

• the acquisition by any individual, entity or group of “beneficial ownership” (pursuant to the meaning given in Rule 13d-3 under the Exchange Act) of 51% or more (on a fully diluted basis) of either (a) the outstanding shares of our common stock, taking into account as outstanding for this purpose each common stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt and the exercise or settlement of any similar right to acquire such common stock, or (b) combined voting power of our then outstanding voting securities entitled to vote generally in the election of directors, with each of clauses (a) and (b) subject to certain customary exceptions;

• a majority of the directors who constituted the Board of Directors at the time the 2010 Equity Incentive Plan was adopted (or any person becoming a director subsequent to that date, whose election or nomination for election was approved by a vote of at least two-thirds of the incumbent directors then on the Board of Directors) cease for any reason to constitute at least a majority of the Board of Directors;

• approval by our shareholders of our complete dissolution or liquidation; or

• the consummation of a merger, consolidation, statutory share exchange, a sale or other disposition of all or substantially all of our assets or similar form of corporate transaction involving us that requires the approval of our shareholders (each, a “Business Combination”), whether for such transaction or the issuance of securities in the transaction, in each case, unless immediately following the Business Combination: (a) more than 50% of the total voting power of the entity resulting from such Business Combination or, if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the directors of the surviving company is represented by the outstanding company voting securities that were outstanding immediately prior to such Business Combination, and such voting power among the holders thereof is in substantially the same proportion as the voting power of the outstanding company voting securities among the holders thereof immediately prior to the Business Combination, (b) no person (other than any employee benefit plan sponsored or maintained by the surviving company) is or becomes the “beneficial owner”, directly or indirectly, of 51% or more of the total voting power of the outstanding voting securities eligible to elect directors of the parent company (or, if there is no parent company, the surviving company) and (c) at least two-thirds of the members of the board of directors of the parent company (or, if there is no parent company, the surviving company) following the consummation of the Business Combination were members of the Board of Directors at the time of the Board of Director’s approval of the execution of the initial agreement providing for the Business Combination.

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The following table reflects the estimated payments to our named executive officers that may be made upon a termination of employment, a termination of employment in connection with a change in control or a change in control without the termination of a named executive officer’s employment. The estimated payments in the table are calculated based on the assumption that the hypothetical termination of employment and/or the hypothetical change in control each occurred on December 31, 2010.

Name	Scenario	Cash Severance ($)(1)	Stock Option Vesting ($)	Restricted Stock Vesting ($)	Benefits ($)	Gross-up ($)	Total ($)
R. Eugene Taylor	Resignation	–	–	–	–	–	–
	Involuntary Termination not for Cause	2,600,000	–	–	33,846	–	2,633,846
	Involuntary Termination for Cause	–	–	–	–	–	–
	Involuntary Termination Following Change of Control	2,600,000	–	–	33,846	–	2,633,846
	Change of Control (No Termination of Employment)	–	–	–	–	–	–
Christopher G. Marshall	Resignation	–	–	–	–	–	–
	Involuntary Termination not for Cause	–	–	–	–	–	–
	Involuntary Termination for Cause	–	–	–	–	–	–
	Involuntary Termination Following Change of Control	–	–	–	–	–	–
	Change of Control (No Termination of Employment)	–	–	–	–	–	–
R. Bruce Singletary	Resignation	–	–	–	–	–	–
	Involuntary Termination not for Cause	–	–	–	–	–	–
	Involuntary Termination for Cause	–	–	–	–	–	–
	Involuntary Termination Following Change of Control	–	–	–	–	–	–
	Change of Control (No Termination of Employment)	–	–	–	–	–	–
Kenneth A. Posner	Resignation	–	–	–	–	–	–
	Involuntary Termination not for Cause	–	–	–	–	–	–
	Involuntary Termination for Cause	–	–	–	–	–	–
	Involuntary Termination Following Change of Control	–	–	–	–	–	–
	Change of Control (No Termination of Employment)	–	–	–	–	–	–

⁽¹⁾  Cash severance payments based on severance terms provided in the applicable employment agreement.

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Director Compensation

Each director receives an annual cash retainer of $50,000 as compensation for his services as a member of the Board of Directors. The chair of the Audit Committee of the Board of Directors, the chair of the Compensation Committee of the Board of Directors, the chair of the Nominating and Governance Committee of the Board of Directors and the chair of the Risk Committee of the Board of Directors each receive an additional cash retainer of $10,000. In connection with our private placements, the members of our Board of Directors were also provided with 25,000 shares of restricted stock and stock options to acquire 25,000 shares of our common stock. These equity awards to non-employee directors were granted in March 2011.

Name*	Fees Earned or Paid in Cash ($)		Stock Awards ($)(1)		Option Awards ($)(1)		All Other Compensation ($)		Total ($)
Richard M. DeMartini(2)		50,000		0		0		0		50,000
Peter N. Foss		50,000		0		0		0		50,000
William A. Hodges		50,000		0		0		0		50,000
Jeffrey E. Kirt(2)		50,000		0		0		0		50,000
Marc D. Oken(2)		50,000		0		0		0		50,000

⁽¹⁾  No stock awards or option awards were granted to directors or the entities that have the right to appoint directors in 2010.

⁽²⁾  Cash retainers relating to services as a director provided by (a) Mr. DeMartini, are paid by us to an affiliate Crestview-NAFH, (b) Mr. Kirt, are paid by us to Oak Hill and (c) Mr. Oken, are paid by us to investment funds affiliated with Falfurrias Capital Partners.

The table below shows the aggregate number of stock options (and the exercise price thereof) and restricted stock held by each director (or the entity that appoints the director for the fiscal year ended December 31, 2010, which is included in parentheses beside the applicable director’s name).

Name	Stock Options (in Shares)			Exercise Price		Expiration Date		Restricted Stock (in Shares)
Richard M. DeMartini (Crestview-NAFH)		25,000	(1)	$	20.00		12/22/19		25,000	(2)
Peter N. Foss		25,000	(1)	$	20.00		12/22/19		25,000	(2)
William A. Hodges		25,000	(1)	$	20.00		12/22/19		25,000	(2)
Jeffrey E. Kirt (Oak Hill)		25,000	(1)	$	20.00		12/22/19		25,000	(2)
Marc D. Oken (Falfurrias Capital Partners)		25,000	(1)	$	20.00		12/22/19		25,000	(2)

⁽¹⁾  Stock options disclosed in this column were granted in March of 2011 and vest in two equal installments, the first half of the stock options vest on December 22, 2011 and the remaining half of the stock options vest on December 22, 2012.

⁽²⁾  The shares of restricted stock disclosed in this column were granted in March of 2011 and vest in two equal installments, the first half of the shares of restricted stock vest on December 22, 2011 and the remaining half of the shares of restricted stock vest on December 22, 2012.

In addition to the compensation described above, non-employee directors are reimbursed for reasonable business expenses relating to their attendance at meetings of our Board of Directors, including expenses relating to lodging, meals and transportation to and from the meetings.

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SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS, MANAGEMENT AND SELLING STOCKHOLDERS

The following table sets forth information about the beneficial ownership of our common stock as of September 1, 2011 and as adjusted to reflect the sale of the shares of Class A common stock by us and the selling stockholders in this offering, for:

• each person known to us to be the beneficial owner of more than 5% of our common stock;

• each named executive officer;

• each of our directors;

• all of our executive officers and directors as a group; and

• each selling stockholder.

Unless otherwise noted below, the address of each beneficial owner listed on the table is c/o North American Financial Holdings, Inc., 9350 South Dixie Highway, Miami, Florida 33156. We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the tables below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws. We have based our calculation of the percentage of beneficial ownership on 46,149,998 shares of common stock outstanding as of September 1, 2011 (including 20,818,049 shares of Class A common stock and 25,331,949 shares of Class B non-voting common stock) and            shares of common stock outstanding after the completion of this offering and the reorganization (including            shares of Class A common stock and            shares of Class B non-voting common stock).

In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of September 1, 2011. We, however, did not deem these shares outstanding for the purpose of computing the percentage ownership of any other person.

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	Beneficial Ownership Before this Offering and the Reorganization										Beneficial Ownership After this Offering and the Reorganization(1)						Beneficial Ownership After Exercise of Underwriter’s Option to Purchase Additional Shares(2)
	Shares of Class A Common Stock Beneficially Owned			Shares of Class B Common Stock Beneficially Owned		Total Shares of Common Stock Beneficially Owned						Shares of Class A Common Stock Beneficially Owned	Shares of Class B Common Stock Beneficially Owned	Total Shares of Common Stock Beneficially Owned				Shares of Class A Common Stock Beneficially Owned	Shares of Class B Common Stock Beneficially Owned	Total Shares of Common Stock Beneficially Owned
Name of beneficial owner	Number			Number		Number		%			Shares being offered	Number	Number	Number	%		Number	Number	Number	Number	%
Executive Officers and Directors:
R. Eugene Taylor		761,191	(3)		–		761,191		1.65	%						%						%
Christopher G. Marshall		251,072	(4)		–		251,072		*							%						%
R. Bruce Singletary		169,048	(5)		–		169,048		*							%						%
Kenneth A. Posner		68,512	(6)		–		68,512		*							%						%
Richard M. DeMartini(7)		25,000	(8)		–		–		*							%						%
Peter N. Foss		25,000	(8)		–		–		*							%						%
William A. Hodges		25,000	(8)		–		–		*							%						%
Jeffrey E. Kirt(9)		25,000	(8)		–		–		*							%						%
Marc D. Oken(10)		275,000	(8)		–		275,000		*							%						%
All executive officers and directors as a group (9 persons)		4,711,428			12,615,216		17,326,644		37.54%							%						%
Greater than 5% Stockholders:
Crestview-NAFH, LLC(11)		2,073,235	(8)		9,186,688		11,259,923		24.40	%						%						%
Oak Hill Advisors, L.P.(12)		1,032,370	(8)		3,459,528		4,491,898		9.73	%						%						%
Samana Capital, L.P.(13)		1,032,370			3,434,528		4,466,898		9.68	%						%						%
Franklin Mutual Advisers, LLC(14)		1,032,620			3,358,387		4,391,007		9.51	%						%						%
Taconic Capital Advisors L.P.(15)		1,032,370			2,886,025		3,918,395		8.49	%						%						%
Other Selling Stockholders:
		%								%						%						%

⁽¹⁾ Assumes the sale of all shares included in this prospectus. Does not include up to            shares of Class A common stock which may be sold pursuant to the underwriters’ option to purchase additional shares.

⁽²⁾  Assumed the sale of an additional            shares upon exercise of the underwriters’ option to purchase additional shares.

⁽³⁾  Includes 536,191 shares of restricted stock subject to performance vesting.

⁽⁴⁾  Includes 201,072 shares of restricted stock subject to performance vesting.

⁽⁵⁾  Includes 134,048 shares of restricted stock subject to performance vesting.

⁽⁶⁾  Includes 33,512 shares of restricted stock subject to performance vesting.

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⁽⁷⁾  Consists of shares owned by Crestview Advisors, L.L.C. which were issued in connection with Mr. DeMartini’s service on our Board of Directors. Mr. DeMartini disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein, if any.

⁽⁸⁾  Includes 25,000 shares of restricted stock.

⁽⁹⁾  Consists of shares owned by Oak Hill Advisors, L.P. and certain of its affiliated funds which were issued in connection with Mr. Kirt’s service on our Board of Directors. Mr. Kirt disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein, if any.

⁽¹⁰⁾ Includes 275,000 shares owned by Falfurrias Capital Partners, L.P. Mr. Oken disclaims beneficial ownership of the securities owned directly or indirectly by Falfurrias Capital Partners, L.P., except to the extent of his pecuniary interest therein, if any.

⁽¹¹⁾ Consists of shares owned directly by Crestview-NAFH, LLC. Each of Crestview Partners II, L.P., Crestview Partners II (FF), L.P., Crestview Partners II (TE), L.P., Crestview Partners II (Cayman), L.P., Crestview Partners II (FF Cayman), L.P., Crestview Partners II (892 Cayman), L.P., Crestview Offshore Holdings II (Cayman), L.P., Crestview Offshore Holdings II (FF Cayman), L.P., Crestview Offshore Holdings II (892 Cayman), L.P., Crestview Partners II GP, L.P. and Crestview, L.L.C. may be deemed to be beneficial owners of such shares. The address of each of these stockholders is c/o Crestview Partners, 667 Madison Avenue, 10th Floor, New York, New York, 10021.

⁽¹²⁾ Includes shares owned by Oak Hill Advisors, L.P. and certain of its affiliated funds. The address of each of these stockholders is c/o Oak Hill Advisors, L.P., 1114 Avenue of the Americas, 27th Floor, New York, New York 10036.

⁽¹³⁾ The address of this stockholder is 350 Park Avenue, 4th Floor, New York, NY 10022.

⁽¹⁴⁾ Includes shares owned by Franklin Mutual. Includes shares owned by investment companies managed by Franklin Mutual Advisers, LLC (“FMA”). Pursuant to investment advisory agreements with each of these investment companies (the “FMA Funds”), FMA has sole voting and investment power over all the securities owned by the FMA Funds, including the shares of the Company’s common stock. For purposes of the SEC’s reporting requirements, FMA is deemed to be beneficial owner of the Company’s shares; however, FMA expressly disclaims beneficial ownership of these shares as FMA has no right to any economic benefits in, nor any interest in, dividends or proceeds from the sale of the shares. The address for the FMA Funds is c/o Franklin Mutual Advisers, LLC, 101 John F. Kennedy Parkway, Short Hills, New Jersey 07078.

⁽¹⁵⁾  Includes shares owned by certain funds managed by Taconic Capital Advisors L.P. The address of each of these stockholders is 450 Park Avenue, 9th Floor, New York, New York 10022.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In addition to the director and executive officer compensation arrangements discussed above under “Compensation Discussion and Analysis” the following is a summary of material provisions of various transactions we have entered into with our executive officers, directors (including nominees), 5% or greater stockholders and any of their immediate family members or entities affiliated with them since November 30, 2009, the date of our incorporation. We believe the terms and conditions set forth in such agreements are reasonable and customary for transactions of this type.

Arrangements with Crestview-NAFH, LLC and Affiliates of Oak Hill Advisors, L.P.

Crestview-NAFH purchased for aggregate consideration of $224.7 million approximately 10% of our shares of Class A common stock and 36.0% of our shares of Class B non-voting common stock, both of which were purchased in or concurrently with our private placements. Crestview-NAFH has the right to designate one nominee to our Board of Directors and, if elected, to have such director serve on the Nominating and Governance and Compensation Committees of our Board of Directors. Crestview-NAFH’s nominating right will terminate at such time as it and its affiliates collectively own less than 33% of the original number of shares of common stock purchased by Crestview-NAFH in our private placements. As of September 1, 2011, Crestview-NAFH owns approximately 100% of these shares of common stock, consisting of approximately 10% of our Class A common stock and 36% of our Class B non-voting common stock. Mr. DeMartini currently serves as the Crestview-NAFH’s representative on our Board of Directors. See “Management—Executive Officer and Directors—Board of Directors—Richard M. DeMartini” for Mr. DeMartini’s biography.

On March 26, 2010 we paid approximately $2,100,000 to Crestview Advisors, LLC, an affiliate of the general partner of Crestview-NAFH, as reimbursement for expenses in association with our original private offerings. In addition, Crestview Advisors, LLC receives $12,500 each quarter as a director’s fee related to Mr. DeMartini’s service on our Board of Directors.

Oak Hill purchased for aggregate consideration of $89.3 million approximately 5% of our shares of Class A common stock and 13% of our shares of Class B non-voting common stock, both of which were purchased in or concurrently with our private placements. Oak Hill also has the right to designate one nominee to our Board of Directors and, if elected, to have such director serve on the Nominating and Governance and Compensation Committees of our Board of Directors. Oak Hill’s nominating right will terminate at such time as Oak Hill affiliates own less than 33% of the original number of shares of common stock purchased by Oak Hill in our private placements. As of September 1, 2011, Oak Hill owns approximately 100% of these shares of common stock, consisting of approximately 5% of our Class A common stock and 14% of our Class B non-voting common stock. Mr. Kirt currently serves as Oak Hill’s representative on our Board of Directors. See “Management—Executive Officer and Directors—Board of Directors—Jeffrey E. Kirt” for Mr. Kirt’s biography.

Agreements with our Founders

Prior to the issuance and sale of our common stock in our private placements, we sold 200,000 shares of our common stock to our four founders, who are also the four members of our executive management team, Messrs. Taylor, Marshall, Posner and Singletary (who we refer to collectively as “our founders”), for an aggregate purchase price of $2,000. These shares are subject to certain transfer restrictions. Until we complete Investment Transactions (as defined below) that, together with any other Investment Transactions (including any follow-on investments in, or contributions to, the capital of any businesses in which we previously invested in connection with an Investment Transaction), represent total capital deployed (measured in each case as of the time of the relevant Investment Transaction) of at least (1) 50% of the net proceeds from our private placements, 50% of the common stock held by our founders will not be transferable and (2) 75% of the net proceeds from our private placements, the remaining 50% of the common stock held by our founders will not be transferable, in each case in the hands of the holder to a third party (other than in connection with certain intra-family or estate planning transfers). As of                     , 2011, we have completed Investment Transactions representing     % of the net proceeds from our private placements.

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An “Investment Transaction” means a transaction in which we acquire control of, or make a non-control investment in, a banking institution (including any savings association or similar financial institution) within the United States, provided that non-control investments will not qualify as “Investment Transactions” unless we obtain a board seat or other governance rights pursuant to a stockholder rights or similar agreement.

In connection with our private placements, we also entered into a registration rights agreement with our founders and certain other stockholders. See “—Registration Rights Agreement” below.

Registration Rights Agreement

Concurrently with the consummation of our private placements, we entered into a registration rights agreement for the benefit of our stockholders, including Crestview-NAFH, FBR Capital Markets & Co. and the four members of our executive management team, with respect to our common stock sold in our private placements. Under the terms of the registration rights agreement, within 180 days of our investing 50% of the net proceeds of our private placements, we agreed to file with the SEC a shelf registration statement on Form S-1 or such other form under the Securities Act as would allow our stockholders to resell their shares of common stock acquired in our private placements. Our TIB Financial investment, completed on September 30, 2010, represented over 50% of the net proceeds of our private placements. Our stockholders have subsequently agreed to extend the deadline for filing a shelf registration statement until December 31, 2011.

If we do not file a shelf registration statement before December 31, 2011, other than as a result of the SEC being unable to accept such filing, then each of R. Eugene Taylor, Christopher G. Marshall, R. Bruce Singletary and Kenneth A. Posner, if owed a performance bonus, must immediately forfeit 50%, and thereafter forfeit an additional 10% for each month thereafter that such shelf registration statement has not been filed, of any performance bonus that would otherwise be payable to him during that fiscal year (or to which he became entitled as a result of performance during that fiscal year). In addition, no bonuses, compensation, awards, equity compensation or other amounts may be paid or granted in lieu of such forfeited bonuses.

Further, if the shelf registration statement has not been declared effective by the SEC within 180 days after the filing of such shelf registration statement (which we refer to as the “Trigger Date”), a special meeting of stockholders shall be called in accordance with our amended and restated bylaws solely for the purposes of (1) considering and voting upon proposals to remove each of our then-serving director and (2) electing such number of directors as there are then vacancies on the Board of Directors. However, stockholders holding two-thirds of the outstanding registrable shares may waive the requirement to hold such special meeting. The special meeting must occur as soon as reasonably practicable following the Trigger Date but in no event more than 45 days after the Trigger Date.

In addition, pursuant to the registration rights agreement, we are required to provide written notice to each stockholder holding registrable shares following our filing of a registration statement that provides for the initial public offering of our common stock (which we refer to as the “IPO Registration Statement”). Such stockholders have “piggy-back” registration rights that permit them to have shares of common stock owned by them included in the IPO Registration Statement upon written notice to us within the prescribed time limit. Each such stockholder’s ability to register shares under the IPO Registration Statement is subject to the terms of the registration rights agreement. The managing underwriter(s) may under certain circumstances limit the number of shares owned by such holders that are included in this offering, but the managing underwriter(s) may not reduce such holders below 25% of the number of shares of common stock to be sold under the IPO Registration Statement. Stockholders holding registrable shares who do not elect, despite their right to do so under the registration rights agreement, to include their shares of our common stock for resale in the initial public offering may not, subject to certain exceptions, to the extent requested by us or an underwriter of our securities, directly or indirectly sell, offer to sell (including without limitation any short sale), grant any option or otherwise transfer or dispose of any such shares of our common stock for a period of 60 days following the effective date of the registration statement filed in connection with the initial public offering of our common stock.

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Statement of Policy Regarding Transactions with Related Persons

Transactions by us with related parties are subject to a formal written policy, as well as regulatory requirements and restrictions. These requirements and restrictions include Sections 23A and 23B of the Federal Reserve Act (which govern certain transactions by us with our affiliates) and the Federal Reserve’s Regulation O (which governs certain loans by us to our executive officers, directors and principal stockholders). We have adopted policies to comply with these regulatory requirements and restrictions.

In connection with this offering, we intend to adopt a written policy that complies with all applicable requirements of the SEC and Nasdaq concerning related party transactions. Pursuant to this policy, our directors and director nominees, executive officers and holders of more than five percent of our common stock, including their immediate family members, will not be permitted to enter into a related party transaction with us, as discussed below, without the consent of our Audit Committee. Any request for us to enter into a transaction in which the amount involved exceeds $120,000 and any such party has a direct or indirect material interest, subject to certain exceptions, will be required to be presented to our Audit Committee for review, consideration and approval. Management will be required to report to our Audit Committee any such related party transaction and such related party transaction will be reviewed and approved or disapproved by the disinterested members of our Audit Committee.

Other Relationships

Certain of our executive officers and directors and our principal stockholders and affiliates of such persons have, from time to time, engaged in banking transactions with Capital Bank and are expected to continue such relationships in the future. All loans or other extensions of credit made by Capital Bank to such individuals were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unaffiliated third parties and did not involve more than the normal risk of collectability or present other unfavorable features.

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DESCRIPTION OF CAPITAL STOCK

The following descriptions include summaries of the material terms of our amended and restated certificate of incorporation, which will become effective prior to the completion of this offering, and amended and restated bylaws. Because it is a summary, it may not contain all the information that is important to you. Reference is made to the more detailed provisions of, and the descriptions are qualified in their entirety by reference to, the amended and restated certificate of incorporation and amended and restated by-laws, copies of which are filed with the SEC as exhibits to the registration statement of which this prospectus is a part, and applicable law.

General

Our certificate of incorporation authorizes us to issue 200,000,000 shares of Class A common stock, $0.01 par value per share, 200,000,000 shares of Class B non-voting common stock, $0.01 par value per share and 50,000,000 shares of preferred stock, $0.01 par value per share. As of June 30, 2011, 20,851,549 shares of Class A common stock and 25,298,449 shares of Class B non-voting common stock were outstanding. No shares of preferred stock are currently outstanding.

Common Stock

Class A Common Stock and Class B Non-voting Common Stock

Our certificate of incorporation provides that, except with respect to voting rights and conversion rights and certain transfer restrictions applicable to the Class B non-voting common stock, the Class A common stock and Class B non-voting common stock will have identical rights, powers, preferences and privileges.

Voting Power

Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders of Class A common stock possess all voting power for the election of our directors and all other matters requiring stockholder action, except with respect to amendments to our certificate of incorporation that alter or change the powers, preferences, rights or other terms of any outstanding preferred stock if the holders of such affected series of preferred stock are entitled to vote on such an amendment and would significantly and adversely affect the rights of the Class B non-voting common stock as described below. Holders of Class A common stock are entitled to one vote per share on matters to be voted on by stockholders. Holders of Class B non-voting common stock have no voting power and have no right to participate in any meeting of stockholders or to have notice thereof, except as required by applicable law and except that any action that would significantly and adversely affect the rights of the Class B non-voting common stock with respect to the modification of the terms of the securities or dissolution will require the approval of the Class B non-voting common stock voting separately as a class. Except as otherwise provided by law, our certificate of incorporation or our bylaws or in respect of the election of directors, all matters to be voted on by our stockholders must be approved by a majority of the shares present in person or by proxy at the meeting and entitled to vote on the subject matter. In the case of an election of directors, where a quorum is present a plurality of the votes cast shall be sufficient to elect each director.

Conversion and Transfer of Class B Non-voting Common Stock

Class B non-voting common stock is not convertible in the hands of the initial holder. A transferee unaffiliated with the initial holder that receives Class B non-voting common stock subsequent to one of the permitted transfers mentioned below may elect to convert each share of Class B non-voting common stock into one share of Class A common stock. Class B non-voting common stock is transferable only: (1) to an affiliate of a holder of our common stock or to us; (2) in a widely dispersed public offering; (3) in a private sale in which no purchaser (or group of associated purchasers) would acquire Class A common stock and/or Class B non-voting common stock in an amount that, after the conversion of such Class B non-voting common stock into Class A

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common stock, is (or represents) 2% or more of a class of our voting securities; or (4) to a purchaser that would control a majority of our voting securities notwithstanding such transfer. In the case of shares of Class B non-voting common stock that are intended to be sold by a holder thereof in an offering under an effective registration statement filed by us with the SEC, the participation in the offering by the transferee of such shares will serve as such transferee’s notice to us to elect to convert its Class B non-voting common stock, and the transferee shall receive shares of Class A common stock in such transfer. Therefore, any shares of Class B non-voting common stock sold by the selling stockholders to the underwriters in this offering will convert into shares of Class A common stock at the time of transfer.

Dividends

Holders of Class A common stock and Class B non-voting common stock will be equally entitled to receive such dividends, if any, as may be declared from time to time by our Board of Directors in its discretion out of funds legally available therefor. In no event will any stock dividends or stock splits or combinations of stock be declared or made on Class A common stock or Class B non-voting common stock unless the shares of Class A common stock and Class B non-voting common stock at the time outstanding are treated equally and identically, provided that, in the event of a dividend of common stock, shares of Class B non-voting common stock shall only be entitled to receive shares of Class B non-voting common stock and shares of Class A common stock shall only be entitled to receive shares of Class A common stock.

Liquidation Distribution

In the event of our voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of the Class A common stock and Class B non-voting common stock will be entitled to receive an equal amount per share of all of our assets of whatever kind available for distribution to holders of our common stock, after the rights of the holders of the preferred stock have been satisfied.

Preemptive or Other Rights

Our stockholders have no conversion, preemptive or other subscription rights (other than the right of holders of shares of Class B non-voting common stock to convert such shares into shares of Class A common stock as described in Conversion of Class B non-voting common stock above) and there are no sinking fund or redemption provisions applicable to our common stock.

Preferred Stock

Our certificate of incorporation authorizes our Board of Directors to issue and to designate the terms of one or more new classes or series of preferred stock. The rights with respect to a class or series of preferred stock may be greater than the rights attached to our common stock. It is not possible to state the actual effect of the issuance of any shares of our preferred stock on the rights of holders of our common stock until our Board of Directors determines the specific rights attached to that class or series of preferred stock.

Certain Anti-Takeover Provisions of Delaware Law and our Certificate of Incorporation and Bylaws

Special Meeting of Stockholders

Our bylaws provide that special meetings of our stockholders may be called only by the Chairman of the Board of Directors, by our Chief Executive Officer or by a majority vote of our entire Board of Directors.

No Action by Written Consent

The DGCL permits stockholder action by written consent unless otherwise provided by a corporation’s certificate of incorporation. Our certificate of incorporation provides that, subject to the rights of the holders of

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any series of preferred stock with respect to such series of preferred stock, any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of our stockholders and may not be effected by any consent in writing by such stockholders.

No Cumulative Voting

The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. Our certificate of incorporation does not provide for cumulative voting in the election of directors.

Advance Notice Requirements for Stockholder Proposals and Director Nominations

Our bylaws provide that stockholders seeking to bring business before our annual meeting of stockholders, or to nominate candidates for election as directors at our annual meeting of stockholders, must provide timely notice of their intent in writing. To be timely, a stockholder’s notice must be delivered to our principal executive offices not less than 90 days nor more than 120 days prior to the meeting. For the first annual meeting of stockholders after the closing of this offering, a stockholder’s notice shall be timely if delivered to our principal executive offices not later than the 90th day prior to the scheduled date of the annual meeting of stockholders or the tenth day following the day on which a public announcement of the date of our annual meeting of stockholders is first made by us. Our bylaws also specify certain requirements as to the form and content of a stockholder’s notice. These provisions may preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders.

Stockholder-Initiated Bylaw Amendments

Our bylaws may be adopted, amended, altered or repealed by stockholders only upon approval of at least two-thirds of the voting power of all the then outstanding shares of the Class A common stock. Additionally, our certificate of incorporation provides that our bylaws may be amended, altered or repealed by the Board of Directors by a majority vote.

Authorized but Unissued Shares

Our authorized but unissued shares of Class A common stock, Class B non-voting common stock and preferred stock are available for future issuances without stockholder approval and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

Section 203 of the Delaware General Corporation Law

We have not opted out of Section 203 of the DGCL. Subject to certain exceptions, Section 203 of the DGCL prohibits a public Delaware corporation from engaging in a business combination (as defined in such section) with an “interested stockholder” (defined generally as any person who beneficially owns 15% or more of the outstanding voting stock of such corporation or any person affiliated with such person) for a period of three years following the time that such stockholder became an interested stockholder, unless: (1) prior to such time the Board of Directors of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (2) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for purposes of determining the voting stock of such corporation outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (a) by persons who are directors and also officers of such corporation and (b) by employee stock plans in which employee participants do not have the right to determine confidentially whether

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shares held subject to the plan will be tendered in a tender or exchange offer); or (3) on or subsequent to such time the business combination is approved by the Board of Directors of such corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder.

Limitation on Liability and Indemnification of Directors and Officers

Our certificate of incorporation provides that our directors and officers will be indemnified by us to the fullest extent authorized by Delaware law as it now exists or may in the future be amended, against all expenses and liabilities reasonably incurred in connection with their service for or on our behalf. In addition, our certificate of incorporation will provide that our directors will not be personally liable for monetary damages to us for breaches of their fiduciary duty as directors, except for breach of their duty of loyalty to us or our stockholders, acts or omissions not in good faith or which include intentional misconduct or knowing violation of law, unlawful payments of dividends, unlawful stock purchases or unlawful redemptions or any transaction from which the director derives an improper personal benefit.

Prior to the completion of this offering, we intend to enter into indemnification agreements with each of our officers and directors pursuant to which each officer and director will be indemnified as described above and will be advanced costs and expenses subject to delivery of an undertaking to repay any advanced amounts if it is ultimately determined such officer or director is not entitled to indemnification for such costs and expenses. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors and officers, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is therefore unenforceable.

Renunciation of Certain Corporate Opportunities

Our certificate of incorporation provides that we renounce any interest or expectancy in certain acquisition opportunities that our officers or directors become aware of in connection with their service to other entities to which they have a fiduciary or contractual obligation.

Listing

We intend to apply to list our Class A common stock on Nasdaq under the symbol “         .”

Transfer Agent and Registrar

American Stock Transfer & Trust Company, LLC is the transfer agent and registrar for the common stock.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no established public market for our Class A common stock and we cannot predict the effect, if any, that sales of shares or availability of any shares for sale will have on the market price of our Class A common stock prevailing from time to time. Sales of substantial amounts of Class A common stock (including shares issued on the exercise of options, warrants or convertible securities, if any) or the perception that such sales could occur, could adversely affect the market price of our Class A common stock and our ability to raise additional capital through a future sale of securities.

Upon completion of this offering and the reorganization, we will have             shares of Class A common stock (assuming an initial public offering price of $         per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses) and             shares of Class B non-voting common stock issued and outstanding. All of the             shares of our common stock sold in this offering (or             shares if the underwriters exercise their over-allotment option in full) will be freely tradable without restriction or further registration under the Securities Act, unless such shares are purchased by “affiliates” as that term is defined in Rule 144 under the Securities Act or are subject to a lock-up agreement (see “Underwriting”). Upon completion of this offering and the reorganization, approximately     % of our outstanding common stock (or     % if the underwriters’ over-allotment option is exercised in full) will be held by “affiliates” as that term is defined in Rule 144 or be subject to a lock-up agreement. These shares held by “affiliates” will be “restricted securities” as that phrase is defined in Rule 144. Subject to certain contractual restrictions, including the lock-up agreements, holders of restricted shares will be entitled to sell those shares in the public market if they qualify for an exemption from registration under Rule 144 or any other applicable exemption under the Securities Act. Subject to the lock-up agreements and the provisions of Rules 144 and 701 under the Securities Act, additional shares will be available for sale as set forth below.

Registration Statement on Form S-8

In addition to the issued and outstanding shares of our common stock, we intend to file a registration statement on Form S-8 to register an aggregate of             shares of Class A common stock reserved for issuance under our incentive programs. That registration statement will become effective upon filing and shares of Class A common stock covered by such registration statement are eligible for sale in the public market immediately after the effective date of such registration statement, subject to the lock-up agreements.

Lock-Up Agreements

See “Underwriting” for a description of lock-up agreements in connection with this offering.

Registration Rights Agreement

Concurrently with the consummation of our private placements, we entered into a registration rights agreement for the benefit of our stockholders, including Crestview-NAFH, FBR Capital Markets & Co. and the four members of our executive management team, with respect to our common stock sold in our private placements. Under the terms of the registration rights agreement, as amended, prior to December 31, 2011, we agreed to file with the SEC a shelf registration statement on Form S-1 or such other form under the Securities Act as would allow our stockholders to resell their shares of common stock acquired in our private placements. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement” for a description of the registration rights agreement entered into by us and certain of our stockholders in connection with our private placements.

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MATERIAL U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following is a discussion of the material U.S. federal income tax considerations with respect to the ownership and disposition of shares of Class A common stock applicable to non-U.S. holders who acquire such shares in this offering and hold such shares as a capital asset (generally, property held for investment). For purposes of this discussion, a “non-U.S. holder” means a beneficial owner of our Class A common stock (other than an entity or arrangement that is treated as a partnership for U.S. federal income tax purposes) that is not, for U.S. federal income tax purposes, any of the following:

• a citizen or resident of the United States;

• a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia, or a non-U.S. corporation treated as such;

• an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or

• a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) such trust has made a valid election to be treated as a U.S. person for U.S. federal income tax purposes.

This discussion is based on current provisions of the Internal Revenue Code, Treasury regulations promulgated thereunder, judicial opinions, published positions of the Internal Revenue Service and other applicable authorities, all of which are subject to change (possibly with retroactive effect). This discussion does not address all aspects of U.S. federal income taxation that may be important to a particular non-U.S. holder in light of that non-U.S. holder’s individual circumstances, nor does it address any aspects of the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, any U.S. federal estate and gift taxes, any U.S. alternative minimum taxes or any state, local or non-U.S. taxes. This discussion may not apply, in whole or in part, to particular non-U.S. holders in light of their individual circumstances or to holders subject to special treatment under the U.S. federal income tax laws (such as insurance companies, tax-exempt organizations, financial institutions, brokers or dealers in securities, “controlled foreign corporations,” “passive foreign investment companies,” non-U.S. holders that hold our Class A common stock as part of a straddle, hedge, conversion transaction or other integrated investment and certain U.S. expatriates).

If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our Class A common stock, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partners of a partnership holding our Class A common stock should consult their tax advisor as to the particular U.S. federal income tax consequences applicable to them.

THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND IS NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES FOR NON-U.S. HOLDERS RELATING TO THE OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK. PROSPECTIVE HOLDERS OF OUR COMMON STOCK SHOULD CONSULT WITH THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL, FOREIGN INCOME AND OTHER TAX LAWS) OF THE OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK.

Dividends

In general, any distributions we make to a non-U.S. holder with respect to its shares of Class A common stock that constitutes a dividend for U.S. federal income tax purposes will be subject to U.S. withholding tax at a

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rate of 30% of the gross amount, unless the non-U.S. holder is eligible for a reduced rate of withholding tax under an applicable tax treaty and the non-U.S. holder provides proper certification of its eligibility for such reduced rate. A distribution will constitute a dividend for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Any distribution not constituting a dividend will be treated first as reducing the adjusted basis in the non-U.S. holder’s shares of Class A common stock and, to the extent it exceeds the adjusted basis in the non-U.S. holder’s shares of Class A common stock, as gain from the sale or exchange of such stock.

Dividends we pay to a non-U.S. holder that are effectively connected with its conduct of a trade or business within the United States (and, if a tax treaty applies, are attributable to a U.S. permanent establishment) will not be subject to U.S. withholding tax, as described above, if the non-U.S. holder complies with applicable certification and disclosure requirements. Instead, such dividends generally will be subject to U.S. federal income tax on a net income basis, in the same manner as if the non-U.S. holder were a resident of the United States, provided that the non-U.S. holder timely files a U.S. federal income tax return. Dividends received by a foreign corporation that are effectively connected with its conduct of trade or business within the United States may be subject to an additional branch profits tax at a rate of 30% (or such lower rate as may be specified by an applicable tax treaty).

Gain on Sale or Other Disposition of Common Stock

In general, a non-U.S. holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of the non-U.S. holder’s shares of Class A common stock unless:

• the gain is effectively connected with a trade or business carried on by the non-U.S. holder within the United States (and, if required by an applicable tax treaty, is attributable to a U.S. permanent establishment of such non-U.S. holder);

• the non-U.S. holder is an individual and is present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are met; or

• we are or have been a U.S. real property holding corporation for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding such disposition or such non-U.S. holder’s holding period of our Class A common stock.

Gain that is effectively connected with the conduct of a trade or business in the United States (or so treated) generally will be subject to U.S. federal income tax, net of certain deductions, at regular U.S. federal income tax rates. If the non-U.S. holder is a foreign corporation, the branch profits tax described above also may apply to such effectively connected gain. An individual non-U.S. holder who is subject to U.S. federal income tax because the non-U.S. holder was present in the United States for 183 days or more during the year of sale or other disposition of our Class A common stock will be subject to a flat 30% tax on the gain derived from such sale or other disposition, which may be offset by U.S. source capital losses. We believe that we are not and we do not anticipate becoming a U.S. real property holding corporation for U.S. federal income tax purposes.

Withholdable Payments to Foreign Financial Entities and Other Foreign Entities

Under recently enacted legislation, a 30% withholding tax would be imposed on certain payments that are made after December 31, 2012 to certain foreign financial institutions, investment funds and other non-U.S. persons that fail to comply with information reporting requirements in respect of their direct and indirect U.S. stockholders and/or U.S. accountholders. Such payments would include dividends and the gross proceeds from the sale or other disposition of our Class A common stock.

Backup Withholding, Information Reporting and Other Reporting Requirements

We must report annually to the Internal Revenue Service and to each non-U.S. holder the amount of dividends paid to, and the tax withheld with respect to, each non-U.S. holder. These reporting requirements apply

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regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of this information reporting may also be made available under the provisions of a specific tax treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established.

A non-U.S. holder will generally be subject to backup withholding for dividends on our Class A common stock paid to such holder unless such holder certifies under penalties of perjury that, among other things, it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that such holder is a U.S. person as defined under the Internal Revenue Code).

Information reporting and backup withholding generally are not required with respect to the amount of any proceeds from the sale or other disposition of our Class A common stock by a non-U.S. holder outside the United States through a foreign office of a foreign broker that does not have certain specified connections to the United States. However, if a non-U.S. holder sells or otherwise disposes of its shares of Class A common stock through a U.S. broker or the U.S. offices of a foreign broker, the broker will generally be required to report the amount of proceeds paid to the non-U.S. holder to the Internal Revenue Service and also backup withhold on that amount unless such non-U.S. holder provides appropriate certification to the broker of its status as a non-U.S. person (and the payor does not have actual knowledge or reason to know that such holder is a U.S. person as defined under the Internal Revenue Code) or otherwise establishes an exemption. Information reporting will also apply if a non-U.S. holder sells its shares of Class A common stock through a foreign broker deriving more than a specified percentage of its income from U.S. sources or having certain other connections to the United States, unless such broker has documentary evidence in its records that such non-U.S. holder is a non-U.S. person (and the payor does not have actual knowledge or reason to know that such holder is a U.S. person as defined under the Internal Revenue Code) and certain other conditions are met, or such non-U.S. holder otherwise establishes an exemption.

Backup withholding is not an additional income tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder generally can be credited against the non-U.S. holder’s U.S. federal income tax liability, if any, or refunded, provided that the required information is furnished to the Internal Revenue Service in a timely manner. Non-U.S. holders should consult their tax advisors regarding the application of the information reporting and backup withholding rules to them.

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CERTAIN ERISA CONSIDERATIONS

The following is a summary of certain considerations associated with the purchase of our Class A common stock by employee benefit plans that are subject to Title I of the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”), plans, individual retirement accounts and other arrangements that are subject to Section 4975 of the Internal Revenue Code or provisions under any federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of ERISA or the Code (“Similar Laws”), and entities whose underlying assets are considered to include “plan assets” of such plans, accounts and arrangements (each, a “Plan”).

ERISA and the Internal Revenue Code impose certain duties on persons who are fiduciaries of a Plan subject to Title I of ERISA or Section 4975 of the Internal Revenue Code (each, an “ERISA Plan”) and prohibit certain transactions involving the assets of an ERISA Plan and its fiduciaries or other interested parties. Under ERISA and the Internal Revenue Code, any person who exercises any discretionary authority or control over the administration of such an ERISA Plan or the management or disposition of the assets of such an ERISA Plan, or who renders investment advice for a fee or other compensation to such an ERISA Plan, is generally considered to be a fiduciary of the ERISA Plan.

In considering an investment in our Class A common stock using a portion of the assets of any Plan, a fiduciary should determine whether the investment is in accordance with the documents and instruments governing the Plan and the applicable provisions of ERISA, the Internal Revenue Code or any Similar Law relating to a fiduciary’s duties to the Plan including, without limitation, the prudence, diversification, delegation of control and prohibited transaction provisions of ERISA, the Internal Revenue Code and any other applicable Similar Laws.

The foregoing discussion is general in nature and is not intended to be all-inclusive. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries, or other persons considering purchasing the Class A common stock on behalf of, or with the assets of, any Plan, consult with their counsel regarding the matters described herein.

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UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting agreement dated             , we and the selling stockholders have agreed to sell to the underwriters named below, for whom Credit Suisse Securities (USA) LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman, Sachs & Co. are acting as representatives, the following respective numbers of shares of Class A common stock:

Underwriter	Number of Shares of Class A Common Stock
Credit Suisse Securities (USA) LLC
Merrill Lynch, Pierce, Fenner & Smith                        Incorporated
Goldman, Sachs & Co.
Total

The underwriting agreement provides that the underwriters are obligated to purchase all the shares of Class A common stock in this offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults the purchase commitments of non-defaulting underwriters may be increased or this offering may be terminated. The underwriters reserve the right to withdraw, cancel or modify the offer and to reject orders in whole or in part.

We and the selling stockholders have granted to the underwriters a 30-day option to purchase on a pro rata basis up to              additional shares from us and              additional outstanding shares from the selling stockholders at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of Class A common stock, if any.

The underwriters propose to offer the shares of Class A common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of not more than $         per share. After the initial public offering the representatives may change the public offering price and concession.

The following table summarizes the compensation and estimated expenses we and the selling stockholders will pay:

	Per Share		Total
	Without Over- allotment	With Over- allotment	Without Over- allotment	With Over- allotment
Underwriting discounts and commissions paid by us	$	$	$	$
Underwriting discounts and commissions paid by selling stockholders	$	$	$	$

We estimate that our out-of-pocket expenses for this offering will be approximately $            .

The representatives have informed us that they do not expect sales to accounts over which the underwriters have discretionary authority to exceed 5% of the shares of Class A common stock being offered.

We have agreed, subject to certain exceptions, that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any

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shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse for a period of 180 days after the date of this prospectus, except issuances pursuant to the exercise of employee stock options outstanding on the date hereof as described herein and the filing of a shelf registration statement pursuant to the registration rights agreement entered into by us and our stockholders in connection with our private placements. However, in the event that either (1) during the last 17 days of the “lock-up” period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the “lock-up” period, we announce that we will release earnings results during the 16-day period beginning on the last day of the “lock-up” period, then in either case the expiration of the “lock-up” will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless Credit Suisse waives, in writing, such an extension.

Our officers, directors and certain existing stockholders have agreed, subject to certain exceptions, that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse for a period of 180 days after the date of this prospectus. However, in the event that either (i) during the last 17 days of the “lock-up” period, we release earnings results or material news or a material event relating to us occurs or (ii) prior to the expiration of the “lock-up” period, we announce that we will release earnings results during the 16-day period beginning on the last day of the “lock-up” period, then in either case the expiration of the “lock-up” will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless Credit Suisse waives, in writing, such an extension.

We and the selling stockholders have agreed to indemnify the several underwriters against liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect.

We will apply to list the shares of Class A common stock on Nasdaq under the symbol “         .”

Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price has been negotiated among us, the selling stockholders and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses. An active trading market for the shares may not develop. It is also possible that, after this offering, the shares will not trade in the public market at or above the initial offering price.

In connection with this offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids and passive market making in accordance with Regulation M under the Exchange Act.

• Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

• Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than

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the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market.

• Syndicate covering transactions involve purchases of the Class A common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in this offering.

• Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the Class A common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

• In passive market making, market makers in the common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchases of our common stock until the time, if any, at which a stabilizing bid is made.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our Class A common stock or preventing or retarding a decline in the market price of the Class A common stock. As a result the price of our Class A common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on Nasdaq or otherwise and, if commenced, may be discontinued at any time.

A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters, or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. Other than the prospectus in electronic format, the information on any underwriter’s or selling group member’s website and any information contained in any other website maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as an underwriter or selling group member and should not be relied upon by investors.

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the Company. The underwriters and their respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to customers that they acquire, long and/or short positions in such securities and instruments. In addition, in the ordinary course of their business, certain of the underwriters or their affiliates may have purchased mortgages, including mortgages originated by us. Under certain circumstances, disputes could arise based on the representations and warranties made in, and the terms and conditions of, these transactions and whether any repurchases resulting from the foregoing disputes are required.

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In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (which we refer to as a “Relevant Member State”), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (which we refer to as the “Relevant Implementation Date”) it has not made and will not make an offer of shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive and the 2010 PD Amending Directive to the extent implemented, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time:

(1) to any legal entity which is a qualified investor as defined in the Prospectus Directive or the 2010 PD Amending Directive if the relevant provision has been implemented;

(2) to fewer than (a) 100 natural or legal persons per Relevant Member State (other than qualified investors as defined in the Prospectus Directive or the 2010 PD Amending Directive if the relevant provision has been implemented) or (b) if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons per Relevant Member State (other than qualified investors as defined in the Prospectus Directive or the 2010 PD Amending Directive if the relevant provision has been implemented), subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or

(3) in any circumstances falling within Article 3(2) of the Prospectus Directive or Article 3(2) of the 2010 PD Amending Directive to the extent implemented.

For the purposes of this provision, the expression an “offer of shares to the public,” in relation to any shares in any Relevant Member State, means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EC.

Each underwriter has represented and agreed that:

(1) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the Financial Services and Markets Act 2000 does not apply to us; and

(2) it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.

This prospectus is only being distributed to and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive (who we refer to as “qualified investors”) that are also (1) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (which we refer to as the “Order”) or (2) high net worth entities and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order. This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.

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The shares of Class A common stock may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares of Class A common stock may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.

The shares of Class A common stock have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any shares, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

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ADDITIONAL INFORMATION

Legal Matters

The validity of the Class A common stock and other certain legal matters will be passed upon for us by Wachtell, Lipton, Rosen & Katz, New York, New York. The validity of the Class A common stock will be passed upon for the underwriters by Simpson Thacher & Bartlett LLP, New York, New York.

Experts

The consolidated financial statements of North American Financial Holdings, Inc. as of and for the fiscal year ending December 31, 2010, as of December 31, 2009, and for the period from November 30, 2009 (date of inception) through December 31, 2009, included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered certified public accounting firm, given on the authority of said firm as experts in auditing and accounting.

The Statement of Assets Acquired and Liabilities Assumed by NAFH National Bank of First National Bank of the South, the Statement of Assets Acquired and Liabilities Assumed by NAFH National Bank of Metro Bank and the Statement of Assets Acquired and Liabilities Assumed by NAFH National Bank of Turnberry Bank, each dated July 16, 2010, included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered certified public accounting firm, given on the authority of said firm as experts in auditing and accounting.

The consolidated financial statements of TIB Financial Corp. as of December 31, 2010, 2009 and 2008, and for each of the three years in the period ended December 31, 2010, all included in this prospectus, have been so included in reliance on the report of Crowe Horwath LLP, an independent registered certified public accounting firm, given on the authority of said firm as experts in accounting and auditing.

The consolidated financial statements of Capital Bank Corp. as of and for the fiscal year ending December 31, 2010, included in this prospectus, have been so included in reliance on the report of Elliott Davis, PLLC, an independent registered certified public accounting firm, given on the authority of said firm as experts in accounting and auditing. The consolidated financial statements of Capital Bank Corp. as of and for each of the two fiscal years ending December 31, 2009 and December 31, 2008, included in this prospectus and elsewhere in the registration statement, have been so included in reliance upon the report of Grant Thornton LLP, independent registered certified public accountants, given on the authority of said firm as experts in accounting and auditing.

The consolidated financial statements of Green Bankshares, Inc. as of December 31, 2010 and 2009, and for each of the years in the three-year period ended December 31, 2010, all included in this prospectus, have been so included in reliance on the report of Dixon Hughes Goodman LLP (formerly Dixon Hughes PLLC), an independent registered public accounting firm, given on the authority of said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the Class A common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to us and our Class A common stock, reference is made to the registration statement and the exhibits and any schedules filed therewith. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance, if such contract or document is filed as an exhibit, reference is made to the copy of such contract or other document filed as an exhibit to the registration statement, each

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statement being qualified in all respects by such reference. A copy of the registration statement, including the exhibits and schedules thereto, may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov.

As a result of this offering, we will become subject to the full informational requirements of the Exchange Act. We will fulfill our obligations with respect to such requirements by filing periodic reports and other information with the SEC. We intend to furnish our stockholders with annual reports containing consolidated financial statements certified by an independent registered public accounting firm.

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INDEX TO FINANCIAL STATEMENTS

	Page
North American Financial Holdings, Inc. Unaudited Consolidated Financial Statements for the Three and Six Months Ended June 30, 2010 and 2011
Unaudited Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010		F-5
Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2011 and 2010		F-6
Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2011 and 2010		F-7
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010		F-9
Notes to Unaudited Consolidated Financial Statements		F-10
North American Financial Holdings, Inc. Consolidated Financial Statements as of and for the Year Ended December 31, 2010 and as of December 31, 2009 and for the Period from November 30, 2009 to December 31, 2009
Report of Independent Registered Certified Public Accounting Firm		F-40
Consolidated Balance Sheets as of December 31, 2010 and 2009		F-41
Consolidated Statements of Changes in Shareholders’ Equity for the Year Ended December  31, 2010 and for the Period from November 30, 2009 to December 31, 2009		F-43
Consolidated Statements of Cash Flows for the Year Ended December  31, 2010 and for the Period from November 30, 2009 to December 31, 2009		F-44
Notes to Consolidated Financial Statements		F-45
NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.) Statement of Assets Acquired and Liabilities Assumed of First National Bank of the South as of July 16, 2010
Report of Independent Registered Certified Public Accounting Firm		F-78
Statement of Assets Acquired and Liabilities Assumed of First National Bank of the South as of July 16, 2010		F-79
Notes to Statement of Assets Acquired and Liabilities Assumed		F-80
NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.) Statement of Assets Acquired and Liabilities Assumed of Metro Bank of Dade County as of July 16, 2010
Report of Independent Registered Certified Public Accounting Firm		F-87
Statement of Assets Acquired and Liabilities Assumed of Metro Bank of Dade County as of July  16, 2010		F-88
Notes to Statement of Assets Acquired and Liabilities Assumed		F-89
NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.) Statement of Assets Acquired and Liabilities Assumed of Turnberry Bank as of July 16, 2010
Report of Independent Registered Certified Public Accounting Firm		F-97
Statement of Assets Acquired and Liabilities Assumed of Turnberry Bank as of July 16, 2010		F-98
Notes to Statement of Assets Acquired and Liabilities Assumed		F-99
TIB Financial Corp. Unaudited Consolidated Financial Statements for the Six Months Ended June 30, 2011 and 2010
Unaudited Consolidated Balance Sheet as of June 30, 2011 and December 31, 2010		F-107

F-1

	Page
Unaudited Consolidated Statement of Operations for the Six Months Ended June 30, 2011 and 2010		F-108
Unaudited Consolidated Statement of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2011 and 2010		F-109
Unaudited Consolidated Statements of Cash Flows the Six Months Ended June 30, 2011 and 2010		F-111
Notes to Unaudited Consolidated Financial Statements		F-112
TIB Financial Corp. Consolidated Financial Statements as of and for the Years Ended December 31, 2010, 2009 and 2008
Report of Independent Registered Public Accounting Firm		F-126
Consolidated Balance Sheets for the Years Ended December  31, 2010 (Successor) and 2009 (Predecessor)		F-127
Consolidated Statements of Operations for the Three Months Ended December  31, 2010 (Successor), and the Nine Months Period Ended September 30, 2010 and the Years Ended December 31, 2009 and 2008 (Predecessor)		F-128
Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended December 31, 2010 (Successor), and the Nine Months Ended September 30, 2010 and the Years Ended December 31, 2009 and 2008 (Predecessor)		F-130
Consolidated Statements of Cash Flows for the Three Months Ended December  31, 2010 (Successor), and Nine Months Ended September 30, 2010 and the Years Ended December 31, 2009 and 2008 (Predecessor)		F-132
Notes to Consolidated Financial Statements		F-134
Capital Bank Corporation Unaudited Consolidated Financial Statements for the Six Months Ended June 30, 2011 and 2010
Unaudited Condensed Consolidated Balance Sheet as of June 30, 2011 and December 31, 2010		F-185
Unaudited Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 2011 and 2010		F-186
Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2011 and 2010		F-187
Unaudited Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2011 and 2010		F-188
Notes to Unaudited Consolidated Financial Statements		F-189
Capital Bank Corporation Consolidated Financial Statements as of and for the Years Ended December 31, 2010, 2009 and 2008
Report of Independent Registered Public Accounting Firms		F-212
Consolidated Balance Sheet as of December 31, 2010 and 2009		F-214
Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and 2008		F-215
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Loss for the Years Ended December 31, 2010, 2009 and 2008		F-216
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008		F-217
Notes to Consolidated Financial Statements		F-218

F-2

	Page
Green Bankshares, Inc. Unaudited Consolidated Financial Statements for the Six Months Ended June 30, 2011 and 2010
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010		F-261
Unaudited Condensed Consolidated Statements of Income for the Six Months Ended June 30, 2011 and 2010		F-262
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2011		F-263
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010		F-264
Notes to Unaudited Condensed Consolidated Financial Statements		F-265
Green Bankshares, Inc. Consolidated Financial Statements as of December 31, 2010 and 2009 and for the Years Ended December 31, 2010, 2009 and 2008
Report of Independent Registered Public Accounting Firm		F-291
Consolidated Balance Sheets as of December 31, 2010 and 2009		F-292
Consolidated Statements of Income for the Years Ended December 31, 2010, 2009 and 2008		F-293
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December  31, 2010, 2009 and 2008		F-294
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008		F-295
Notes to Consolidated Financial Statements		F-296

F-3

North American Financial Holdings, Inc.

Unaudited Consolidated Financial Statements as of and for the

Three and Six Months Ended June 30, 2011 and 2010

NORTH AMERICAN FINANCIAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars and shares in thousands, except per share data)	(Unaudited)
	June 30, 2011		December 31, 2010
Assets
Cash and due from banks	$	526,131	$	886,925
Trading securities		615		–
Investment securities held to maturity		–		250
Investment securities available for sale		861,470		479,466
Loans held for sale		4,713		–
Loans, net of deferred loan costs and fees		2,999,240		1,742,747
Less: Allowance for loan losses		7,689		753
Loans, net		2,991,551		1,741,994
Other real estate owned		77,887		70,817
Indemnification asset		72,747		91,467
Receivable from FDIC		22,652		46,585
Premises and equipment, net		78,181		44,078
Goodwill		69,473		36,616
Intangible assets, net		18,313		15,154
Deferred income tax asset		64,873		16,789
Accrued interest receivable and other assets		84,559		66,850
Total Assets	$	4,873,165	$	3,496,991
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest-bearing demand	$	461,046	$	295,713
Time deposits		1,933,004		1,353,510
Money market		516,290		272,780
Savings		173,284		94,422
Negotiable order of withdrawal accounts		417,799		243,672
Total deposits		3,501,423		2,260,097
Federal Home Loan Bank (FHLB) advances		244,939		243,067
Short-term borrowings		36,235		61,969
Long-term borrowings		97,275		22,887
Accrued interest payable and other liabilities		41,601		27,735
Total liabilities		3,921,473		2,615,755
Shareholders’ equity
Preferred stock $0.01 par value: 50,000 shares authorized, 0 shares issued		–		–
Common stock—Class A $0.01 par value: 200,000 shares authorized, 20,852 and 21,384 shares issued and outstanding, respectively		208		214
Common stock—Class B $0.01 par value: 200,000 shares authorized, 25,298 and 23,736 shares issued and outstanding, respectively		253		237
Additional paid in capital		882,896		865,673
Retained earnings		13,058		11,938
Accumulated other comprehensive income (loss)		6,607		(2,759	)
Noncontrolling interest		48,670		5,933
Total shareholders’ equity		951,692		881,236
Total Liabilities and Shareholders’ Equity	$	4,873,165	$	3,496,991

See accompanying notes to consolidated financial statements

F-5

NORTH AMERICAN FINANCIAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars and shares in thousands, except per share amounts)

	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010			Six  Months Ended June 30, 2011		Six  Months Ended June 30, 2010
Interest and dividend income
Loans, including fees	$	41,602	$	–		$	77,153	$	–
Investment securities:
Taxable interest income		5,367		–			9,060		–
Tax-exempt interest income		284		–			491		–
Dividends		51		–			63		–
Interest-bearing deposits in other banks		587		831			1,297		1,556
Federal Home Loan Bank stock		102		–			234		–
Total interest and dividend income		47,993		831			88,298		1,556
Interest expense
Deposits		7,051		–			12,977		–
Federal Home Loan Bank advances		676		–			1,299		–
Short-term borrowings		15		–			50		–
Long-term borrowings		1,117		–			1,999		–
Total interest expense		8,859		–			16,325		–
Net interest income		39,134		831			71,973		1,556
Provision for loan losses		8,418		–			9,963		–
Net interest income after provision for loan losses		30,716		831			62,010		1,556
Non-interest income
Service charges on deposit accounts		2,146		–			4,065		–
Fees on mortgage loans originated and sold		649		–			1,180		–
Investment advisory and trust fees		413		–			800		–
FDIC indemnification asset accretion		2,540		–			2,858		–
Other income		2,076		–			3,479		–
Investment securities gains, net		75		–			18		–
Total non-interest income		7,899		–			12,400		–
Non-interest expense
Salaries and employee benefits		19,257		832			34,350		1,683
Net occupancy and equipment expense		6,312		50			11,650		65
Foreclosed asset related expense		1,666		–			2,844		–
Conversion expenses		1,012		–			4,749		–
Organizational expenses		–		–			–		2,100
Professional fees		1,809		1,523			4,069		1,525
Other expense		7,384		196			14,818		342
Total non-interest expense		37,440		2,601			72,480		5,715
Income (loss) before income taxes		1,175		(1,770	)		1,930		(4,159	)
Income tax expense (benefit)		187		(748	)		592		(1,756	)
Net income (loss) before attribution of noncontrolling interests		988		(1,022	)		1,338		(2,403	)
Net income attributable to noncontrolling interests		268		–			218		–
Net income (loss) attributable to North American Financial Holdings, Inc.	$	720	$	(1,022	)		1,120	$	(2,403	)
Basic and diluted earnings (loss) per share	$	0.02	$	(0.03	)	$	0.02	$	(0.08	)

See accompanying notes to consolidated financial statements

F-6

NORTH AMERICAN FINANCIAL HOLDINGS, INC.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(Dollars and shares in thousands, except per share data)

	Shares Common Stock Class A			Class A Stock			Shares Common Stock Class B		Class B Stock		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total Shareholders’ Equity
Balance, April 1, 2011		20,889		$	209			25,261	$	252	$	878,485		$	12,338		$	(97	)	$	49,117		$	940,304
Comprehensive income:
Net income															720						268			988
Other comprehensive income, net of tax
Net market valuation adjustment on securities available for sale																		6,742			684			7,426
Less: reclassification adjustment for gains included in net income																		(38	)		–			(38	)
Other comprehensive income, net of tax expense of $4,529																		6,704			684			7,388
Comprehensive income																								8,376
Conversion of shares		(37	)		(1	)		37		1														–
Restricted stock grants																								–
Stock based compensation												3,026												3,026
Merger of TIB Bank and Capital Bank into Capital Bank, NA												1,397									(1,397	)		–
Rights offerings of subsidiaries												(12	)								(2	)		(14	)
Balance, June 30, 2011		20,852		$	208			25,298	$	253	$	882,896		$	13,058		$	6,607		$	48,670		$	951,692
	Shares Common Stock Class A			Class A Stock			Shares Common Stock Class B		Class B Stock		Additional Paid in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Noncontrolling Interest			Total Shareholders’ Equity
Balance, April 1, 2010		22,295		$	223			9,799	$	98	$	605,291		$	(1,473	)	$	–		$	–		$	604,139
Net loss															(1,022	)								(1,022	)
Stock issuance costs		–			–			–		–		(6	)											(6	)
Balance, June 30, 2010		22,295		$	223			9,799	$	98	$	605,285		$	(2,495	)	$	–		$	–		$	603,111

F-7

	Shares Common Stock Class A			Class A Stock			Shares Common Stock Class B		Class B Stock		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total Shareholders’ Equity
Balance, January 1, 2011		21,384		$	214			23,736	$	237	$	865,673		$	11,938		$	(2,759	)	$	5,933		$	881,236
Comprehensive income:
Net income															1,120						218			1,338
Other comprehensive income, net of tax
Net market valuation adjustment on securities available for sale																		9,351			953			10,304
Less: reclassification adjustment for gains included in net income																		(43	)					(43	)
Other comprehensive income, net of tax expense of $6,289																		9,308			953			10,261
Comprehensive income																								11,599
Conversion of shares		(1,562	)		(16	)		1,562		16														–
Restricted stock grants		1,030			10							(10	)											–
Stock based compensation												3,434												3,434
Origination of noncontrolling interest																					43,785			43,785
Merger of TIB Bank and Capital Bank into Capital Bank, NA												1,397									(1,397	)		–
Rights offerings of subsidiaries												12,402						58			(822	)		11,638
Balance, June 30, 2011		20,852		$	208			25,298	$	253	$	882,896		$	13,058		$	6,607		$	48,670		$	951,692
	Shares Common Stock Class A			Class A Stock			Shares Common Stock Class B		Class B Stock		Additional Paid in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Noncontrolling Interest			Total Shareholders’ Equity
Balance, January 1, 2010		19,181		$	192			8,726	$	87	$	526,133		$	(92	)	$	–		$	–		$	526,320
Net loss															(2,403	)								(2,403	)
Issuance of common stock		3,114			31			1,073		11		79,152												79,194
Balance, June 30, 2010		22,295		$	223			9,799	$	98	$	605,285		$	(2,495	)	$	–		$	–		$	603,111

F-8

NORTH AMERICAN FINANCIAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(Unaudited)

(Dollars in thousands)

	Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
Cash flows from operating activities:
Net income (loss)	$	1,338		$	(2,403	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Accretion of acquired loans		(65,681	)		–
Depreciation and amortization		(1,648	)		–
Provision for loan losses		9,963			–
Deferred income tax expense (income)		(3,761	)		(2,068	)
Investment securities net realized gains		(18	)		–
Net amortization of investment premium/discount		3,718			–
Stock-based compensation		3,434			–
Gain on sales of OREO		(362	)		–
OREO valuation adjustments		241			–
Other		(771	)		–
Mortgage loans originated for sale		(30,406	)		–
Proceeds from sales of mortgage loans originated for sale		38,945			–
Fees on mortgage loans sold		(989	)		–
Proceeds from FDIC loss share agreements		58,244
Change in accrued interest receivable and other assets		(7,070	)		–
Change in accrued interest payable and other liabilities		(4,640	)		893
Net cash provided by (used in) operating activities		537			(3,578	)
Cash flows from investing activities:
Purchases of investment securities available for sale		(270,543	)		–
Sales of investment securities available for sale		18,029			–
Repayments of principal and maturities of investment securities available for sale		100,658			–
Purchase of FHLB Stock		2,931
Cash acquired through acquisition of Capital Bank Corp.		27,955			–
Principal repayments on loans, net of loans originated or acquired		(91,377	)		–
Purchases of premises and equipment		(2,297	)		–
Proceeds from sales of loans		–			–
Proceeds from sale of OREO		39,953			–
Net cash used in investing activities		(174,691	)		–
Cash flows from financing activities:
Issuance of common stock		–			79,194
Net increase in demand, money market and savings accounts		170,746			–
Net decrease in time deposits		(280,887	)		–
Net decrease in federal funds purchased and securities sold under agreements to repurchase		(25,595	)		–
Net decrease short term FHLB advances		(30,000	)		–
Net decrease long term FHLB advances		(32,542	)		–
Net proceeds from common stock rights offering		11,638			–
Net cash (used in) provided by financing activities		(186,640	)		79,194
Net decrease in cash and cash equivalents		(360,794	)		75,616
Cash and cash equivalents at beginning of period		886,925			526,711
Cash and cash equivalents at end of period	$	526,131		$	602,327
Supplemental disclosures of cash paid:
Interest	$	13,783		$	–
Income taxes		5,333			–
Supplemental information:
Transfer of loans to OREO		33,548			–

See accompanying notes to consolidated financial statements

F-9

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

Note 1—Basis of Presentation & Accounting Policies

North American Financial Holdings, Inc. (“NAFH” or the “Company”) is a bank holding company incorporated in Delaware and headquartered in Florida whose business is conducted primarily through our subsidiaries, Capital Bank, National Association (“Capital Bank, NA”), formerly NAFH National Bank (“NAFH Bank”), TIB Financial Corp. (“TIBB”; parent company of Naples Capital Advisors, Inc. and TIB Bank, through April 29, 2011, the date TIB Bank was merged with and into Capital Bank, NA), and Capital Bank Corporation (parent company of Capital Bank, through June 30, 2011, the date Capital Bank was merged with and into Capital Bank, NA). Prior to the mergers of TIB Bank and Capital Bank with and into Capital Bank, NA, these entities are collectively referred to as the Company’s subsidiary banks or the “Banks”. All significant inter-company accounts and transactions have been eliminated in consolidation. As of June 30, NAFH had a total of eighty-one full service banking offices located in Florida, North Carolina and South Carolina.

The accompanying unaudited consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information and an additional description of the Company’s accounting policies, refer to the Company’s consolidated financial statements for the year ended December 31, 2010.

The accounting and reporting policies conform to accounting principles generally accepted in the United States of America. The following is a summary of the more significant of these policies.

Critical Accounting Policies

Allowance for Loan Losses

The Company maintains an allowance for loan losses to absorb losses incurred in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the probable estimated incurred losses inherent in the portfolio of loans held for investment. The allowance is increased by the provision for loan losses, which is charged against current period operating results and decreased by the amount of charge offs, net of recoveries. The Company’s methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formulaic allowance and the specific allowance for impaired loans. Management develops and documents its systematic methodology for determining the allowance for loan losses by first dividing its portfolio into segments—commercial mortgage, residential mortgage, construction and vacant land, commercial and agricultural, indirect auto, home equity and other consumer loans. The Company further divides the portfolio segments into classes based on initial measurement attributes, risk characteristics or its method of monitoring and assessing credit risk. The classes for the Company are as follows:

• Commercial mortgage—owner occupied, office building, hotel or motel, guest houses, retail, multi-family, farmland, and other;

• Residential mortgage—primary residence, second residence and investment;

• Construction and vacant land;

• Commercial and agricultural;

• Indirect auto—prime and sub-prime;

F-10

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

• Home equity; and

• Other consumer.

The allowance is calculated by applying loss factors to outstanding loans. Loss factors are based on the Company’s historical loss experience and may be adjusted for significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. The Company derives the loss factors for all segments from pooled loan loss factors. Such pooled loan loss factors (for loans not individually graded) are based on expected net charge off ranges.

Loan loss factors, which are used in determining the allowance, are adjusted quarterly primarily based upon the changes in the level of historical net charge offs and parameter updates by management. Management estimates probable incurred losses in the portfolio based on a historical loss look-back period. The look-back period is representative of management’s expectations of relevant historical loss experience.

Furthermore, based on management’s judgment, the Company’s methodology permits adjustments to any loss factor used in the computation of the allowance for significant factors, which affect the collectability of the portfolio as of the evaluation date, but are not reflected in the loss factors. By assessing the probable estimated incurred losses in the loan portfolio on a quarterly basis, management is able to adjust specific and inherent loss estimates based upon the most recent information that has become available. This includes changing the number of periods that are included in the calculation of the loss factors and adjusting qualitative factors to be representative of the economic cycle that management expects will impact the portfolio. Updates of the loss confirmation period are done when significant events cause management to reexamine data.

At June 30, 2011, the majority of the Company’s loans are purchased credit-impaired loans. Estimates of cash flows expected to be collected for purchased credit-impaired loans are updated each reporting period. If the Company has probable decreases in expected cash flows to be collected after acquisition, the Company charges the provision for loan losses and establishes an allowance for loan losses.

The Company individually evaluates for impairment larger commercial and agricultural, construction and vacant land, and commercial mortgage loans. Residential mortgage and consumer loans are not individually evaluated for impairment unless they become delinquent and exceed $500 in recorded investment or represent troubled debt restructurings. Loans are considered impaired when the individual evaluation of current information regarding the borrower’s financial condition, loan collateral, and cash flows indicates that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, including interest payments. Impaired loans are carried at the lower of the recorded investment in the loan, the present value of expected future cash flows discounted at the loan’s effective rate, the loan’s observable market price, or the fair value of the collateral, if the loan is collateral dependent. Excluded from the impairment analysis are large groups of smaller balance homogeneous loans such as consumer, indirect auto and residential mortgage loans, which are evaluated on a pool basis. The Company’s policy for recognition of interest income, charge offs of loans, and application of payments on impaired loans is the same as the policy applied to nonaccrual loans.

Significant risk characteristics considered in estimating the allowance for credit losses include the following:

• Commercial and agricultural—industry specific economic trends and individual borrower financial condition

F-11

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

• Construction and vacant land, farmland and commercial mortgage loans—type of property (i.e., residential, commercial, industrial) and geographic concentrations and risks and individual borrower financial condition

• Residential mortgage, indirect auto and consumer—historical charge-offs and current trends in borrower’s credit, property collateral, and loan characteristics

Loans are charged off in whole or in part when they are considered to be uncollectible. For commercial and agricultural, construction and vacant land and commercial mortgage loans, they are generally considered uncollectible based on an evaluation of borrower financial condition as well as the value of any collateral. For residential mortgage and consumer loans, this is generally based on past due status as discussed above, as well as an evaluation of borrower creditworthiness and the value of any collateral. Recoveries of amounts previously charged off are recorded as a recovery to the allowance for loan losses.

Purchased Credit-Impaired Loans

Loans acquired in a transfer, including business combinations and transactions similar to the acquisitions of TIBB and Capital Bank, where there is evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments, are accounted for under accounting guidance for purchased credit-impaired (“PCI”) loans. This guidance provides that the excess of the cash flows initially expected to be collected over the fair value of the loans at the acquisition date (i.e., the accretable yield) is accreted into interest income over the estimated remaining life of the purchased credit-impaired loans using the effective yield method, provided that the timing and amount of future cash flows is reasonably estimable. Accordingly, such loans are not classified as nonaccrual and they are considered to be accruing because their interest income relates to the accretable yield recognized under accounting for purchased credit-impaired loans and not to contractual interest payments. The difference between the contractually required payments and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the nonaccretable difference.

The Company periodically evaluates the relationship of any material changes in estimated future cash flows in contrast to changes in the recorded investment in the PCI loans, to determine the need to record a provision for loan losses, reverse any previous allowance for loan losses, or increase the accretable yield to be recognized prospectively. The impact of changes in variable interest rates is recognized prospectively as adjustments to interest income. The accounting pools of acquired loans are defined as of the date of acquisition of a portfolio of loans and are comprised of groups of loans with similar collateral types and credit risk.

FDIC Indemnification Asset

Pursuant to purchase and assumption agreements with the FDIC, Capital Bank, NA has entered into loss share agreements in which the FDIC will reimburse the Company for certain amounts related to certain acquired loans and other real estate owned should the Company experience a loss. An indemnification asset is recorded at fair value at the acquisition date. The indemnification asset is recognized at the same time as the indemnified loans, and measured on the same basis, subject to collectability or contractual limitations. The indemnification asset on the acquisition date reflects the present value of future cash flows expected to be received from the FDIC, using an appropriate discount rate, which reflects counterparty credit risk.

Subsequent to initial recognition, the indemnification asset continues to be measured on the same basis as the related indemnified loans and the loss share receivable is impacted by changes in estimated cash flows

F-12

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

associated with these loans. Deterioration in the credit quality on expected cash flows of the loans (immediately recorded as an adjustment to the allowance for loan losses) would immediately increase the loss share receivable, with the offset recorded through the consolidated statement of income. Increases in the credit quality or cash flows of loans (reflected as an adjustment to yield and accreted into income over the remaining life of the loans) decrease the basis of the indemnification asset, with such decrease being amortized into income over 1) the life of the loan or 2) the life of the shared loss agreements, whichever is shorter. Loss assumptions used in the basis of the indemnified loans are consistent with the loss assumptions used to measure the indemnification asset. Fair value accounting incorporates into the fair value of the indemnification asset an element of the time value of money, which is accreted back into income over the life of the shared loss agreements.

Upon the determination of an incurred loss the indemnification asset will be reduced by the amount owed by the FDIC. A corresponding claim receivable is recorded until cash is received from the FDIC.

Goodwill and Other Intangible Assets

Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Other intangible assets include core deposit base premiums, customer relationship intangibles and mortgage servicing rights arising from acquisitions and are initially measured at fair value. Long-lived intangible assets with definite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such an asset is determined to be impaired when comparing undiscounted future cash flows to net book value, the impairment loss is measured by the excess of the carrying amount of the asset over its fair value as determined by an estimate of discounted future cash flows. The primary estimates which would be inherent in the impairment evaluation include fair market value, general market conditions, and projections of future operating results.

Stock Based Compensation

The Company maintains various equity-based compensation plans. These plans provide for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, and stock bonus awards. The Company values equity-based awards at the grant date fair value and recognizes expense over the requisite service period taking into account retirement eligibility.

Earnings (Loss) Per Common Share

Basic earnings (loss) per share is net income (loss) attributable to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options and unvested restricted shares computed using the treasury stock method.

F-13

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

Earnings (loss) per share have been computed based on the following for the periods ended:

	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010		Six Months Ended June 30, 2011		Six Months Ended June 30, 2010
Weighted average number of common shares outstanding:
Basic		45,120		32,094		45,120		31,608
Dilutive effect of options outstanding		–		–		–		–
Dilutive effect of restricted shares		259		–		150		–
Diluted		45,379		32,094		45,270		31,608

The dilutive effect of stock options and unvested restricted shares are the only common stock equivalents for purposes of calculating diluted earnings per common share.

Weighted average anti-dilutive stock options and unvested restricted shares excluded from the computation of diluted earnings per share are as follows:

	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010		Six Months Ended June 30, 2011		Six Months Ended June 30, 2010
Anti-dilutive stock options		2,236		–		1,309		–
Anti-dilutive restricted shares		–		–		–		–

Income Taxes

Income tax expense (or benefit) is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 amends current guidance by (i) eliminating the option to present components of other comprehensive income (OCI) as part of the statement of changes in shareholders’ equity, (ii) requiring the presentation of each component of net income and each component of OCI either in a single continuous statement or in two separate but consecutive statements, and (iii) requiring the presentation of reclassification adjustments on the face of the statement. The amendments of ASU 2011-05 do not change the option to present components of OCI either before or after related income tax effects, the items that must be reported in OCI, when an item of OCI should be

F-14

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

reclassified to net income, or the computation of earnings per share (which continues to be based on net income). ASU 2011-05 is effective for interim and annual periods beginning on or after December 15, 2011 for public companies, with early adoption permitted and retrospective application required. The adoption of ASU 2011-05 will not have an impact on the Company’s consolidated financial condition or results of operations but will alter disclosures.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The amended guidance of ASU 2011-04 (i) clarifies how a principal market is determined, (ii) establishes the valuation premise for the highest and best use of nonfinancial assets, (iii) addresses the fair value measurement of instruments with offsetting market or counterparty credit risks, (iv) extends the prohibition on blockage factors to all three levels of the fair value hierarchy, and (v) requires additional disclosures including transfers between Level 1 and Level 2 of the fair value hierarchy, quantitative and qualitative information and a description of an entity’s valuation process for Level 3 fair value measurements, and fair value hierarchy disclosures for financial instruments not measured at fair value. ASU 2011-04 is effective for interim and annual periods beginning on or after December 15, 2011, with early adoption prohibited. The adoption of ASU 2011-04 is not expected to have a material impact on the Company’s consolidated financial condition or results of operations.

In April 2011, the FASB issued ASU 2011-02, Receivables. The new guidance amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring. The amendments clarify the guidance for a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. This guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. Management is currently evaluating the impact the new guidance will have on the consolidated financial statements.

In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations, to amend ASC Topic 805, Business Combinations. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this update are effective prospectively for 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, 2010. Adoption of this update did not have a material impact on the Company’s consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to amend ASC Topic 320, Receivables. The amendments in this update are intended to provide disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Adoption of this update did not have a material impact on the Company’s consolidated financial statements.

F-15

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

Note 2—Business Combinations and Acquisitions

On January 28, 2011, Capital Bank Corporation completed the issuance and sale of 71,000 shares of its common stock to NAFH for $181,050 in cash. As a result of this NAFH investment and the Rights Offering on March 11, 2011, NAFH currently owns approximately 83% of the Capital Bank Corporation’s common stock. In connection with the NAFH investment in Capital Bank Corporation, each shareholder as of January 27, 2011 received one contingent value right per share (“CVR”) that entitles the holder to receive up to $0.75 in cash per CVR at the end of a five-year period based on the credit performance of Capital Bank Corporation’s existing loan portfolio.

Also in connection with the NAFH investment, Capital Bank Corporation’s Series A Preferred Stock and warrant to purchase shares of common stock issued by Capital Bank Corporation to the U.S. Treasury in connection with the Troubled Asset Relief Program (“TARP”) were repurchased. Following the TARP Repurchase, the Series A Preferred Stock and warrant are no longer outstanding, and accordingly, Capital Bank Corporation is no longer subject to the restrictions imposed by the terms of the Series A Preferred Stock or certain regulatory provisions of the Emergency Economic Stabilization Act of 2008 (“EESA”) and the American Recovery and Reinvestment Act of 2009 (“ARRA”) that are imposed on TARP recipients.

Pursuant to the NAFH investment, shareholders as of January 27, 2011 received non-transferable rights to purchase a number of shares of Capital Bank Corporation’s common stock proportional to the number of shares of common stock held by such holders on such date, at a purchase price equal to $2.55 per share, subject to certain limitations. Capital Bank Corporation issued 1,613 shares of common stock in exchange for $4,113 upon completion of the Rights Offering on March 11, 2011. Direct offering costs of $300 were recorded as a reduction to the proceeds of the Rights Offering.

Also in connection with the closing of the NAFH investment, Capital Bank Corporation amended its Supplemental Executive Retirement Plan (the “Executive Plan” or “SERP”) to waive, with respect to unvested amounts only, any change in control provision and corresponding entitlement to change in control benefits that would otherwise be triggered by the NAFH investment or any subsequent transaction or series of transactions that result in an affiliate of NAFH holding Capital Bank Corporation’s outstanding voting securities or total voting power. On January 28, 2011, Capital Bank Corporation received written waivers from each of the participants in the Executive Plan pursuant to which such executives waived the previously described change in control benefits under the SERP and the accelerated vesting of their outstanding unvested stock options in connection with the transactions contemplated by the NAFH investment. Cash payments made to participants in the Executive Plan upon change in control related to vested benefits totaled $1,119. The Supplemental Retirement Plan for Directors was not amended, and cash payments made to participants upon change in control pursuant to terms of this plan totaled $3,156.

Capital Bank Corporation determined push-down accounting to be appropriate for this transaction in accordance with SEC guidance, and as such, has applied the acquisition method of accounting due to NAFH’s acquisition of 85% of the Company’s outstanding common stock on January 28, 2011 (subsequently reduced to 83% following the Rights Offering on March 11, 2011).

F-16

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

The following table summarizes the NAFH investment and Capital Bank Corporation’s preliminary opening balance sheet:

(Dollars in thousands)	As of January 28, 2011 (Unaudited)
Fair value of assets acquired:
Cash and cash equivalents	$	208,255
Investment securities		225,336
Mortgage loans held for sale		2,569
Loans		1,135,164
Goodwill		32,857
Other intangible assets		5,004
Deferred tax assets		55,391
Other assets		66,050
Total assets acquired		1,730,626
Fair value of liabilities assumed:
Deposits		1,351,467
Borrowings		123,837
Subordinated debt		19,392
Other liabilities		11,845
Total liabilities assumed		1,506,541
Net assets acquired		224,085
Less: non-controlling interest at fair value		(43,785	)
		180,300
Underwriting and legal costs		750
Purchase price	$	181,050

The above estimated fair values of assets acquired and liabilities assumed are based on the information that was available. The Company believes that information provides a reasonable basis for estimating the fair values. However, the Company may obtain additional information and evidence during the measurement period that may result in changes to the estimated fair value amounts. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable.

On April 29, 2011, TIB Bank was merged with and into NAFH Bank, with NAFH Bank as the surviving entity. Pursuant to the merger agreement dated April 27, 2011, between NAFH Bank and TIB Bank, TIBB exchanged its 100% ownership interest in TIB Bank for an approximately 53% ownership interest in the surviving combined entity, NAFH Bank.

On June 30, 2011, Capital Bank was merged with and into NAFH Bank, with NAFH Bank as the surviving entity. In connection with the transaction, NAFH Bank also changed its name to Capital Bank, National Association. As a result of the Bank Merger, Capital Bank Corporation owns approximately 38% of Capital Bank, NA, with NAFH having a direct ownership of 29% and TIBB owning the remaining 33%.

F-17

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

The following table reflects the pro forma total net interest income, non interest income and net loss for periods presented as though the acquisition of Capital Bank Corporation had taken place at the beginning of each period. The pro forma results are not necessarily indicative of the results of operations that would have occurred had the acquisition actually taken place on the first day of the respective periods, nor of future results of operations.

	Pro Forma (Unaudited)
	Three-Months Ended June 30, 2010			Six-Months Ended June 30,
				2011		2010
Net interest income	$	13,575		$	75,932	$	26,850
Non-interest income	$	2,514		$	13,232	$	5,045
Net income (loss)	$	(14,605	)	$	1,716	$	(21,320	)

Note 3—Investment Securities

The amortized cost, estimated fair value and the related gross unrealized gains and losses recognized in accumulated other comprehensive income of investment securities held to maturity and available for sale at June 30, 2011 and December 31, 2010 are presented below:

	June 30, 2011
Available for Sale	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Government agencies and corporations	$	45,191	$	176	$	110	$	45,257
States and political subdivisions—tax exempt		25,904		1,511		10		27,405
States and political subdivisions—taxable		7,225		84		12		7,297
Marketable equity securities		1,833		9		–		1,842
Mortgage-backed securities—residential		765,200		10,980		719		775,461
Corporate bonds		3,230		299		–		3,529
Collateralized debt obligation		803		–		124		679
	$	849,386	$	13,059	$	975	$	861,470

	December 31, 2010
Held to Maturity	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Foreign government	$	250	$	–	$	–	$	250
	$	250	$	–	$	–	$	250

	December 31, 2010
Available for Sale	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Government agencies and corporations	$	49,497	$	18	$	382	$	49,133
States and political subdivisions—tax exempt		5,918		2		128		5,792
States and political subdivisions—taxable		9,540		41		227		9,354
Marketable equity securities		102		–		28		74
Mortgage-backed securities—residential		415,961		948		4,696		412,213
Corporate bonds		2,104		1		–		2,105
Collateralized debt obligation		807		–		12		795
	$	483,929	$	1,010	$	5,473	$	479,466

F-18

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

Proceeds from sales and calls of securities available for sale were $48,744 and $66,762 for the three and six months ended June 30, 2011, respectively. Gross gains of approximately $61 and $68 were realized on these sales and calls during the three and six months ended June 30, 2011, respectively.

The estimated fair value of investment securities available for sale at June 30, 2011 by contractual maturity, are shown as follows. Expected maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	June 30, 2011
Due in one year or less	$	2,278
Due after one year through five years		15,763
Due after five years through ten years		30,290
Due after ten years		35,836
Marketable equity securities		1,842
Mortgage-backed securities—residential		775,461
	$	861,470

Securities with unrealized losses not recognized in income, and the period of time they have been in an unrealized loss position, are as follows:

	Less than 12 Months				12 Months or Longer				Total
June 30, 2011	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	9,089	$	110		–		–	$	9,089	$	110
States and political subdivisions—tax exempt		1,149		10				–		1,149		10
States and political subdivisions—taxable		2,168		12		–		–		2,168		12
Mortgage-backed securities—residential		136,772		719		–		–		136,772		719
Collateralized debt obligation		679		124		–		–		679		124
Total temporarily impaired	$	149,857	$	975	$	–	$	–	$	149,857	$	975

	Less than 12 Months				12 Months or Longer				Total
December 31, 2010	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	20,725	$	382		–		–	$	20,725	$	382
States and political subdivisions—tax exempt		5,191		128				–		5,191		128
States and political subdivisions—taxable		8,198		227		–		–		8,198		227
Marketable equity securities		74		28		–		–		74		28
Mortgage-backed securities—residential		255,676		4,696		–		–		255,676		4,696
Corporate bonds		–		–		–		–		–		–
Collateralized debt obligation		795		12		–		–		795		12
Total temporarily impaired	$	290,659	$	5,473	$	–	$	–	$	290,659	$	5,473

F-19

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

As of June 30, 2011, the Company’s security portfolio consisted of 188 securities, 33 of which were in an unrealized loss position. As of December 31, 2010, the Company’s security portfolio consisted of 106 securities, 77 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company’s mortgage-backed securities.

The mortgage-backed securities at June 30, 2011 and December 31, 2010, were issued by U.S. government-sponsored entities and agencies, institutions which the government has affirmed its commitment to support. Unrealized losses associated with these securities are attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is not more likely than not that it will be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2011 or December 31, 2010.

Note 4—Loans

The following table sets forth the unpaid principal balance of our loan portfolio:

Loan Type	June 30, 2011		December 31, 2010
Non-owner occupied commercial real estate	$	730,133	$	500,470
Other commercial C&D		290,647		113,681
Multifamily commercial real estate		88,845		56,105
1-4 family residential C&D		72,277		16,341
Total commercial real estate	$	1,181,902	$	686,597
Owner occupied commercial real estate		628,947		347,741
Commercial and industrial		263,745		94,302
Total commercial	$	892,692	$	442,043
1-4 family residential		575,846		422,057
Home equity		229,367		119,039
Consumer		60,263		43,054
Total consumer	$	865,476	$	584,150
Other		63,883		29,957
Total	$	3,003,953	$	1,742,747

Covered loans represent loans acquired from the FDIC subject to the loss sharing agreements. Covered loans are further broken out into (i) loans acquired with evidence of credit impairment, which we call purchased credit impaired (“PCI”), and (ii) non PCI loans. Loans originated by the Company and loans acquired through the acquisition of TIBB and Capital Bank are excluded from the loss sharing agreements and are classified as “not covered”. Additionally, certain consumer loans acquired through the acquisition of failed banks from the FDIC are specifically excluded from the loss sharing agreements.

Loans acquired are recorded at fair value in accordance with acquisition accounting, exclusive of the loss sharing agreements with the FDIC. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash

F-20

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

flows. At the time of acquisition, the Company accounted for the impaired purchased loans by segregating each portfolio into loan pools with similar risk characteristics, which included:

• Whether the loan was performing according to contractual terms at the time of acquisition;

• The loan type based on regulatory reporting guidelines, namely whether the loan was a mortgage, consumer, or commercial loan; and

• The nature of collateral.

From these pools, the Company used certain loan information, including outstanding principal balance, estimated expected losses, weighted average maturity, weighted average term to re-price (if a variable rate loan), weighted average margin, and weighted average interest rate to estimate the expected cash flow for each loan pool. Over the life of the acquired loans, the Company continues to estimate cash flows expected to be collected on each loan pool. The Company evaluates, at each balance sheet date, whether the present value of the cash flows from the loan pools, determined using the effective interest rates, has decreased and if so, recognizes a provision for loan loss in its consolidated statement of income. For any increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the loan’s or pool’s remaining life.

Resulting from the acquisition of Capital Bank Corp., purchased credit-impaired loans for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

Contractually required payments	$	1,318,702
Nonaccretable difference		(98,777	)
Cash flows expected to be collected at acquisition		1,219,925
Accretable yield		(163,892	)
Fair value of acquired loans at acquisition	$	1,056,033

Accretable yield, or income expected to be collected, related to purchased credit-impaired loans is as follows:

	Six Months Ended June 30, 2011
Balance, beginning of period	$	292,805
New loans purchased		163,892
Accretion of income		(65,681	)
Reclassifications from nonaccretable difference		72,809
Disposals		–
Balance, end of period	$	463,825

The contractually required payments represent the total undiscounted amount of all uncollected contractual principal and contractual interest payments both past due and scheduled for the future, adjusted for the timing of estimated prepayments and any full or partial charge-offs prior to acquisition by the Company. Nonaccretable difference represents contractually required payments in excess of the amount of estimated cash flows expected to be collected. The accretable yield represents the excess of estimated cash flows expected to be collected over

F-21

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

the initial recorded investment in the PCI loans, which was their fair value at the time of the acquisition. The accretable yield is accreted into interest income over the estimated life of the PCI loans using the level yield method. The accretable yield will change due to changes in:

• the estimate of the remaining life of PCI loans which may change the amount of future interest income, and possibly principal, expected to be collected;

• the estimate of the amount of contractually required principal and interest payments over the estimated life that will not be collected (the nonaccretable difference); and

• indices for PCI loans with variable rates of interest.

For PCI loans, the impact of loan modifications is included in the evaluation of expected cash flows for subsequent decreases or increases of cash flows. For variable rate PCI loans, expected future cash flows will be recalculated as the rates adjust over the lives of the loans. At acquisition, the expected future cash flows were based on the variable rates that were in effect at that time.

Because of the loss protection provided by the FDIC, the risks of NAFH NB’s loans and foreclosed real estate are significantly different from those assets not covered under the loss share agreement. Accordingly, the Company presents loans subject to the loss share agreements as “covered loans” in the information below and loans that are not subject to the loss share agreement as “noncovered loans.”

Non-covered Loans

The following is a summary of the major categories of non-covered loans outstanding as of June 30, 2011 and December 31, 2010:

June 30, 2011	PCI Loans		Non PCI Loans		Total Noncovered Loans
Non-owner occupied commercial real estate	$	549,773	$	38,770	$	588,543
Other commercial C&D		211,339		16,271		227,610
Multifamily commercial real estate		62,656		597		63,253
1-4 family residential C&D		50,343		18,416		68,759
Total commercial real estate		874,111		74,054		948,165
Owner occupied commercial real estate		350,215		155,383		505,598
Commercial and industrial		148,762		87,735		236,497
Total commercial		498,977		243,118		742,095
1-4 family residential		379,694		56,583		436,277
Home Equity		24,167		114,133		138,300
Consumer		25,926		34,171		60,097
Total consumer		429,787		204,887		634,674
Other		49,195		7,893		57,088
Total	$	1,852,070	$	529,952	$	2,382,022

F-22

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

December 31, 2010	PCI Loans		Non PCI Loans		Total Noncovered Loans
Non-owner occupied commercial real estate	$	320,928	$	8,939	$	329,867
Other commercial C&D		30,741		1,098		31,839
Multifamily commercial real estate		25,664		–		25,664
1-4 family residential C&D		5,570		3,411		8,981
Total commercial real estate		382,903		13,448		396,351
Owner occupied commercial real estate		210,170		8,318		218,488
Commercial and industrial		46,519		15,633		62,152
Total commercial		256,689		23,951		280,640
1-4 family residential		251,348		15,090		266,438
Home equity		12,220		27,010		39,230
Consumer		32,525		10,529		43,054
Total consumer		296,093		52,629		348,722
Other		19,798		952		20,750
Total	$	955,483	$	90,980	$	1,046,463

Covered Loans

The following is a summary of the major categories of covered loans outstanding as of June 30, 2011 and December 31, 2010:

June 30, 2011	PCI Loans		Non PCI Loans		Total Covered Loans
Non-owner occupied commercial real estate	$	141,590	$	–	$	141,590
Other commercial C&D		63,037		–		63,037
Multifamily commercial real estate		25,592		–		25,592
1-4 family residential C&D		3,518		–		3,518
Total commercial real estate		233,737		–		233,737
Owner occupied commercial real estate		123,349		–		123,349
Commercial and industrial		26,613		635		27,248
Total commercial		149,962		635		150,597
1-4 family residential		139,569		–		139,569
Home Equity		20,509		70,558		91,067
Consumer		166		–		166
Total consumer		160,244		70,558		230,802
Other		6,795		–		6,795
Total	$	550,738	$	71,193	$	621,931

F-23

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

December 31, 2010	PCI Loans		Non PCI Loans		Total Covered Loans
Non-owner occupied commercial real estate	$	170,606	$	–	$	170,606
Other commercial C&D		81,842		–		81,842
Multifamily commercial real estate		30,441		–		30,441
1-4 family residential C&D		7,357		–		7,357
Total commercial real estate		290,246		–		290,246
Owner occupied commercial real estate		129,253		–		129,253
Commercial and industrial		29,592		2,558		32,150
Total commercial		158,845		2,558		161,403
1-4 family residential		155,619		–		155,619
Home Equity		6,217		73,592		79,809
Consumer		–		–		–
Total consumer		161,836		73,592		235,428
Other		9,207		–		9,207
Total	$	620,134	$	76,150	$	696,284

The following table presents the aging of the recorded investment in past due loans, based on contractual terms, as of June 30, 2011 by class of loans:

Non-purchased credit impaired loans

30-89 Days Past Due

Greater than 90 Days Past Due and Still Accruing/Accreting

Nonaccrual

Total

Covered

Non- Covered

Covered

Non- Covered

Covered

Non- Covered

Non-owner occupied commercial real estate

$

–

$

–

$

–

$

–

$

–

$

–

$

–

Other commercial C&D

–

–

–

–

–

–

–

Multifamily commercial real estate

–

–

–

–

–

–

–

1-4 family residential C&D

–

–

–

–

–

–

–

Total commercial real estate

–

–

–

–

–

–

–

Owner occupied commercial real estate

–

–

–

–

–

–

–

Commercial and industrial

–

–

–

–

–

–

–

Total commercial

–

–

–

–

–

–

–

1-4 family residential

–

–

–

–

–

–

–

Home equity

2,330

481

–

–

3,795

835

7,441

Consumer

–

–

–

–

–

–

–

Total consumer

2,330

481

–

–

3,795

835

7,441

Other

–

–

–

–

–

–

–

Total

$

2,330

$

481

$

–

$

–

$

3,795

$

835

$

7,441

F-24

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

Purchased credit impaired loans	30-89 Days Past Due				Greater than 90 Days Past Due and Still Accruing/Accreting				Nonaccrual				Total
	Covered		Non- Covered		Covered		Non- Covered		Covered		Non- Covered
Non-owner occupied commercial real estate	$	4,048	$	1,490	$	30,035	$	44,987	$	–	$	–	$	80,560
Other commercial C&D		999		13,244		38,220		59,380		–		–		111,843
Multifamily commercial real estate		134		–		5,446		1,081		–		–		6,661
1-4 family residential C&D		–		975		3,213		4,030		–		–		8,218
Total commercial real estate		5,181		15,709		76,914		109,478		–		–		207,282
Owner occupied commercial real estate		3,352		4,113		15,606		34,389		–		–		57,460
Commercial and industrial		838		2,968		2,135		18,415		–		–		24,356
Total commercial		4,190		7,081		17,741		52,804		–		–		81,816
1-4 family residential		4,432		6,194		26,628		16,777		–		–		54,031
Home Equity		313		507		2,499		1,796		–		–		5,115
Consumer		–		596		–		357		–		–		953
Total consumer		4,745		7,297		29,127		18,930		–		–		60,099
Other		1,303		209		4,217		1,261		–		–		6,990
Total	$	15,419	$	30,296	$	127,999	$	182,473	$	–	$	–	$	356,187

Purchased credit-impaired loans are not classified as nonaccrual as they are considered to be accruing because their interest income relates to the accretable yield recognized under accounting for purchased credit-impaired loans and not to contractual interest payments.

There were no troubled debt restructurings as of June 30, 2011 and December 31, 2010.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings:

• Pass—These loans range from superior quality with minimal credit risk to loans requiring heightened management attention but that are still an acceptable risk and continue to perform as contracted.

• Special Mention—Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

• Substandard—Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

F-25

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

• Doubtful—Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The following table summarizes loans, excluding purchased credit-impaired loans, monitored for credit quality based on internal ratings at June 30, 2011:

	Pass		Special Mention		Substandard		Doubtful		Total
Non-owner occupied commercial real estate	$	38,770	$	–	$	–	$	–	$	38,770
Other commercial C&D		16,263		8		–		–		16,271
Multifamily commercial real estate		597		–		–		–		597
1-4 family residential C&D		16,983		156		1,277		–		18,416
Total commercial real estate		72,613		164		1,277		–		74,054
Owner occupied commercial real estate		153,273		–		2,110		–		155,383
Commercial and industrial		87,986		16		368		–		88,370
Total commercial		241,259		16		2,478		–		243,753
1-4 family residential		55,223		937		423		–		56,583
Home Equity		178,117		743		5,831		–		184,691
Consumer		34,169		2		–		–		34,171
Total consumer		267,509		1,682		6,254		–		275,445
Other		7,893		–		–		–		7,893
Total	$	589,274	$	1,862	$	10,009	$	–	$	601,145

The credit impact of purchased impaired loans is primarily determined by estimates of expected cash flows. Such estimates are influenced by a number of credit related items which may include, but are not limited to, estimated real estate values, payment patterns, economic environment, LTV ratios and origination dates.

Note 5—FDIC Indemnification Asset

The following is a summary of the year to date activity in the FDIC indemnification asset.

Balance, December 31, 2010	$	91,467
Increase related to unfavorable change in loss estimates		3,013
Accretion		2,858
Reimbursable losses claimed		(24,591	)
Balance, June 30, 2011	$	72,747

F-26

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

Note 6—Allowance for Loan Losses

Activity in the allowance for loan losses for the three and six months ended June 30, 2011 and 2010 follows:

	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010		Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
Balance, beginning of period	$	2,287		$	–	$	753		$	–
Provision for loan losses charged to expense		8,418			–		9,963			–
Loans charged off		(3,016	)		–		(3,027	)		–
Recoveries of loans previously charged off		–			–		–			–
Balance, end of period	$	7,689		$	–	$	7,689		$	–

Activity in the allowance for loan losses for the three months ended June 30, 2011 is as follows:

	March 31, 2011		Provision		Net Charge-offs			June 30, 2011
Non-owner occupied commercial real estate	$	300	$	157	$	–		$	457
Other commercial C&D		71		164		–			235
Multifamily commercial real estate		4		10		–			14
1-4 family residential C&D		144		120		–			264
Total commercial real estate		519		451		–			970
Owner occupied commercial real estate		454		957		–			1,411
Commercial and industrial		550		1,730		–			2,280
Total commercial		1,004		2,687		–			3,691
1-4 family residential		452		92		–			544
Home Equity		71		4,242		(2,986	)		1,327
Consumer		221		716		(30	)		907
Total consumer		744		5,050		(3,016	)		2,778
Other		20		230		–			250
Total	$	2,287	$	8,418	$	(3,016	)	$	7,689

F-27

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

Activity in the allowance for loan losses for the six months ended June 30, 2011 is as follows:

	December 31, 2010		Provision		Net Charge-offs			June 30, 2011
Non-owner occupied commercial real estate	$	79	$	378	$	–		$	457
Other commercial C&D		6		229		–			235
Multifamily commercial real estate		–		14		–			14
1-4 family residential C&D		19		245		–			264
Total commercial real estate		104		866		–			970
Owner occupied commercial real estate		70		1,341		–			1,411
Commercial and industrial		133		2,147		–			2,280
Total commercial		203		3,488		–			3,691
1-4 family residential		215		329		–			544
Home Equity		33		4,280		(2,986	)		1,327
Consumer		184		764		(41	)		907
Total consumer		432		5,373		(3,027	)		2,778
Other		14		236		–			250
Total	$	753	$	9,963	$	(3,027	)	$	7,689

	Allowance for Loan Losses						Loans
June 30, 2011	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased Credit- Impaired		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased Credit-Impaired
Non-owner occupied commercial real estate	$	–	$	394	$	63	$	–	$	38,770	$	691,363
Other commercial C&D		–		235		–		–		16,271		274,376
Multifamily commercial real estate		–		6		8		–		597		88,248
1-4 family residential C&D		–		264				–		18,416		53,861
Total commercial real estate		–		899		71		–		74,054		1,107,848
Owner occupied commercial real estate		–		1,368		43		–		155,383		473,564
Commercial and industrial		–		951		1,329		–		88,370		175,375
Total commercial		–		2,319		1,372		–		243,753		648,939
1-4 family residential		–		544		–		–		56,583		514,550
Home Equity		–		89		1,238		1,910		182,781		44,676
Consumer		–		336		571		–		34,171		26,092
Total consumer		–		969		1,809		1,910		273,535		585,318
Other		–		–		250		–		7,893		55,990
Total	$	–	$	4,187	$	3,502	$	1,910	$	599,235	$	2,398,095

F-28

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

Note 7—Capital Adequacy

The Company (on a consolidated basis) and the Banks are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements result in certain discretionary and required actions by regulators that could have an effect on the Company’s operations. The regulations require the Company and the Banks to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

To be considered well capitalized and adequately capitalized (as defined) under the regulatory framework for prompt corrective action, the Banks must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based ratios. At June 30, 2011 and December 31, 2010 the Banks maintained capital ratios exceeding the requirement to be considered adequately capitalized. These minimum ratios along with the actual ratios for the Company, TIBB, Capital Bank Corp. and the Banks as of June 30, 2011 and December 31, 2010 are presented in the following table.

	Well Capitalized Requirement		Adequately Capitalized Requirement			June 30, 2011 Actual			December 31, 2010 Actual
Tier 1 Capital (to Average Assets)
Consolidated		N/A	³	4.0	%		17.7	%		24.3	%
TIBB		N/A	³	4.0	%		28.5	%		8.2	%
Capital Bank Corp.		N/A	³	4.0	%		14.3	%		N/A
Capital Bank, NA (formerly NAFH NB)		³ 5.0%	³	4.0	%		10.5	%		12.1	%
TIB Bank		³ 5.0%	³	4.0	%		N/A			8.1	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		N/A	³	4.0	%		30.2	%		41.8	%
TIBB		N/A	³	4.0	%		98.4	%		13.4	%
Capital Bank Corp.		N/A	³	4.0	%		103.5	%		N/A
Capital Bank, NA (formerly NAFH NB)		³ 6.0%	³	4.0	%		17.0	%		17.1	%
TIB Bank		³ 6.0%	³	4.0	%		N/A			13.1	%
Total Capital (to Risk Weighted Assets)
Consolidated		N/A	³	8.0	%		30.6	%		41.9	%
TIBB		N/A	³	8.0	%		98.4	%		13.4	%
Capital Bank Corp.		N/A	³	8.0	%		105.0	%		N/A
Capital Bank, NA (formerly NAFH NB)		³ 10.0%	³	8.0	%		17.5	%		17.1	%
TIB Bank		³ 10.0%	³	8.0	%		N/A			13.1	%

Management believes, as of June 30, 2011, that the Company, TIBB, Capital Bank Corp.and the Bank meet all capital requirements to which they are subject. Tier 1 Capital for the Company, TIBB and Capital Bank Corp. includes trust preferred securities to the extent allowable.

The ability of the Banks to pay dividends to the Company is restricted under state banking laws. Declaration of dividends by TIB Bank in 2010 would have required regulatory approval. During 2011 and 2010, no dividends were declared by the Banks.

F-29

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

Note 8—Fair Value Measurements

ASC 820-10 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Valuation of Investment Securities

The fair values of securities available for sale are determined by: 1) obtaining quoted prices on nationally recognized securities exchanges when available (Level 1 inputs); 2) matrix pricing, which is a mathematical technique widely used in the financial markets to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs); and 3) for collateralized debt obligations, certain corporate debt securities that are not actively traded and certain other assets and liabilities recorded at fair value in connection with the application of the acquisition method of accounting, custom discounted cash flow modeling (Level 3 inputs).

As of June 30, 2011, the Company owned a collateralized debt security where the underlying collateral is comprised primarily of trust preferred securities of banks and insurance companies and certain corporate debt securities which are not actively traded. The inputs used in determining the estimated fair value of these securities are Level 3 inputs. In determining their estimated fair value, management utilizes a discounted cash flow modeling valuation approach. Discount rates utilized in the modeling of these securities are estimated based upon a variety of factors including the market yields of publicly traded trust preferred securities of larger financial institutions and other non-investment grade corporate debt. Additionally, cash flows utilized in the modeling of the collateralized debt obligation security were based upon actual default history of the underlying issuers and issuer specific assumptions of estimated future defaults of the underlying issuers.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at the lower of cost or estimated fair value. The fair values of mortgage loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics. As such, the fair value adjustment for mortgage loans held for sale is classified as nonrecurring Level 2.

Valuation of Impaired Loans and Other Real Estate Owned

The fair value of collateral dependent impaired loans with specific allocations of the allowance for loan losses and other real estate owned is generally based on recent real estate appraisals and other available observable market information. These appraisals may utilize a single valuation approach or a combination of

F-30

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

approaches including comparable sales and the income approach. The Company generally uses independent external appraisers in this process who routinely make adjustments to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. The Company’s policy is to update appraisals, at a minimum, annually for all classified assets, which include collateral dependent loans and OREO. We consider appraisals dated within the past 12 months to be current and do not typically make adjustments to such appraisals. In the Company’s process for reviewing third-party prepared appraisals, any differences of opinion on values, assumptions or adjustments to comparable sales data are typically reconciled directly with the independent appraiser prior to acceptance of the final appraisal.

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements  at June 30, 2011 Using
	June 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Trading securities	$	615	$	615	$	–	$	–
Available for sale securities
U.S. Government agencies and corporations	$	45,257	$	–	$	45,257	$	–
States and political subdivisions–tax exempt		27,405		–		27,405		–
States and political subdivisions–taxable		7,297				7,297
Marketable equity securities		1,842		1,842		–		–
Mortgage-backed securities–residential		775,461		–		775,461		–
Corporate bonds		3,529		–		2,422		1,107
Collateralized debt obligations		679		–		–		679
Available for sale securities	$	861,470	$	1,842	$	857,842	$	1,786

			Fair Value Measurements at December 31, 2010 Using
	December 31, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. Government agencies and corporations	$	49,133	$	–	$	49,133	$	–
States and political subdivisions–tax exempt		5,792		–		5,792		–
States and political subdivisions–taxable		9,354		–		9,354		–
Marketable equity securities		74		–		74		–
Mortgage-backed securities–residential		412,213		–		412,213		–
Corporate bonds		2,105		–		2,105		–
Collateralized debt obligations		795		–		–		795
Available for sale securities	$	479,466	$	–	$	478,671	$	795

F-31

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

The tables below present reconciliations and income statement classifications of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2011 and held at June 30, 2011. No assets were measured at fair value using Level 3 inputs during the three and six months ended June 30, 2010.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended June 30, 2011
	Corporate Bonds		Collateralized Debt Obligations
Beginning balance, April 1,	$	1,107	$	791
Included in earnings—other than temporary impairment		–		–
Included in other comprehensive income		–		(112	)
Transfer in to Level 3		–		–
Ending balance June 30,	$	1,107	$	679

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Six Months Ended June 30, 2011
	Corporate Bonds		Collateralized Debt Obligations
Beginning balance, January 1,	$	–	$	795
Acquired through acquisition of Capital Bank Corporation		1,107		–
Included in earnings—other than temporary impairment		–		–
Included in other comprehensive income		–		(116	)
Transfer in to Level 3		–		–
Ending balance June 30,	$	1,107	$	679

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

	Fair Value Measurements  at June 30, 2011 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Other real estate owned	$	–	$	–	$	23,687
Other repossessed assets		–		210		–

F-32

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

	Fair Value Measurements  at December 31, 2010 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Other real estate owned	$	–	$	–	$	70,817
Other repossessed assets		–		137		–

The carrying amounts and estimated fair values of financial instruments, at June 30, 2011 and December 31, 2010 are as follows:

	June 30, 2011				December 31, 2010
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	526,131	$	526,131	$	886,925	$	886,925
Investment securities		862,085		862,085		479,716		479,716
Loans, net		2,996,264		3,061,942		1,741,994		1,781,181
FDIC indemnification asset		72,747		72,747		91,467		91,467
Federal reserve, federal home loan bank and independent bankers’ bank stock		28,202		28,202		23,465		23,465
Accrued interest receivable		13,431		13,431		8,286		8,286
Financial liabilities:
Non-contractual deposits	$	1,568,419	$	1,568,419	$	906,742	$	906,742
Contractual deposits		1,933,004		1,918,855		1,353,510		1,355,099
Federal Home Loan Bank Advances		244,939		243,306		243,067		242,522
Short-term borrowings		36,235		36,235		61,969		61,969
Long term borrowings		55,683		56,640		–		–
Subordinated debentures		41,592		43,935		22,887		25,267
Accrued interest payable		9,116		9,116		9,334		9,334

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, noncontractual demand deposits and certain short-term borrowings. As it is not practicable to determine the fair value of Federal Reserve, Federal Home Loan Bank stock and other bankers’ bank stock due to restrictions placed on its transferability, the estimated fair value is equal to their carrying amount. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer including estimates of discounted cash flows when necessary. For fixed rate loans or contractual deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life, adjusted for the allowance for loan losses. Discounted cash flows incorporate probability of default and loss given default assumptions which are based upon, among other things, loan and collateral type and specific loan to value information. Loan to value information which is not recent is adjusted using industry data tables to incorporate changes in fair values from the most recent information available. Fair values for impaired loans are

F-33

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

estimated using discounted cash flow analysis or underlying collateral values. Fair values of long-term debt are based on current rates for similar financing. The fair value of off-balance sheet items including commitments to extend credit to fund commercial, consumer, real estate construction and real estate-mortgage loans and to fund standby letters of credit is considered nominal.

Note 9—Other Real Estate Owned

Activity in other real estate owned is as follows:

	Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
Balance, beginning of period	$	70,817		$	–
Increase due to acquisitions		15,118			–
Real estate acquired		33,548			–
Valuation write downs		(1,643	)		–
Property sold		(39,953	)		–
Balance, end of period	$	77,887		$	–

Note 10—Stock-Based Compensation

As of June 30, 2011, the Company had one compensation plan under which shares of its common stock are issuable in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards and stock bonus awards. This is its 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan was effective December 22, 2009 and expires on December 22, 2019, the tenth anniversary of the effective date. The maximum number of shares of common stock of the Company that may be optioned or awarded through the 2019 expiration of the plan is 5,750 shares (limited to 10% of outstanding shares of common stock) of which up to 70% may be granted pursuant to stock options and up to 30% may be granted pursuant to restricted stock and restricted stock units. If any awards granted under the Plan are forfeited or any option terminates, expires or lapses without being exercised, or any award is settled for cash, the shares of stock shall again be available for awards under the Plan.

The following table summarizes the components and classification of stock-based compensation expense for the three and six months ended June 30, 2011. As there were no outstanding, unvested equity awards prior to the first quarter of 2011, no stock-based compensation expense was recorded in prior periods.

	Three Months Ended June 30, 2011		Six Months Ended June 30, 2011
Stock options	$	1,654	$	2,030
Restricted stock		1,375		1,544
Total stock-based compensation expense	$	3,029	$	3,574
Salaries and employee benefits	$	2,591	$	3,061
Other expense		438		513
Total stock-based compensation expense	$	3,029	$	3,574

F-34

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

The tax benefit related to stock-based compensation expense arising from restricted stock awards and non-qualified stock options was approximately $1,168 and $1,379 for the three and six months ended June 30, 2011, respectively.

Stock Options

Under the 2010 Plan, the exercise price for common stock must equal at least 100 percent of the fair market value of the stock on the day an option is granted. The exercise price under an incentive stock option granted to a person owning stock representing more than 10 percent of the common stock must equal at least 110 percent of the fair market value at the date of grant, and such option is not exercisable after five years from the date the incentive stock option was granted. The Board of Directors may, at its discretion, provide that an option not be exercised in whole or in part for any period or periods of time as specified in the option agreements. No option may be exercised after the expiration of ten years from the date it is granted. Stock options granted during the first quarter of 2011 vest over a service period of approximately 2 years.

The fair value of each option is estimated as of the date of grant using the Black-Scholes Option Pricing Model. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. The assumptions for the current period grants were developed based on ASC 718 and SEC guidance contained in Staff Accounting Bulletin (SAB) No. 107, “Share-Based Payment.” The following table summarizes the weighted average assumptions used to compute the grant-date fair value of options granted during the six months ended June 30, 2011.

	Six Months Ended June 30, 2011
Dividend yield		0.00	%
Risk-free interest rate		1.87	%
Expected option life		5 years
Volatility		33	%
Weighted average grant-date fair value of options granted		$4.41

• The dividend yield assumption is consistent with management expectations of dividend distributions based upon the Company’s business plan. An increase in dividend yield will decrease stock compensation expense.

• The risk-free interest rate was developed using the U.S. Treasury yield curve for periods equal to the expected life of the options on the grant date. An increase in the risk-free interest rate will increase stock compensation expense.

• The expected option life for the current period grants was estimated using the vesting period, the term of the option and estimates of future exercise behavior patterns. An increase in the option life will increase stock compensation expense.

• The volatility was estimated using a peer group assessment for periods approximating the expected option life. Appropriate weight is attributed to financial theory, according to which the volatility of an institution’s equity should be related to the volatility of its assets and the entity’s financial leverage. An increase in the volatility will increase stock compensation expense.

ASC 718 requires the recognition of stock-based compensation for the number of awards that are ultimately expected to vest. During the six months ended June 30, 2011, stock based compensation expense was recorded

F-35

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

based upon estimates that we would experience no forfeitures. Our estimate of forfeitures will be reassessed in subsequent periods based on historical forfeiture rates and may change based on new facts and circumstances. Any changes in our estimates will be accounted for prospectively in the period of change.

As of June 30, 2011, unrecognized compensation expense associated with stock options was $7,925 which is expected to be recognized over a weighted average period of approximately 1 year.

A summary of the stock option activity in the 2010 plan is as follows:

	Shares		Weighted Average Exercise Price Per Share
Balance, January 1, 2011		–	$	–
Granted		2,236		20.00
Exercised		–		–
Expired or forfeited		–		–
Balance, June 30, 2011		2,236	$	20.00

The weighted average remaining term for outstanding stock options was approximately 8 years at June 30, 2011. The aggregate intrinsic value at June 30, 2011 was $0 for stock options outstanding and $0 for stock options exercisable. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of the Company’s common stock as of the reporting date. There were no options exercisable at June 30, 2011 or December 31, 2010.

Options outstanding at June 30, 2011 were as follows:

	Outstanding Options			Options Exercisable
Exercise Prices	Number	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price Per Share	Number	Weighted Average Exercise Price
$20.00	2,236	8.48 years	$20.00	–	N/A

Restricted Stock

Restricted stock provides the grantee with voting, dividend and anti-dilution rights equivalent to common shareholders, but is restricted from transfer until vested, at which time all restrictions are removed. Vesting for restricted shares is based upon the performance of the Company’s common stock. The terms of the restricted stock awards granted during the first half of 2011 provide for vesting upon the achievement of stock price goals as follows: 1) 33% at $25.00 per share; 2) 33% at $28.00 per share; and 3) 33% at $32.00 per share. Achievement of stock price goals is generally defined as the average closing price of the shares for any consecutive 30-day trading period exceeding the applicable price target.

The fair value of each restricted stock award is estimated as of the date of grant using a risk-neutral Monte Carlo simulation model that projected the Company’s stock price over 10,000 random scenarios in order to assess the stock price along those paths where vesting conditions are met. The value of the restricted stock award is equal to the weighted average present value of the terminal projected stock price of all 10,000 paths, where

F-36

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

paths are set to $0 when vesting conditions are not met or the awards are forfeited. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. The following table summarizes the weighted average assumptions used to compute the grant-date fair value of restricted stock awards granted during the six months ended June 30, 2011.

	Six Months Ended June 30, 2011
Starting share price (based upon most recent trade)		$17.00
Risk-free interest rate		Forward Treasury Curve
Market risk premium		0.00%
Volatility (year 1, year 2, year 3 and after 3 years, respectively)		21% /24% /31% /32.5%
Annual forfeiture estimate		0.00%
Weighted average grant-date fair value of restricted stock awards granted		$13.00

• An increase in the risk-free interest rate will increase stock compensation expense.

• The volatility was estimated using a peer group assessment for periods approximating the expected option life. Appropriate weight is attributed to financial theory, according to which the volatility of an institution’s equity should be related to the volatility of its assets and the entity’s financial leverage. An increase in the volatility will increase stock compensation expense.

• An increase in the annual forfeiture estimate will decrease stock compensation expense.

The value of the restricted stock is being amortized on a straight-line basis over the implied service periods. No restricted stock awards vested during the six months ended June 30, 2011.

A summary of the restricted stock activity in the plan is as follows:

	Shares		Weighted Average Grant-Date Fair Value Per Share
Balance, January 1, 2011		–	$	–
Granted		1,030		13.00
Vested		–		–
Expired or forfeited		–		–
Balance, June 30, 2011		1,030	$	13.00

As of June 30, 2011, unrecognized compensation expense associated with restricted stock awards was $12,415, which is expected to be recognized over a weighted average period of approximately 3 years.

Acquired Institutions’ Equity Incentive Plans

As of June 30, 2011, the Company’s subsidiary, Capital Bank Corp. has one compensation plan under which shares of its common stock are issuable in the form of stock options, restricted shares, stock appreciation rights, performance shares or performance units. This is the Capital Bank Corporation Equity Incentive Plan (the “Capital Plan”), which was approved by its shareholders. Under the Capital Plan, the Board of Directors of

F-37

North American Financial Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2011 and 2010

(dollars in thousands)

Capital Bank Corp. may grant nonqualified stock–based awards to any director, and incentive or nonqualified stock-based awards to any officer, key executive, administrative, or other employee. The maximum number of shares of common stock of Capital Bank Corp. that may be optioned or awarded through the expiration of the plan is 1,150 shares. If options or awards granted under the Capital Plan expire or terminate for any reason without having been exercised in full or released from restriction, the corresponding shares shall again be available for option or award as long as no dividends have been paid to the holder in accordance with the provisions of the grant agreement. At June 30, 2011, shares available for grant under the Capital Plan were 610.

As of June 30, 2011, the Company’s subsidiary, TIB Financial Corp. has one compensation plan under which shares of its common stock are issuable in the form of stock options, restricted shares, stock appreciation rights, performance shares or performance units. This is its 2004 Equity Incentive Plan (the “TIB Plan”), which was approved by its shareholders. Under the TIB Plan, the Board of Directors of TIB Financial Corp. may grant nonqualified stock–based awards to any director, and incentive or nonqualified stock-based awards to any officer, key executive, administrative, or other employee. The maximum number of shares of common stock of TIB Financial Corp. that may be optioned or awarded through the 2014 expiration of the plan is 250 shares, no more than 200 of which may be issued pursuant to awards granted in the form of restricted shares. If options or awards granted under the TIB Plan expire or terminate for any reason without having been exercised in full or released from restriction, the corresponding shares shall again be available for option or award as long as no dividends have been paid to the holder in accordance with the provisions of the grant agreement. At June 30, 2011, shares available for grant under the TIB Plan were 243.

As the awards outstanding under the equity incentive plans of acquired subsidiaries have exercise prices which exceed the current respective stock prices, management believes these outstanding options to be immaterial to the Company’s consolidated financial statements.

F-38

North American Financial Holdings, Inc.

Consolidated Financial Statements as of and for the Year Ended

December 31, 2010 and as of December 31, 2009 and for the Period from November 30, 2009 to December 31, 2009

Report of Independent Registered Certified Public Accounting Firm

To the Board of Directors and Shareholders of

North American Financial Holdings, Inc.

In our opinion, based on our audit and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in shareholders’ equity and cash flows present fairly, in all material respects, the financial position of North American Financial Holdings, Inc. and its subsidiaries at December 31, 2010 and December 31, 2009, and the results of their operations and their cash flows for the year ended December 31, 2010 and the period from November 30, 2009 (date of inception) through December 31, 2009 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of TIB Financial Corp., a 98.7% owned subsidiary, which statements reflect total assets (in thousands) of $1,756,866 as of December 31, 2010 and total net interest income after provision for loan losses (in thousands) of $12,030 for the three months then ended. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for North American Financial Holdings, Inc., is based solely on the report of the other auditors. We conducted our audit of these statements in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

June 23, 2011

Ft. Lauderdale, Florida

North American Financial Holdings, Inc.

Consolidated Balance Sheets

December 31, 2010 and 2009

(dollars and shares in thousands, except per share data)	2010			2009
Assets
Cash and due from banks	$	886,925		$	526,711
Investment securities held to maturity (estimated fair value $250)		250			–
Investment securities available for sale (amortized cost $483,929)		479,466			–
Loans, net of deferred loan costs and fees		1,742,747			–
Less: Allowance for loan losses		753			–
Loans, net		1,741,994			–
Other real estate owned		70,817			–
Receivable from FDIC		46,585			–
Indemnification asset		91,467			–
Premises and equipment, net		44,078			–
Goodwill		36,616			–
Intangible assets, net		15,154			–
Deferred income tax asset		16,789			50
Accrued interest receivable and other assets		66,850			–
Total assets	$	3,496,991		$	526,761
Liabilities and Shareholders’ Equity
Liabilities
Deposits
Noninterest-bearing demand	$	295,713		$	–
Interest-bearing		1,964,384			–
Total deposits		2,260,097			–
Federal Home Loan Bank (FHLB) advances		243,067			–
Short-term borrowings		61,969			–
Long-term borrowings		22,887			–
Accrued interest payable and other liabilities		27,735			441
Total liabilities		2,615,755			441
Shareholders’ Equity
Preferred stock $0.01 par value: 50,000 shares authorized, 0 shares issued		–			–
Common stock-Class A $0.01 par value: 200,000 shares authorized, 21,384 and 19,181 shares issued and outstanding		214			192
Common stock-Class B $0.01 par value: 200,000 shares authorized, 23,736 and 8,726 shares issued and outstanding		237			87
Additional paid in capital		865,673			526,133
Retained earnings (accumulated deficit)		11,938			(92	)
Accumulated other comprehensive loss		(2,759	)		–
Noncontrolling interest		5,933			–
Total shareholders’ equity		881,236			526,320
Total Liabilities and Shareholders’ Equity	$	3,496,991		$	526,761

The accompanying notes are an integral part of these financial statements.

F-41

North American Financial Holdings, Inc.

Consolidated Statements of Income

Year Ended December 31, 2010 and Period From November 30, 2009 (Inception) to

December 31, 2009

(dollars in thousands)	2010		2009
Interest and dividend income
Loans, including fees	$	36,429	$	–
Investment securities		2,713		–
Interest-bearing deposits in other banks		3,462		72
Federal Home Loan Bank stock		141		–
Total interest and dividend income		42,745		72
Interest expense
Deposits		4,656		–
Long-term debt-subordinated debentures		458		–
Federal Home Loan Bank advances		931		–
Borrowings		189		–
Total interest expense		6,234		–
Net interest income		36,511		72
Provision for loan losses		753		–
Net interest income after provision for loan losses		35,758		72
Noninterest income
Service charges on deposit accounts		1,992		–
Fees on mortgage loans originated and sold		449		–
Investment advisory and trust fees		354		–
Gain on acquisition of banks		15,175		–
Other income		1,645		–
Total noninterest income		19,615		–
Noninterest expense
Salaries and employee benefits		17,229		40
Net occupancy and equipment expense		4,629		–
Professional fees		11,721		–
Other expense		10,798		174
Total noninterest expense		44,377		214
Income (loss) before income taxes		10,996		(142	)
Income tax benefit		1,041		50
Net income before attribution of noncontrolling interests		12,037		(92	)
Net income attributable to noncontrolling interests		7		–
Net income attributable to North American Financial Holdings, Inc.	$	12,030	$	(92	)
Basic and diluted income (loss) per share	$	0.31	$	(0.01	)

The accompanying notes are an integral part of these financial statements.

F-42

North American Financial Holdings, Inc.

Statements of Changes in Shareholders’ Equity

Year Ended December 31, 2010 and Period From November 30, 2009 (Inception) to December 31, 2009

(dollars and shares in thousands)	Shares Common Stock Class A		Class A Stock		Shares Common Stock Class B		Class B Stock		Additional Paid in Capital		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Noncontrolling Interest			Total Equity
Balance, November 30, 2009 (Inception)		–	$	–		–	$	–	$	–	$	–		$	–		$	–		$	–
Issuance of common stock		19,181		192		8,726		87		526,133											526,412
Net loss												(92	)								(92	)
Balance, December 31, 2009		19,181		192		8,726		87		526,133		(92	)		–			–			526,320
Comprehensive income
Net income												12,030						7			12,037
Other comprehensive loss
Net market valuation adjustment on securities available for sale, net of $1,327 tax benefit
Other comprehensive loss															(2,759	)		(29	)		(2,788	)
Comprehensive income																					9,249
Issuance of common stock		2,203		22		15,010		150		339,540								–			339,712
Origination of noncontrolling interest																		5,955			5,955
Balance, December 31, 2010		21,384	$	214		23,736	$	237	$	865,673	$	11,938		$	(2,759	)	$	5,933		$	881,236

The accompanying notes are an integral part of these financial statements.

F-43

North American Financial Holdings, Inc.

Consolidated Statements of Cash Flow

Year Ended December 31, 2010 and Period From November 30, 2009 (Inception) to

December 31, 2009

(dollars in thousands)	2010			2009
Cash flows from operating activities
Net income (loss)	$	12,037		$	(92	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Accretion of acquired loans		(30,480	)		–
Depreciation and amortization		(980	)		–
Provision for loan losses		752			–
Deferred income tax benefit (loss)		(159	)		–
Net amortization of investment premium/discount		1,931			–
Net deferred loan costs		(216	)		–
Gain on acquisition of banks		(15,175	)		–
Mortgage loans originated for sale		(22,194	)		–
Proceeds from sales of mortgage loans held for sale, net of fees		18,493			–
Change in accrued interest receivable and other asset		1,336			(50	)
Change in accrued interest payable and other liabilities		(7,090	)		441
Net cash (used in) provided by operating activities		(41,745	)		299
Cash flows from investing activities
Purchases of investment securities available for sale		(211,775	)		–
Sales of investment securities available for sale		22,204			–
Repayments of principal and maturities of investment securities available for sale		87,173			–
Cash received on TIB Financial Corp. acquisition		54,665			–
Cash paid on FNB acquisition, net of cash acquired		(29,751	)		–
Cash received on Metro bank acquisition, net of cash paid		75,076			–
Cash received on Turnberry acquisition		57,279			–
Net purchase of FHLB and Federal Reserve stock		(2,849	)		–
Principal repayments on loans, net of loans originated or acquired		54,338			–
Purchases of premises and equipment		(1,277	)		–
Proceeds from sales of OREO		12,253			–
Net cash provided by investing activities		117,336			–
Cash flows from financing activities
Net increase in demand, money market and savings accounts		31,062			–
Net decrease in time deposits		(58,427	)		–
Net decrease in brokered time deposits		(314	)		–
Net increase in federal funds purchased and securities sold under agreements to repurchase		4,430			–
Net decrease in long term repurchase agreements		(10,000	)		–
Net repayment of long term FHLB advances		(21,840	)		–
Net proceeds from issuance of common shares		339,712			526,412
Net cash provided by financing activities		284,623			526,412
Net increase in cash and cash equivalents		360,214			526,711
Cash and cash equivalents
Beginning of period		526,711			–
End of period	$	886,925		$	526,711
Supplemental disclosures of cash paid
Interest paid	$	7,387		$	–
Income taxes paid	$	500		$	–
Supplemental disclosures of noncash transactions
Other real estate acquired from borrowers	$	20,009		$	–

The accompanying notes are an integral part of these financial statements.

F-44

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

1. Summary of Significant Accounting Policies

Principles of Consolidation and Nature of Operations

North American Financial Holdings, Inc. (“NAFH” or the “Company”) is a bank holding company incorporated in Delaware and headquartered in Florida whose business is conducted primarily through our subsidiaries, NAFH National Bank (“NAFH NB”) and TIB Financial Corp. (“TIBB”; parent company of TIB Bank and Naples Capital Advisors, Inc.) (collectively referred to as the Company’s subsidiary banks or the “Banks”). All significant inter-company accounts and transactions have been eliminated in consolidation. As of December 31, 2010, NAFH had a total of fifty full service banking offices located in southern Florida and throughout South Carolina.

On July 16, 2010, NAFH NB acquired the operations and certain assets and liabilities from the Federal Deposit Insurance Corporation (“FDIC”) as receiver of three failed banks: the former Metrobank of Dade County, the former Turnberry Bank and the former First National Bank of the South. On September 30, 2010, NAFH acquired a controlling interest in TIB Financial Corp. See Note 2—Acquisitions for information about the Company’s acquired operations. On January 28, 2011, the Company acquired a controlling interest in Capital Bank Corporation, see Note 20. The Company’s subsidiary banks offer a wide range of commercial and retail banking and financial services to businesses and individuals. Account services include checking, interest-bearing checking, money market, certificates of deposit and individual retirement accounts. The Banks offers all types of commercial loans, including: owner-operated commercial real estate; acquisition, development and construction; income-producing properties; working capital; inventory and receivable facilities; and equipment loans. Consumer loan products include residential real estate, installment loans, home equity, home equity lines and auto and boat loans.

The accounting and reporting policies conform to accounting principles generally accepted in the United States of America. The following is a summary of the more significant of these policies.

Operating Segments

While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company wide basis. As operating results for all segments are similar, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Use of Estimates and Assumptions

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. Material estimates that are particularly susceptible to significant change include the determination of the allowance for loan losses, determination of fair value, determination of impairment of financial instruments, goodwill and intangible assets and the determination of deferred income tax assets and liabilities. Changes in assumptions or in market conditions could significantly affect the fair value estimates. Due to the acquisitions discussed in more detail in Note 2-Acquisitions, the measurement of assets acquired and liabilities assumed at their estimated fair values represent material estimates which are subject to change during the measurement period.

F-45

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

Cash and Cash Equivalents

For purposes of the consolidated statement of cash flows, cash and cash equivalents include cash on hand and items with an original maturity of three months or less, including amounts due from banks, federal funds sold, and interest-bearing deposits at the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank of Atlanta. Net cash flows are reported for customer loan and deposit transactions and short term borrowings.

Investment Securities and Other than Temporary Impairment

Investment securities which may be sold prior to maturity are classified as available for sale and are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. Other securities such as Federal Home Loan Bank stock are carried at cost and are included in other assets on the balance sheets. Investment securities where the Company has both the intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized using the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are realized on the trade date and determined using the specific identification method based on the amortized cost of the security sold.

Management regularly reviews each investment security for impairment based on criteria that include the extent to which cost exceeds fair value, the duration of that market decline, the financial health of and specific prospects for the issuer(s) and our ability and intention with regard to holding the security.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

In determining OTTI under accounting guidance, management considers many factors, including but not limited to: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the impairment recognized in earnings depends on whether management intends to sell the security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If management intends to sell or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the impairment is required to be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If management does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the impairment is separated into the amount representing the credit loss and the amount related to all other factors. The amount of impairment related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the impairment related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

F-46

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

Future declines in the fair value of securities may result in impairment charges which may be material to the financial condition and results of operations of the Company.

Originated Loans

Loans that management has the intent and ability to hold are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. If the collectibility of interest appears doubtful, the accrual of interest is discontinued and all unpaid interest is reversed. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Nonaccrual Loans

The majority of loans are placed on nonaccrual status when it is probable that principal or interest is not fully collectible, or generally when principal or interest becomes 90 days past due, whichever occurs first. Certain loans past due 90 days or more may remain on accrual status if management determines that it does not have concern over the collectability of principal and interest. Generally, when loans are placed on nonaccrual status, accrued interest receivable is reversed against interest income in the current period. Interest payments received thereafter are generally applied as a reduction to the remaining principal balance as long as concern exists as to the ultimate collection of the principal. Loans are generally removed from nonaccrual status when they become current as to both principal and interest and concern no longer exists as to the collectability of principal and interest. NAFH’s policies related to when loans are placed on nonaccrual status conform to guidelines prescribed by bank regulatory authorities.

Accounting for Acquired Loans

The Company accounts for its acquisitions using the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value, exclusive of the shared-loss agreements with the FDIC. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

Loans acquired in a transfer, including business combinations, where there is evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments, are accounted for under accounting guidance for purchased credit-impaired (“PCI”) loans. NAFH has generally aggregated the purchased loans into pools of loans with common risk characteristics. Over the life of the acquired loans, the Company continues to estimate cash flows expected to be collected on individual loans or on pools of loans sharing common risk characteristics. The Company evaluates at each balance sheet date whether the estimated cash flows and corresponding present value of its loans, determined using the effective interest rates, has decreased and if so, recognizes a provision for loan loss in its consolidated statement of income. For any increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the loan’s or pool’s remaining life. For further discussion of the Company’s acquisitions and loan accounting, see Notes 2 and 5 to the consolidated financial statements.

F-47

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

FDIC Indemnification Asset

Because the FDIC will reimburse the Company for certain amounts related to certain acquired loans and other real estate owned should the Company experience a loss, an indemnification asset is also recorded at fair value at the acquisition date. The indemnification asset is recognized at the same time as the indemnified loans, and measured on the same basis, subject to collectability or contractual limitations. The indemnification asset on the acquisition date reflect the reimbursements expected to be received from the FDIC, using an appropriate discount rate, which reflects counterparty credit risk and other uncertainties.

Subsequent to initial recognition, the indemnification asset continues to be measured on the same basis as the related indemnified loans and the loss share receivable is impacted by changes in estimated cash flows associated with these loans. Deterioration in the credit quality on expected cash flows of the loans (immediately recorded as an adjustment to the allowance for loan losses) would immediately increase the loss share receivable, with the offset recorded through the consolidated statement of income. Increases in the credit quality or cash flows of loans (reflected as an adjustment to yield and accreted into income over the remaining life of the loans) decrease the basis of the indemnification asset, with such decrease being amortized into income over 1) the life of the loan or 2) the life of the shared loss agreements, whichever is shorter. Loss assumptions used in the basis of the indemnified loans are consistent with the loss assumptions used to measure the indemnification asset. Fair value accounting incorporates into the fair value of the indemnification asset an element of the time value of money, which is accreted back into income over the life of the shared loss agreements.

Upon the determination of an incurred loss the indemnification asset will be reduced by the amount owed by the FDIC. A corresponding claim receivable is recorded until cash is received from the FDIC.

Loans Held for Sale

Certain residential fixed rate mortgage loans originated by the Company are sold servicing released to third parties immediately. Certain of these sales are subject to temporary recourse provisions. The recourse provisions may require the repurchase of the outstanding balance of loans which default within a limited period of time subsequent to the sale of the loan. The recourse periods vary by investor and extend up to seven months subsequent to the sale of the loan. All origination fees are recognized as income at the time of the sale. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. As of December 31, 2010, the Company had mortgage loans originated for sale of $10,492 classified within the caption “Other assets” in the consolidated balance sheet. The Company and its acquired operations have not historically experienced significant losses resulting from the recourse provisions described above. Accordingly, management believes that no such provision or allowance is necessary as of December 31, 2010.

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses, which is increased by the provision for loan losses and decreased by charge-offs less recoveries. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required based on factors including past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic

F-48

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually internally classified as impaired. The general component covers nonimpaired loans and is based on subjective factors and historical loss experience adjusted for current factors.

A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract or when the loan contract terms have been modified resulting in a concession of terms and where the borrower is experiencing financial difficulty. Generally, individual commercial, commercial real estate and residential loans exceeding $500 are individually evaluated for impairment. If a loan is considered to be impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the lesser of the recorded investment in the loan or the fair value of collateral if repayment is expected solely from the collateral. Generally, large groups of smaller balance homogeneous loans, such as consumer, indirect, and residential real estate loans (other than those evaluated individually), are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Premises and Equipment

Land is carried at cost. Premises and equipment are reported at cost less accumulated depreciation. For financial reporting purposes, premises and equipment are depreciated using the straight-line method over their estimated useful lives. Expenditures for maintenance and repairs are charged to operations as incurred, while major renewals and betterments are capitalized. For Federal income tax reporting purposes, depreciation is computed using primarily accelerated methods.

Operating Leases

Rent expense for the Company’s operating leases is recorded on a straight-line basis over the initial lease term and those renewal periods that are reasonably assured. It is common for lease agreements to contain various provisions for items such as step rent or other escalation clauses and lease concessions, which may offer a period of no rent payment. These types of items are considered by the Company and are recorded into expense on a straight line basis over the minimum lease terms. Certain leases require the Company to pay property taxes, insurance and routine maintenance.

Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure or repossession are generally held for sale and are initially recorded at the lesser of their recorded investment or fair value less cost to sell when acquired, establishing a new cost basis. If fair value subsequently declines, a valuation allowance is recorded through expense so that the asset is reported at the lower of cost or fair value less cost to sell. Costs incurred after acquisition are generally expensed.

Goodwill

Goodwill represents the future economic benefits arising from other assets acquired that are not individually identified and separately recognized. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment annually or more frequently when events or circumstances indicate impairment may have occurred.

F-49

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

Goodwill impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value, which is determined through a two-step impairment test. Step 1 includes the determination of the carrying value of a reporting unit, including the existing goodwill and intangible assets, and estimating the fair value of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, we are required to perform a second step to the impairment test. Step 2 of the goodwill impairment test is performed to measure the impairment loss. Step 2 requires that the implied fair value of the reporting unit goodwill be compared to the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is required to be recognized in an amount equal to that excess.

Long-lived Assets and Other Intangible Assets

Long-lived assets, including premises and equipment, core deposit base premiums arising from acquisitions and other intangible assets, are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are written down to fair value.

Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. The only intangible asset with an indefinite life on the Company’s balance sheet is goodwill. Other intangible assets include core deposit base premiums arising from acquisitions and are initially measured at fair value. Amortization expense associated with intangible assets is recognized in other expense on the income statement using the straight-line method over estimated lives of four to ten years, which is consistent with the use of the assets.

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Company Owned Life Insurance

The Company’s owns life insurance polices on certain current and former directors and employees of its subsidiaries. These policies are recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement, if applicable.

Income Taxes

Income tax expense (or benefit) is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefit related to such assets will not be realized. As of December 31, 2010,

F-50

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

management considered the need for a valuation allowance and, based upon its assessment of the relative weight of the positive and negative evidence available at the time of the analysis, concluded that a valuation allowance was not necessary.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Earnings (Loss) Per Common Share

Basic earnings (loss) per share is net income (loss) allocated to common shareholders divided by the weighted average number of common shares and vested restricted shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options, warrants and restricted shares computed using the treasury stock method.

Since there were no dilutive stock options, restricted stock awards or warrants outstanding during the periods reported, earnings (loss) per share has been computed based on 38,206 and 8,244 basic and diluted shares for the year ended December 31, 2010 and the period ended December 31, 2009, respectively.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale which are also recognized as separate components of equity.

Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase

Securities purchased under agreements to resell and securities sold under agreements to repurchase are accounted for as collateralized lending and borrowing transactions, respectively, and are recorded at the amounts at which the securities were acquired or sold plus accrued interest. The fair value of collateral either received from or provided to a third party is regularly monitored, and additional collateral is obtained, provided or requested to be returned as appropriate.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are currently any such matters that will have a material effect on the financial statements.

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 15. Fair value estimates include uncertainties and matters of significant

F-51

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

2. Business Combinations and Acquisitions

FDIC-Assisted Purchase and Assumption of Assets and Liabilities of First National Bank of the South, Metro Bank of Dade County and Turnberry Bank

NAFH NB entered into three purchase and assumption agreements with loss share arrangements with the FDIC as receiver during 2010. As part of these agreements, the FDIC also granted NAFH NB an option to purchase at appraised value the premises, furniture, fixtures, and equipment of the acquired institutions and assume the leases associated with these offices.

On July 16, 2010 (the “Transaction Date”), NAFH NB acquired certain assets, assumed all of the deposits, and assumed certain other liabilities of First National Bank of the South (“FNB”), Metro Bank of Dade County (“Metro”) and Turnberry Bank (“Turnberry”) from the FDIC in whole-bank acquisitions.

Each acquisition was accounted for separately under the purchase method of accounting. Both the purchased assets and liabilities assumed were recorded at their respective acquisition date fair values. Identifiable intangible assets, including goodwill, core deposit intangible assets, customer relationships, tradenames and mortgage servicing rights, were recorded at fair value. Because the fair value of assets acquired and intangible assets created as a result of the acquisitions exceeded the fair value of liabilities assumed on the Metro Bank and Turnberry acquistions, the Company recorded gains resulting from the acquisitions in its consolidated statements of income for the year ended December 31, 2010. These gains totaled $15,175. As the fair value of consideration paid in the FNB acquisition exceeded the estimated fair value of net assets acquired, goodwill of $6,616 was recorded.

Certain loans and other real estate owned acquired in these acquisitions are covered by loss share agreements between NAFH NB and the FDIC which afford NAFH NB significant protection against future losses. Under the agreements, the FDIC will cover 80% of losses on the disposition of loans and other real estate owned up to certain thresholds presented in the following table. The term for loss sharing on single-family residential real estate loans is ten years, while the term for loss sharing on nonresidential loans is five years and NAFH NB reimbursement to the FDIC for a total of eight years for recoveries. The reimbursable losses from the FDIC are based on the book value of the relevant loans as determined by the FDIC at the date of the transaction. New loans made after that date are not covered by the provisions of the loss share agreements. As part of the acquisition, NAFH NB has recorded an indemnification asset that represents the estimated fair value of the FDIC’s portion of the losses that are expected to be incurred and reimbursed. The indemnification asset related to incurred losses at December 31, 2010 was $46,585 of which $45,678 was collected through April 18, 2011. The following table also presents the value of the indemnification asset at the acquisition date.

	Loss Threshold		80% of Loss Threshold		Value of Indemnification Asset
FNB	$	123,000	$	98,400	$	71,386
Metro		81,000		64,800		44,191
Turnberry		28,000		22,400		21,739
	$	232,000	$	185,600	$	137,316

F-52

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

NAFH NB has agreed to make a true-up payment, also known as clawback liability, to the FDIC on the date that is 45 days following the last day of the final shared loss month, or upon the final disposition of all covered assets under the loss sharing agreements in the event losses thereunder fail to reach expected levels, not to exceed ten years from the Transaction Date. The estimated fair value of the true-up payment as of the acquisition date was $979.

The acquired assets and liabilities are presented in the following table at fair value at the acquisition date.

	FNB		Metro		Turnberry			Total
Assets
Cash	$	64,728	$	79,267	$	40,353		$	184,348
Investment securities		40,564		30,333		3,495			74,392
Loans		389,603		226,826		152,125			768,554
Other real estate owned		20,832		7,547		5,439			33,818
Core deposit and other intangible assets		2,214		1,400		600			4,214
Goodwill		6,616		–		–			6,616
Indemnification asset		71,386		44,191		21,739			137,316
Other assets		6,315		3,921		4,392			14,628
Total assets		602,258		393,485		228,143			1,223,886
Liabilities
Interest-bearing deposits		409,614		263,110		161,209			833,933
Noninterest-bearing deposits		38,718		73,271		14,192			126,181
Borrowings		57,579		31,981		59,024			148,584
Other liabilities		1,868		10,312		6,089			18,269
Total liabilities		507,779		378,674		240,514			1,126,967
Net assets acquired		94,479		14,811		(12,371	)		96,919
Consideration paid (received)		94,479		4,191		(16,926	)		81,744
Gains on acquisitions of banks	$	–	$	10,620	$	4,555		$	15,175

The above estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the Transaction Date and the Company believes that information provides a reasonable basis for estimating the fair values. However, the Company may obtain additional information and evidence during the measurement period that may impact the estimated fair value amounts. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable.

As these acquisitions are FDIC-assisted purchases and assumptions of assets and liabilities of failed institutions, the presentation of pro forma information of the acquired institutions is impracticable.

NAFH Inc. Investment in TIBB

On September 30, 2010, the Company acquired a controlling interest in TIBB for aggregate consideration of $175,000. The consideration was comprised of approximately $162,840 in cash and approximately $12,160 in the form of the contribution to TIBB of all 37,000 shares of preferred stock issued by TIBB to the United States Department of the Treasury under the TARP Capital Purchase Program and the related warrant to purchase shares of TIBB’s Common Stock which the Company purchased directly from the Treasury.

F-53

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

Immediately following the acquisition, the Company controlled 98.7% of the voting securities of TIBB. The following table summarizes the acquisition:

Fair value of assets acquired
Cash and cash equivalents	$	229,665
Securities available for sale		309,320
Loans		1,017,842
Goodwill and intangible assets, net		41,769
Other real estate owned		29,531
Bank officer life insurance—cash surrender value		10,842
Premises and equipment		43,632
Other assets		54,582
Total assets acquired		1,737,183
Fair value of liabilities assumed
Deposits		1,327,663
Long-term debt and other borrowings		208,783
Other liabilities		22,239
Total liabilities assumed		1,558,685
Net assets		178,498
Less: Noncontrolling interest at fair value		5,955
		172,543
Underwriting, due diligence and legal costs		2,457
Purchase consideration	$	175,000

The above estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the acquisition date and the Company believe that information provides a reasonable basis for estimating the fair values. However, the Company may obtain additional information and evidence during the measurement period that may impact the estimated fair value amounts. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable.

There were no indemnification assets identified in this business combination, nor were there any contingent consideration assets or liabilities to be recognized.

The following table reflects the pro forma total net interest income, non interest income and net loss for 2010 presented as though the acquisition of TIB Financial Corp. had taken place at the beginning of the period. The pro forma results are not necessarily indicative of the results of operations that would have occurred had the acquisition actually taken place on the first day of the respective periods, nor of future results of operations. As the inception of the Company’s operations was November 30, 2009, pro forma information for the period from inception to December 31, 2009 was deemed not material for presentation.

	Pro Forma (Unaudited)
	Year Ended December 31, 2010
Net interest income	$	69,393
Non-interest income	$	28,941
Net loss	$	(40,775	)

F-54

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

3. Cash and Due From Banks

The Banks are required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing requirements. The reserve requirement at December 31, 2010 for NAFH NB was $500. The regulatory reserve and clearing balance requirements for TIB Bank was $2,393 at December 31, 2010.

4. Investment Securities

As of December 31, 2010, the Company’s security portfolio consisted of 106 securities positions, 77 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company’s collateralized debt obligation, corporate bonds and mortgage-backed and other securities, as discussed below.

The amortized cost, estimated fair value, and the related gross unrealized gains and losses recognized in accumulated other comprehensive income of investment securities at December 31, 2010 are presented below:

Held to Maturity	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Foreign government	$	250	$	–	$	–	$	250
	$	250	$	–	$	–	$	250

Available for Sale	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Government agencies and corporations	$	49,497	$	18	$	382	$	49,133
States and political subdivisions—tax exempt		5,918		2		128		5,792
States and political subdivisions—taxable		9,540		41		227		9,354
Mortgage-backed securities—residential		415,961		948		4,696		412,213
Marketable equity securities		102		–		28		74
Corporate bonds		2,104		1		–		2,105
Collateralized debt obligations		807		–		12		795
	$	483,929	$	1,010	$	5,473	$	479,466

Securities with unrealized losses not recognized in income, and the period of time they have been in an unrealized loss position as of December 31, 2010, are as follows:

	Less than 12 Months				12 Months or Longer				Total
Available for Sale	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	20,725	$	382	$	–	$	–	$	20,725	$	382
States and political subdivisions—tax exempt		5,191		128		–		–		5,191		128
States and political subdivisions—taxable		8,198		227		–		–		8,198		227
Mortgage-backed securities—Residential		255,676		4,696		–		–		255,676		4,696
Marketable equity securities		74		28		–		–		74		28
Corporate bonds		–		–		–		–		–		–
Collateralized debt obligations		795		12		–		–		795		12
	$	290,659	$	5,473	$	–	$	–	$	290,659	$	5,473

F-55

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

The mortgage-backed securities in an unrealized loss position at December 31, 2010, were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is more likely than not that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at December 31, 2010.

The estimated fair value of investment securities available for sale at December 31, 2010, by contractual maturity, are shown as follows. Expected maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	Held to Maturity		Yield			Available for Sale		Yield
Due in one year or less	$	250		5.10	%	$	2,290		1.08	%
Due after one year through five years		–					18,409		0.74	%
Due after five years through ten years		–					26,104		1.41	%
Due after ten years		–					20,376		3.83	%
Marketable equity securities		–					74		N/A
Mortgage-backed securities		–					412,213		2.46	%
	$	250				$	479,466

At December 31, 2010, securities with a fair value of approximately $44,784 are subject to call during 2011.

Sales of available for sale securities were as follows:

	Year Ended December 31, 2010
Proceeds	$	22,204
Gross gains		–
Gross losses		–

Proceeds from the maturities, principal repayments, and calls of investment securities available for sale during 2010 were $87,173.

Investment securities having carrying values of approximately $145,338 at December 31, 2010 were pledged to secure public funds on deposit, securities sold under agreements to repurchase, and for other purposes as required by law.

F-56

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

5. Loans

Major classifications of loans are as follows:

Real estate mortgage loans
Commercial	$	1,020,921
Residential		318,977
Farmland		21,290
Construction and vacant land		130,019
Commercial and agricultural loans		103,524
Indirect auto loans		28,038
Home equity loans		104,955
Other consumer loans		14,807
Total loans		1,742,531
Net deferred loan costs		216
Loans, net of deferred loan costs	$	1,742,747

Covered loans represent loans acquired from the FDIC subject to the loss sharing agreements. Covered loans are further broken out into (i) loans acquired with evidence of credit impairment, which we call purchased credit impaired, and (ii) non PCI loans. Loans originated by the Company and loans acquired through the purchase of TIBB are excluded from the loss sharing agreements and are classified as “not covered”. Additionally, certain consumer loans acquired through the acquisition of failed banks from the FDIC are specifically excluded from the loss sharing agreements.

Loans acquired are recorded at fair value in accordance with the fair value, exclusive of the shared-loss agreements with the FDIC. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. At the time of acquisition, the Company accounted for the impaired purchased loans by segregating each portfolio into loan pools with similar risk characteristics, which included:

• Whether the loan was performing according to contractual terms at the time of acquisition;

• The loan type based on regulatory reporting guidelines, namely whether the loan was a mortgage, consumer, or commercial loan; and

• The nature of collateral.

From these pools, the Company used certain loan information, including outstanding principal balance, estimated expected losses, weighted average maturity, weighted average term to re-price (if a variable rate loan), weighted average margin, and weighted average interest rate to estimate the expected cash flow for each loan pool. Over the life of the acquired loans, the Company continues to estimate cash flows expected to be collected on each loan pool. The Company evaluates, at each balance sheet date, whether the present value of the cash flows from the loan pools, determined using the effective interest rates, has decreased and if so, recognizes a provision for loan loss in its consolidated statement of income. For any increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the loan’s or pool’s remaining life.

F-57

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

Purchased credit-impaired loans for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

	FNB			Metro Bank			Turnberry			TIBB			Total
Contractually required payments of PCI loans acquired	$	488,580		$	342,297		$	259,720		$	1,335,327		$	2,425,924
Nonaccretable difference		(127,418	)		(114,426	)		(111,148	)		(84,691	)		(437,683	)
Cash flows expected to be collected at acquisition	$	361,162		$	227,871		$	148,572		$	1,250,636		$	1,988,241
Accretable yield		(19,894	)		(13,345	)		(13,331	)		(276,715	)		(323,285	)
Fair value of acquired loans at acquisition	$	341,268		$	214,526		$	135,241		$	973,921		$	1,664,956

Accretable yield, or income expected to be collected, related to purchased credit-impaired loans is as follows:

Balance, December 31, 2009	$	–
New loans purchased		323,285
Accretion of income		(30,480	)
Reclassifications from nonaccretable difference		–
Disposals		–
Balance, December 31, 2010	$	292,805

The contractually required payments represent the total undiscounted amount of all uncollected contractual principal and contractual interest payments both past due and scheduled for the future, adjusted for the timing of estimated prepayments and any full or partial charge-offs prior to acquisition by NAFH. Nonaccretable difference represents contractually required payments in excess of the amount of estimated cash flows expected to be collected. The accretable yield represents the excess of estimated cash flows expected to be collected over the initial fair value of the PCI loans, which is their fair value at the time of acquisition by NAFH. The accretable yield is accreted into interest income over the estimated life of the PCI loans using the level yield method. The accretable yield will change due to changes in:

• The estimate of the remaining life of PCI loans which may change the amount of future interest income, and possibly principal, expected to be collected;

• The estimate of the amount of contractually required principal and interest payments over the estimated life that will not be collected (the nonaccretable difference); and

• Indices for PCI loans with variable rates of interest.

PCI loans accounted for using the cost recovery method amounted to $124,650 as of December 31, 2010. Each of these loans is on nonaccrual status. PCI loans that have an accretable difference are not included in disclosures of nonperforming balances even though the borrower may be contractually past due.

For PCI loans, the impact of loan modifications is included in the evaluation of expected cash flows for subsequent decreases or increases of cash flows. For variable rate PCI loans, expected future cash flows will be recalculated as the rates adjust over the lives of the loans. At acquisition, the expected future cash flows were based on the variable rates that were in effect at that time.

Because of the loss protection provided by the FDIC, the risks of NAFH NB’s loans and foreclosed real estate are significantly different from those assets not covered under the loss share agreement. Accordingly, the Company presents loans subject to the loss share agreements as “covered loans” in the information below and loans that are not subject to the loss share agreement as “noncovered loans.”

F-58

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

Noncovered Loans

The following is a summary of the major categories of noncovered loans outstanding as of December 31, 2010:

	PCI Loans		Non PCI Loans		Total Noncovered Loans
Real estate mortgage loans
Commercial	$	599,820	$	18,043	$	617,863
Residential		213,982		15,918		229,900
Farmland		12,083		–		12,083
Construction and vacant land		38,956		1,864		40,820
Commercial and agricultural loans		55,741		15,633		71,374
Indirect auto loans		21,743		6,295		28,038
Home equity loans		4,353		27,010		31,363
Other consumer loans		8,805		6,001		14,806
Total loans		955,483		90,764		1,046,247
Net deferred loan costs		–		216		216
Loans, net of deferred loan costs	$	955,483	$	90,980	$	1,046,463

The Bank had no troubled debt restructurings (“TDR”) or nonaccrual loans in its noncovered loan portfolio at December 31, 2010.

Covered Loans

The following is a summary of the major categories of covered loans outstanding as of December 31, 2010:

	PCI Loans		Non PCI Loans		Total Covered Loans
Real estate mortgage loans
Commercial	$	403,059	$	–	$	403,059
Residential		89,077		–		89,077
Farmland		9,207		–		9,207
Construction and vacant land		89,199		–		89,199
Commercial and agricultural loans		29,592		2,558		32,150
Home equity loans		–		73,592		73,592
Total loans	$	620,134	$	76,150	$	696,284

F-59

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

The following table presents the aging of the recorded investment in past due loans, based on contractual terms, as of December 31, 2010 by class of loans:

Non-purchased credit impaired loans

30-89 Days Past Due

Greater than 90 Days Past Due and Still Accruing/Accreting

Nonaccrual

Total

Covered

Non-Covered

Covered

Non-Covered

Covered

Non-Covered

Commercial real estate:

Land, lot and construction

$

–

$

–

$

–

$

–

$

–

$

–

$

–

Real estate- non-owner occupied

–

–

–

–

–

–

–

Real estate—owner occupied

–

–

–

–

–

–

–

Consumer real estate:

Residential mortgage

–

–

–

–

–

–

–

Home equity lines

1,237

405

2,868

636

–

–

5,146

Commercial and industrial

135

266

–

–

–

–

401

Prime indirect auto loans

–

–

–

–

–

–

–

Sub-prime indirect auto loans

–

–

–

–

–

–

–

Other consumer loans

–

15

–

–

–

–

15

Total loans

$

1,372

$

686

$

2,868

$

636

$

–

$

–

$

5,562

Purchased credit impaired loans	30-89 Days Past Due				Greater than 90 Days Past Due and Still Accruing/Accreting				Nonaccrual				Total
	Covered		Non-Covered		Covered		Non-Covered		Covered		Non-Covered
Commercial real estate:
Land, lot and construction	$	5,978	$	1,776	$	51,075	$	8,217	$	–	$	–	$	67,046
Real estate—non-owner occupied		7,601		9,221		33,615		12,020		–		–		62,457
Real estate—owner occupied		9,905		2,237		12,696		22,616		–		–		47,454
Consumer real estate:
Residential mortgage		5,704		1,713		33,416		12,263		–		–		53,096
Home equity lines		1,039		–		1,675		8		–		–		2,722
Commercial and industrial		1,168		1,175		1,916		400		–		–		4,659
Prime indirect auto loans		–		191		–		49		–		–		240
Sub-prime indirect auto loans		–		534		–		83		–		–		617
Other consumer loans		–		367		–		265		–		–		632
Total loans	$	31,395	$	17,214	$	134,393	$	55,921	$	–	$	–	$	238,923

Purchased credit-impaired loans are not classified as nonaccrual as they are considered to be accruing because their interest income relates to the accretable yield recognized under accounting for purchased credit-impaired loans and not to contractual interest payments.

There were no troubled debt restructurings as of December 31, 2010.

F-60

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings:

• Pass—These loans range from superior quality with minimal credit risk to loans requiring heightened management attention but that are still an acceptable risk and continue to perform as contracted.

• Special Mention—Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

• Substandard—Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

• Doubtful—Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The following table summarizes loans, excluding purchased credit-impaired loans, monitored for credit quality based on internal ratings at December 31, 2010:

	Pass		Special Mention		Substandard		Doubtful		Total
Real estate mortgage loans:
Commercial	$	18,043	$	–	$	–	$	–	$	18,043
Residential		15,918		–		–		–		15,918
Construction and vacant land		1,535		162		167		–		1,864
Commercial and agricultural		15,547		127		2,517		–		18,191
Indirect auto loans		6,295		–		–		–		6,295
Home equity loans		76,058		9,818		9,784		4,942		100,602
Other consumer loans		5,914		–		87		–		6,001
Total loans	$	139,310	$	10,107	$	12,555	$	4,942	$	166,914

6. FDIC Indemnification Asset

The following is a summary of the year to date activity in the FDIC indemnification asset.

Balance, December 31, 2009	$	–
Increase due to acquisitions		137,316
Accretion		736
Reimbursable losses claimed		(46,585	)
Balance, December 31, 2010	$	91,467

F-61

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

7. Allowance for Loan Losses

Activity in the allowance for loan losses is as follows:

Balance, December 31, 2009	$	–
Provision for loan losses charged to expense		753
Loans charged off		–
Recoveries of loans previously charged off		–
Balance, December 31, 2010	$	753

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2010:

	Allowance for Loan Losses						Loans
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased Credit- Impaired		Individually Evaluated for Impairment		Collectively Evaluated for Impairment(1)		Purchased Credit- Impaired
Real estate mortgage loans:
Commercial	$	–	$	149	$	–	$	–	$	18,043	$	1,024,169
Residential		–		215		–		–		15,918		303,059
Construction and vacant land		–		25		–		–		1,864		128,155
Commercial and agricultural		–		133		–		–		18,191		85,333
Indirect auto loans		–		184		–		–		6,295		21,744
Home equity loans		–		33		–		–		100,602		4,353
Other consumer loans		–		14		–		–		6,001		8,804
Total loans	$	–	$	753	$	–	$	–	$	166,914	$	1,575,617

(1) Loans collectively evaluated for impairment include $97,987 of acquired home equity loans, $5,827 of commercial and agricultural loans and $4,935 of other consumer loans which are presented net of unamortized purchase discounts of $(25,025), (279), and (46), respectively.

There were no loans individually evaluated for impairment at December 31, 2010 or during the three months ended December 31, 2010, due to substantially all loans being accounted for as purchased credit-impaired loans as a result of the Company’s recent acquisitions. No allowance for loan losses was recorded for those purchased credit-impaired loans disclosed above during the three months ended December 31, 2010.

8. Premises and Equipment

A summary of the cost and accumulated depreciation of premises and equipment follows:

	Balance as of December  31, 2010			Estimated Useful Life
Land	$	13,891
Buildings and leasehold improvements		25,133		3 to 40 years
Furniture, fixtures and equipment		5,595		1 to 40 years
Construction in progress		259
		44,878
Less: Accumulated depreciation		(800	)
Premises and equipment, net	$	44,078

F-62

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

The Company is obligated under operating leases for office and banking premises which expire in periods varying from one to twenty-two years. Future minimum lease payments, before considering renewal options that generally are present, are as follows at December 31, 2010:

Years Ending December 31,
2011	$	3,062
2012		1,996
2013		1,689
2014		1,655
2015		1,244
Thereafter		15,145
	$	24,791

Rental expense for the year ended December 31, 2010 was $1,351.

9. Goodwill and Intangible Assets

The ending balance of goodwill as of December 31, 2010 is $36,616 of which $30,000 and $6,616 is related to the Company’s 2010 acquisitions of TIBB and FNB, respectively.

The Company applied “acquisition accounting” for all of its acquisitions during 2010. Acquisition accounting requires that the assets purchased, the liabilities assumed, and non-controlling interests all be reported in the acquirer’s financial statements at their fair value, with any excess of purchase consideration over the net assets being reported at fair value being recorded as goodwill.

Changes in intangible assets during the year ended December 31, 2010 consist of the following:

	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Balance, December 31, 2009	$	–	$	–	$	–
Core deposit intangible due to acquisition of NAFH NB		4,100		454		3,646
Mortgage servicing right due to acquisition of NAFH NB		114		12		102
Core deposit intangible due to acquisition of TIBB		7,500		188		7,312
Customer relationship intangible due to acquisition of TIBB		3,500		87		3,413
Trade names due to acquisition of TIBB		770		89		681
Balance, December 31, 2010	$	15,984	$	830	$	15,154

All of the identified intangible assets are amortized as noninterest expense over their estimated lives.

Estimated amortization expense for each of the next five years is as follows:

Years ending December 31,
2011	$	2,509
2012		2,420
2013		2,154
2014		1,686
2015		1,100
	$	9,869

F-63

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

10. Other Real Estate Owned

The activity within Other Real Estate Owned for the year ended December 31, 2010 was as follows:

Balance, December 31, 2009	$	–
OREO acquired through acquisitions		63,349
Real estate acquired from borrowers		19,721
Property sold		(12,253	)
Balance, December 31, 2010	$	70,817

11. Time Deposits

Time deposits of $100 or more were $703,567 at December 31, 2010.

At December 31, 2010, the scheduled maturities of time deposits are as follows:

Years Ending December 31,
2011	$	1,004,708
2012		248,638
2013		70,882
2014		5,234
2015		24,048
	$	1,353,510

12. Short-Term Borrowings and Federal Home Loan Bank Advances

Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, advances from the Federal Home Loan Bank, and a Treasury, tax and loan note option.

As of December 31, 2010, TIB Bank had an unsecured overnight federal funds purchased line with a maximum accommodation of $30,000 from a correspondent bank. Additionally, TIB Bank has agreements with various financial institutions under which securities can be sold under agreements to repurchase. The Banks also have securities sold under agreements to repurchase with commercial account holders whereby the Banks sweep the customer’s accounts on a daily basis and pay interest on these amounts. These agreements are collateralized by investment securities chosen by the Banks.

TIB Bank accepts Treasury, tax and loan deposits from certain commercial depositors and remits these deposits to the appropriate government authorities. TIB Bank can hold up to $1,700 of these deposits more than a day under a note option agreement with its regional Federal Reserve Bank and pays interest on those funds held. TIB Bank pledges certain investment securities against this account.

As of December 31, 2010, TIB Bank’s collateral availability under its agreement with the Federal Reserve Bank of Atlanta (“FRB”) provided for up to approximately $39,653 of borrowing availability from the FRB discount window.

NAFH NB assumed an agreement with another financial institution in which securities had been sold which would be repurchased at a future date. The interest rates on these repurchase agreements are fixed for the remaining term of the agreement. The outstanding fair value amount at December 31, 2010 was $10,015,

F-64

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

matured in January 2011, and had a fixed interest rate of 5.16%. As of December 31, 2010, $11,203 of securities of the United States Government or its agencies were pledged to collateralize these borrowings.

The Banks have securities sold under agreements to repurchase with customers whereby the Banks sweep the customers’ accounts on a daily basis and pay interest on these amounts. These agreements are collateralized by investment securities of the United States Government or its agencies which are chosen by the Banks.

The Banks invest in Federal Home Loan Bank stock for the purpose of establishing credit lines with the Federal Home Loan Bank. The credit availability to the Banks is based on a percentage of each Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. At December 31, 2010, in addition to $25,150 in letters of credit used in lieu of pledging securities to the State of Florida, TIB Bank had $125,000 in advances outstanding with a carrying value of $131,116. NAFH Bank had FHLB advances outstanding with a face value of $105,833 and a carrying value of $111,951. The advances for both Banks consist of the following:

Carrying Amount		Contractual Outstanding Amount		Maturity Date	Repricing Frequency	Contractual Rate at December 31, 2010
	NAFH Bank
	$  5,001	$	5,000	February 2011	Fixed		0.51	%
	3,011		3,000	March 2011	Fixed		2.12	%
	3,013		3,000	May 2011	Fixed		1.65	%
	5,102		5,000	June 2011(a)	Fixed		4.95	%
	5,106		5,000	June 2011(a)	Fixed		5.04	%
	5,058		5,000	July 2011(a)	Fixed		2.81	%
	1,547		1,250	September 2011	Fixed		2.99	%
	1,077		1,250	September 2011	Fixed		3.58	%
	465		357	October 2011	Fixed		3.91	%
	5,203		5,000	January 2012(a)	Fixed		4.56	%
	571		476	April 2012	Fixed		4.70	%
	5,265		5,000	May 2012(a)	Fixed		4.59	%
	7,695		7,500	March 2013	Fixed		2.29	%
	4,308		4,000	March 2013	Fixed		4.58	%
	5,155		5,000	June 2013(a)	Fixed		2.27	%
	5,528		5,000	May 2014(a)	Fixed		4.60	%
	5,552		5,000	June 2014(a)	Fixed		4.66	%
	5,215		5,000	February 2015	Fixed		2.83	%
	5,391		5,000	June 2015	Fixed		3.71	%
	5,426		5,000	July 2015(a)	Fixed		3.57	%
	5,734		5,000	June 2017(a)	Fixed		4.58	%
	5,523		5,000	November 2017(b)	Fixed		3.93	%
	5,613		5,000	July 2018(a)	Fixed		3.94	%
	5,198		5,000	July 2018(a)	Fixed		2.14	%
	5,194		5,000	July 2018(a)	Fixed		2.12	%

F-65

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

Carrying Amount		Contractual Outstanding Amount		Maturity Date	Repricing Frequency	Contractual Rate at December 31, 2010
	TIB Bank
	53,502		50,000	April 2013(a)	Fixed		3.80	%
	51,790		50,000	December 2011(a)	Fixed		4.18	%
	10,586		10,000	September 2012(a)	Fixed		4.05	%
	10,009		10,000	March 2011	Fixed		0.61	%
	5,229		5,000	March 2012(a)	Fixed		4.29	%
	$243,067	$	230,833

(a) These advances have quarterly conversion dates. If the FHLB chooses to convert the advance, the Bank has the option of prepaying the entire balance without penalty. Otherwise, the advance will convert to an adjustable rate, repricing on a quarterly basis. If the FHLB does not convert the advance, it will remain at the contracted fixed rate until the maturity date.

(b) This advance has a one-time conversion option in November 2012.

The Banks’ collateral with the FHLB consists of a blanket floating lien pledge of the Banks’ respective residential 1-4 family mortgage and commercial real estate secured loans. The amount of eligible collateral at December 31, 2010 was $187,722 and $121,840 for TIB Bank and NAFH Bank, respectively.

13. Long Term Borrowings

Subordinated Debentures

Through its acquisition of TIBB, the Company acquired three separate pooled offerings of trust preferred securities. The Company is not considered the primary beneficiary of the trusts (variable interest entities), therefore the trusts are not consolidated in the Company’s consolidated financial statements, but rather the subordinated debentures are presented as a liability.

TIBB formed three wholly-owned statutory trust subsidiaries for the purpose of issuing the trust preferred securities. The Trusts used the proceeds from the issuance of trust preferred securities to acquire junior subordinated deferrable interest debentures of TIBB. The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend equal to the interest rate on the debt securities. The debt securities and the trust preferred securities each have 30-year lives. The trust preferred securities and the debt securities are callable by TIBB or the Trust, at their respective option after a period of time outlined below, and at varying premiums and sooner in specific events, subject to prior approval by the Federal Reserve Board (“FRB”), if then required. Pursuant to a request from the FRB, the Company’s subsidiary TIBB, prior to its acquisition by the Company, elected to defer interest payments on these trust preferred securities beginning with the payments due in October 2009. As of December 31, 2010, the Company remained in an elective deferral period. Deferral of the trust preferred securities is allowed for up to 60 months without being considered an event of default.

Date of Offering	Face Amount		Carrying Amount		Interest Rate	Call Date	Maturity Date
September 7, 2000	$	8,000	$	8,865	10.6% Fixed	September 7, 2010	September 7, 2030
July 31, 2001		5,000		3,674	3.87% (3 Month LIBOR plus 358 basis points)	July 31, 2006	July 31, 2031
June 23, 2006		20,000		10,348	1.84% (3 Month LIBOR plus 155 basis points)	June 23, 2011	June 23, 2036

F-66

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

At December 31, 2010, the maturities of long-term borrowings were as follows:

	Fixed Rate		Floating Rate		Total
Due in 2011	$	–	$	–	$	–
Due in 2012		–		–		–
Due in 2013		–		–		–
Due in 2014		–		–		–
Thereafter		8,865		14,022		22,887
Total long-term debt	$	8,865	$	14,022	$	22,887

14. Income Taxes

Income tax expense (benefit) from continuing operations was as follows:

	2010			2009
Current income tax provision
Federal	$	4,491		$	–
State		550			–
		5,041			–
Deferred tax benefit
Federal		(4,949	)		(41	)
State		(1,133	)		(9	)
		(6,082	)		(50	)
	$	(1,041	)	$	(50	)

A reconciliation of income tax computed at applicable Federal statutory income tax rates to total income taxes reported is as follows:

	2010			2009
Pretax income from continuing operations	$	10,996		$	(142	)
Income taxes computed at Federal statutory tax rate		3,849			50
Effect of:
Purchase Accounting Gain		(5,371	)		–
TCA Legal Costs		860			–
Tax-exempt income, net		(77	)		–
State income taxes, net		(423	)		–
Other, net		121			–
Total income tax expense (benefit)	$	(1,041	)	$	50

F-67

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

The details of the net deferred tax asset as of December 31, 2010 and 2009 are as follows:

	2010			2009
Clawback Reserve Liability	$	394		$	–
Goodwill		7,910			–
OREO Write Down Allowance		7,850			–
FHLB Borrowings		2,397			–
CD Premium		1,207			–
Allowance for loan losses		290			–
Purchase accounting adjustment		30,428			–
Net operating loss and AMT carryforward		5,319			50
Recognized impairment of other real estate owned		–			–
Acquisition related intangibles		2,372			–
Net unrealized losses on securities available for sale		1,716			–
Other		–			–
Total gross deferred tax assets	$	59,883		$	50
FDIC Indemnification Assets	$	(35,284	)	$	–
Deferred loan costs		(83	)		–
Acquisition related intangibles		(1,957	)		–
Other		(5,770	)		–
Total gross deferred tax liabilities	$	(43,094	)	$	–
Net temporary differences		16,789			–
Valuation allowance		–			–
Net deferred tax asset	$	16,789		$	50

A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefit related to such assets will not be realized. In assessing the need for a valuation allowance, management considered various factors including projections of future operating results as well as the significant cumulative losses incurred by the operations acquired from the FDIC in recent years. These factors represent the most significant positive and negative evidence that management considered in concluding that no valuation allowance was necessary at December 31, 2010.

At December 31, 2010, the Company had Federal and state net operating loss carryforwards of $13,737, which expire in 2030 if unused. These net operating loss carryforwards resulted from the acquisition of TIBB and are subject to an annual limitation estimated to be $723.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the states of Florida, South Carolina and North Carolina.

At December 31, 2010, the Company had no amounts recorded for uncertain tax positions. The Company does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.

F-68

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

15. Employee Benefit Plans

TIBB maintains an Employee Stock Ownership Plan with 401(k) provisions that covers all employees who are qualified as to age and length of service. Three types of contributions can be made to the Plan by the Company and participants: basic voluntary contributions which are discretionary contributions made by all participants; a matching contribution, whereby the Company will match 50 percent of salary reduction contributions up to 5 percent of compensation; and an additional discretionary contribution which may be made by the Company and allocated to the accounts of participants on the basis of total relative compensation. The Company contributed $83 during 2010 to the plan.

TIB Bank entered into salary continuation agreements with several of its executive officers. The plans are nonqualified deferred compensation arrangements that were designed to provide supplemental retirement income benefits to participants. In 2010, following the investment by NAFH Inc. and the TARP repayment, the salary continuation agreements were terminated and the executives each received a lump sum distribution of their respective accrued benefit earned under their agreement. The Bank has purchased single premium life insurance policies on several of these individuals. In 2010, following the acquisition by the Company, the salary continuation agreements were terminated and the executives each received a lump sum distribution of their respective accrued benefit earned under their agreement resulting in a total payout of $1,305. Cash value income (net of related insurance premium expense) totaled $66 for 2010.

In 2001, TIB Bank established a nonqualified retirement benefit plan for eligible Bank directors. Under the plan, the Bank pays each participant, or their beneficiary, the amount of directors fees deferred and interest in 120 equal monthly installments, beginning the month following the director’s normal retirement date. In 2011 the director deferred agreements were terminated and the directors participating in the plan each received a lump sum distribution of their respective deferral account balances. The Company expensed $9 in 2010 for the accrual of the retirement benefits. The Company owns single premium split dollar life insurance policies on these individuals. Cash value income (net of related insurance premium expense) totaled $38 during 2010. In 2011 the director deferred agreements were terminated and the directors participating in the plan each received a lump sum distribution of their respective deferral account balances resulting in a total payout of $431 by the Company.

16. Shareholders’ Equity and Minimum Regulatory Capital Requirements

The Company (on a consolidated basis) and the Banks are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements results in certain discretionary and required actions by regulators that could have an effect on the Company’s operations. The regulations require the Company and the Banks to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

F-69

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

Capital Adequacy and Ratios

To be considered well capitalized and adequately capitalized (as defined) under the regulatory framework for prompt corrective action, the Banks must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based ratios. At December 31, 2010 the Banks maintained capital ratios exceeding the requirements to be considered well capitalized. These minimum amounts and ratios along with the actual amounts and ratios for the Company, TIBB and the Banks at December 31, 2010 are presented in the following table.

	Well Capitalized Requirement				Adequately Capitalized Requirement				Actual
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 Capital
(to Average Assets)
Consolidated		N/A		N/A	³	$137,767	³	4.0%	$	838,475		24.3%
TIBB		N/A		N/A	³	67,763	³	4.0%		139,596		8.2%
TIB Bank	³	$84,285	³	5.0%	³	67,428	³	4.0%		136,764		8.1%
NAFH NB	³	60,119	³	5.0%	³	48,095	³	4.0%		145,632		12.1%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated		N/A		N/A	$	80,201	³	4.0%	$	838,475		41.8%
TIBB		N/A		N/A		41,750	³	4.0%		139,596		13.4%
TIB Bank	³	$62,616	³	6.0%		41,744	³	4.0%		136,764		13.1%
NAFH NB	³	51,167	³	6.0%		34,112	³	4.0%		145,632		17.1%
Total Capital (to
Risk Weighted Assets)
Consolidated		N/A		N/A	³	$160,402	³	8.0%	$	839,280		41.9%
TIBB		N/A		N/A		83,501	³	8.0%		140,027		13.4%
TIB Bank	³	$104,360	³	10.0%	³	83,488	³	8.0%		137,195		13.1%
NAFH NB	³	85,279	³	10.0%	³	68,223	³	8.0%		146,006		17.1%

Management believes, as of December 31, 2010, that the Company, TIBB and the Banks meet all capital requirements to which they are subject.

Under state banking law, regulatory approval will be required if the total of all dividends declared in any calendar year by a bank exceeds the bank’s net profits to date for that year combined with its retained net profits for the preceding two years. Declaration of any dividends by TIB Bank in 2010 would have required regulatory approval. During 2010, no dividends were declared by the Banks.

17. Stock-Based Compensation

As of December 31, 2010, the Company has one compensation plan under which shares of its common stock are issuable in the form of stock options, stock appreciation rights, restricted stock restricted stock units, stock awards and stock bonus awards. This is its 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan was effective December 22, 2009 and expires on December 22, 2019, the tenth anniversary of the effective date. The maximum number of shares of common stock of the Company that may be optioned or awarded through the 2019 expiration of the plan is 5,750 shares of which up to 70% may be granted pursuant to stock options and up to 30% may be granted pursuant to restricted stock and restricted stock

F-70

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

units. If any awards granted under the Plan are forfeited or any option terminates, expires or lapses without being exercised, or any award is settled for cash, the shares of stock shall again be available for awards under the Plan. As of December 31, 2010 no awards had been granted.

As of December 31, 2010, TIBB has one compensation plan under which shares of its common stock are issuable in the form of stock options, restricted shares, stock appreciation rights, performance shares or performance units. This is its 2004 Equity Incentive Plan (the “2004 Plan”), which was approved by TIBB’s shareholders at the May 25, 2004 annual meeting. Previously, TIBB had granted stock options under the 1994 Incentive Stock Option and Nonstatutory Stock Option Plan (the “1994 Plan”) as amended and restated as of August 31, 1996. Under the 2004 Plan, the Board of Directors of the Company may grant nonqualified stock–based awards to any director, and incentive or nonqualified stock-based awards to any officer, key executive, administrative, or other employee including an employee who is a director of the Company. At the May 25, 2010 annual meeting, the shareholders approved an amendment to the 2004 Plan increasing the maximum number of shares of common stock of the Company that may be optioned or awarded through the 2014 expiration of the plan to 250 shares, no more than 200 of which may be issued pursuant to awards granted in the form of restricted shares. Such shares may be treasury, or authorized but unissued, shares of common stock of the Company. If options or awards granted under the Plan expire or terminate for any reason without having been exercised in full or released from restriction, the corresponding shares shall again be available for option or award for the purposes of the Plan as long as no dividends have been paid to the holder in accordance with the provisions of the grant agreement. At December 31, 2010 there were 7 exercisable options outstanding under the Plan with a weighted average remaining contractual life of 4.91 years, weighted average exercise price of $688.80 and exercise price range from $158.42 to $1,489.52. Shares available for grant as of December 31, 2010 were 243.

18. Loan Commitments and Other Related Activities

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amount of financial instruments with off-balance-sheet risk was as follows at December 31, 2010:

	Fixed Rate		Variable Rate
Commitments to make loans	$	42,236	$	16,627
Unfunded commitments under lines of credit		21,179		99,850

Commitments to make loans are generally made for periods of 30 days. As of December 31, 2010, the fixed rate loan commitments have interest rates ranging from 2.94% to 11.00% and maturities ranging from 1 year to 30 years.

As of December 31, 2010 the Banks were subject to letters of credit totaling $2,080.

F-71

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

19. Fair Values of Financial Instruments

Accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available for sale can be determined by 1) obtaining quoted prices on nationally recognized securities exchanges when available (Level 1 inputs), 2) matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs) and 3) custom discounted cash flow or other internal modeling (Level 3 inputs).

Valuation of Impaired Loans and Other Real Estate Owned

The fair value of collateral dependent impaired loans with specific allocations of the allowance for loan losses and other real estate owned is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
U.S. Government agencies and corporations	$	49,133	$	–	$	49,133	$	–
States and political subdivisions—tax exempt		5,792		–		5,792		–
States and political subdivisions—taxable		9,354		–		9,354		–
Mortgage-backed securities—residential		412,213		–		412,213		–
Marketable equity securities		74		–		74		–
Corporate bonds		2,105		–		2,105		–
Collateralized debt obligations		795		–		–		795
Available for sale securities	$	479,466	$	–	$	478,671	$	795

F-72

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

Assets and Liabilities Measured on a Nonrecurring Basis

Assets and liabilities measured at fair value on a nonrecurring basis are summarized below:

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Other real estate owned	$	–	$	–	$	70,817
Other repossessed assets		–		137		–

Other real estate owned which is measured at the lesser of fair value less costs to sell or the Company’s recorded investment in the foreclosed loan had a carrying amount of $70,817 as of December 31, 2010. Other repossessed assets are primarily comprised of repossessed vehicles and equipment and are measured at fair value as of the date of repossession.

Carrying amount and estimated fair values of financial instruments were as follows:

	2010				2009
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets
Cash and cash equivalents	$	886,925	$	886,925	$	526,711	$	526,711
Investment securities available for sale		479,466		479,466		–		–
Investment securities held to maturity		250		250		–		–
Loans, net		1,741,994		1,781,181		–		–
FDIC indemnification asset		91,467		91,467		–		–
Federal reserve, federal home loan bank and independent bankers’ bank stock		23,465		23,465		–		–
Accrued interest receivable		8,286		8,286		–		–
Financial Liabilities
Noncontractual deposits	$	906,742	$	906,742	$	–	$	–
Contractual deposits		1,353,510		1,355,099		–		–
Federal home loan bank advances		243,067		242,522		–		–
Short-term borrowings		61,969		61,969		–		–
Subordinated debentures		22,887		25,267		–		–
Accrued interest payable		9,334		9,334		–		–

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, noncontractual demand deposits and certain short-term borrowings. As it is not practicable to determine the fair value of Federal Reserve, Federal Home Loan Bank stock and other bankers’ bank stock due to restrictions placed on its transferability, the estimated fair value is equal to their carrying amount. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer including estimates of discounted cash flows when necessary. For fixed rate loans or contractual deposits and for variable rate loans or deposits

F-73

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life, adjusted for the allowance for loan losses. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of long-term debt is based on current rates for similar financing. The fair value of off-balance sheet items that includes commitments to extend credit to fund commercial, consumer, real estate construction and real estate-mortgage loans and to fund standby letters of credit is considered nominal.

20. Condensed Financial Information of North American Financial Holdings, Inc.

Condensed Balance Sheets

Year Ended December 31, 2010 and Period From November 30, 2009 (Inception) to December 31, 2009

(Parent Only)

	2010		2009
Assets
Cash and due from banks	$	546,995	$	526,711
Investment in bank subsidiary		155,515		–
Investment in bank holding company subsidiary		170,817		–
Accrued interest receivable and other assets		3,749		50
Total assets	$	877,076	$	526,761
Liabilities and Shareholders’ Equity
Accrued interest payable and other liabilities		1,773		441
Shareholders’ equity		875,303		526,320
Total Liabilities and Shareholders’ Equity	$	877,076	$	526,761

Condensed Statements of Income

Year Ended December 31, 2010 and Period From November 30, 2009 (Inception) to December 31, 2009

(Parent Only)

	2010			2009
Operating income
Interest-bearing deposits in other banks	$	3,175		$	72
Total operating income		3,175			72
Operating expense
Salaries		3,635			40
Other expense		10,757			174
Total operating expense		14,392			214
Income (loss) before income tax benefit and equity in undistributed earnings of subsidiaries		(11,217	)		(142	)
Income tax benefit		3,699			50
Loss before equity in undistributed earnings of subsidiaries		(7,518	)		(92	)
Equity in income of subsidiaries		19,548			–
Net income	$	12,030		$	(92	)

F-74

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

Condensed Statements of Cash Flows

Year Ended December 31, 2010 and Period From November 30, 2009 (Inception) to December 31, 2009

(Parent Only)

	2010			2009
Cash flows from operating activities
Net income (loss)	$	12,030		$	(92	)
Equity in income of subsidiaries		(19,548	)		–
Increase (decrease) in net income tax obligation		(3,699	)		(50	)
Change in accrued interest receivable and other assets		1,332			–
Change in accrued interest payable and other liabilities		(1	)		441
Net cash (used in) provided by operating activities		(9,886	)		299
Cash flows from investing activities
Investment in bank subsidiary		(137,000	)		–
Investment in bank holding company subsidiary		(172,543	)		–
Net cash used by investing activities		(309,543	)		–
Cash flows from financing activities
Net proceeds from issuance of common shares		339,713			526,412
Net cash provided by financing activities		339,713			526,412
Net increase in cash and cash equivalents		20,284			526,711
Cash and cash equivalents
Beginning of period		526,711			–
End of period	$	546,995		$	526,711

21. Supplemental Financial Data

Components of other expense in excess of 1 percent of total interest and non-interest income are as follows:

	2010		2009
Conversion expenses	$	1,991		–
FDIC & state assessments		2,097		–
Computer services		2,098		–
Amortization of intangibles		818		–
Insurance non-building		640		–
Foreclosed asset related expense		701		–
Travel		382		35
Organizational Expense		–		91

F-75

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

(dollars and shares in thousands)

22. Quarterly Financial Data (Unaudited)

The following is a summary of unaudited quarterly results for 2010 and 2009:

	2010											2009
	Fourth			Third		Second			First			Fourth
Condensed income statements:
Interest income	$	29,773		$	11,416	$	831		$	725		$	72
Net interest income		24,747			10,208		831			725			72
Provision for loan losses		753			–		–			–			–
Purchase accounting gain		–			15,175		–			–			–
Net Income (loss)		(167	)		14,607		(1,022	)		(1,381	)		(92	)
Net income (loss) allocated to common shareholders		(174	)		14,607		(1,022	)		(1,381	)		(92	)
Basic and diluted earnings (loss) per common share	$	–		$	0.33	$	(0.03	)	$	(0.04	)	$	(0.01	)

23. Subsequent Events

The Company’s investment in TIBB was subsequently reduced to approximately 94% as a result of a shareholder rights offering which closed on January 18, 2011.

The Company closed on an investment in Capital Bank Corp. on January 28, 2011 to purchase 71,000,000 shares of common stock for $181,050,000 in cash. Subsequent to the investment, the Company owned approximately 85% of Capital Bank Corp. The Company’s investment in Capital Bank Corp. was subsequently reduced to approximately 83% as a result of a shareholder rights offering which closed on March 11, 2011.

F-76

NAFH National Bank

(Subsidiary of North American Financial Holdings, Inc.)

Statement of Assets Acquired and Liabilities

Assumed of First National Bank of the South as of July 16, 2010

Report of Independent Registered Certified Public Accounting Firm

To the Board of Directors and Shareholders of

North American Financial Holdings, Inc.

In our opinion, the accompanying statement of assets acquired and liabilities assumed of NAFH National Bank (subsidiary of North American Financial Holdings, Inc.) presents fairly, in all material respects, the assets acquired and liabilities assumed by NAFH National Bank of First National Bank of the South as of July 16, 2010 in conformity with accounting principles generally accepted in the United States of America. This statement of assets acquired and liabilities assumed is the responsibility of the Company’s management; our responsibility is to express an opinion on this statement of assets acquired and liabilities assumed based on our audit. We conducted our audit of the statement in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of assets acquired and liabilities assumed, assessing the accounting principles used and significant estimates made by management, and evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

June 23, 2011

Ft. Lauderdale, Florida

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Statement of Assets Acquired and Liabilities Assumed of First National Bank of the South

as of July 16, 2010

(dollars in thousands)

Assets Acquired
Cash and due from banks	$	64,728
Investment securities available for sale		40,564
Loans		389,603
Other real estate owned		20,832
Indemnification asset		71,386
Goodwill		6,616
Intangible assets, net		2,214
Accrued interest receivable and other assets		6,315
Total assets acquired	$	602,258
Liabilities Assumed
Deposits
Noninterest-bearing demand	$	38,718
Interest-bearing		409,614
Total deposits		448,332
Borrowings		57,579
Accrued interest payable and other liabilities		1,868
Total liabilities assumed	$	507,779
Net assets acquired	$	94,479

The accompanying notes are an integral part of these financial statements.

F-79

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Statement of Assets Acquired and Liabilities Assumed of First National Bank of the South

as of July 16, 2010

(dollars in thousands)

1. Summary of Significant Accounting Policies

North American Financial Holdings, Inc. (“NAFH” or the “Company”) is a bank holding company incorporated in Delaware and headquartered in Florida whose business is conducted primarily through our subsidiary, NAFH National Bank (“NAFH NB”).

On July 16, 2010, NAFH NB acquired the operations and certain assets and liabilities from the Federal Deposit Insurance Corporation (“FDIC”) as receiver of the former First National Bank of the South (“FNB”).

The accounting and reporting policies conform to accounting principles generally accepted in the United States of America. The following is a summary of the more significant of these policies.

Use of Estimates and Assumptions

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. Material estimates that are particularly susceptible to significant change include the determination of fair value and goodwill and intangible assets. Changes in assumptions or in market conditions could significantly affect the fair value estimates. The measurement of assets acquired and liabilities assumed at their estimated fair values represent material estimates which are subject to change during the measurement period.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and items with an original maturity of three months or less, including amounts due from banks, federal funds sold, and interest-bearing deposits at the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank of Atlanta.

Investment Securities

Investment securities were acquired at their fair values. Investments which may be sold prior to maturity are classified as available for sale and are reported at fair value. Investment securities where the Company has both the intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost. Other securities such as Federal Home Loan Bank stock are carried at cost and are included in other assets on the statement of assets acquired and liabilities assumed.

Accounting for Acquired Loans

NAFH NB accounts for its acquisitions using the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value, exclusive of the shared-loss agreements with the FDIC. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

Loans acquired in a transfer, including business combinations, where there is evidence of credit deterioration since origination and it is probable at the date of acquisition that NAFH NB will not collect all contractually required principal and interest payments, are accounted for under accounting guidance for purchased credit-impaired (“PCI”) loans. NAFH NB has generally aggregated the purchased loans into pools of loans with common risk characteristics. Refer to note 4 for further discussion of risk characteristics.

FDIC Indemnification Asset

As part of a purchase and assumption agreement with the FDIC, NAFH NB has entered into loss share agreements in which the FDIC will reimburse NAFH NB for certain amounts related to certain acquired

F-80

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Statement of Assets Acquired and Liabilities Assumed of First National Bank of the South

as of July 16, 2010

(dollars in thousands)

loans and other real estate owned should NAFH NB experience a loss, as a result, an indemnification asset has been recorded at fair value at the acquisition date. The indemnification asset is recognized at the same time as the indemnified loans and other assets, and measured on the same basis, subject to collectability or contractual limitations. The indemnification asset on the acquisition date reflects the present value of future cash flows expected to be received from the FDIC, using an appropriate discount rate, which reflects counterparty credit risk. Loss assumptions used in the basis of the indemnified loans are consistent with the loss assumptions used to measure the indemnification asset.

Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure or repossession are generally held for sale and are recorded at lesser of their recorded investment or fair value less costs to sell when acquired.

Goodwill

Goodwill represents the future economic benefits arising from other assets acquired that are not individually identified and separately recognized. The amount of goodwill recognized in a business combination results from the excess of the purchase consideration paid over the fair value of net assets acquired and specifically identified.

Intangible Assets

Intangible assets include a core deposit base premium arising from the acquisition and was measured at fair value.

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Deferred Income Taxes

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various balance sheet assets and liabilities.

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates include uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

2. FDIC-Assisted Purchase and Assumption of Assets and Liabilities of First National Bank of the South

NAFH NB entered into a purchase and assumption agreement to acquire certain assets and assume certain liabilities of FNB from the FDIC as receiver on July 16, 2010 (the “Transaction Date”). As part of this agreement, the FDIC also granted NAFH NB an option to purchase at appraised value the premises, furniture, fixtures, and equipment of the acquired institution and assume the leases associated with these offices. NAFH NB acquired certain assets, assumed all of the deposits, and assumed certain other liabilities from the FDIC in a whole-bank acquisition for consideration paid of $94,479.

F-81

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Statement of Assets Acquired and Liabilities Assumed of First National Bank of the South

as of July 16, 2010

(dollars in thousands)

The acquisition was accounted for under the purchase method of accounting. Both the purchased assets and liabilities assumed were recorded at their respective acquisition date fair values. Identifiable intangible assets, including goodwill, core deposit intangible assets and mortgage servicing rights, were recorded at fair value. As the fair value of consideration paid in the FNB acquisition exceeded the estimated fair value of net assets acquired, goodwill of $6,616 was recorded.

As part of the purchase and assumption agreement, certain loans and other real estate owned acquired in this acquisition are covered by loss share agreements between NAFH NB and the FDIC which afford NAFH NB significant protection against future losses. Under the agreements, the FDIC will cover 80% of losses on the disposition of loans and other real estate owned up to certain thresholds. The term for loss sharing on single-family residential real estate loans is ten years, while the term for loss sharing on nonresidential loans is five years and NAFH NB reimbursement to the FDIC for a total of eight years for recoveries. The reimbursable losses from the FDIC are based on the book value of the relevant loans as determined by the FDIC at the date of the transaction. New loans made after that date are not covered by the provisions of the loss share agreements. As part of the acquisition, NAFH NB has recorded an indemnification asset that represents the estimated fair value of the FDIC’s portion of the losses that are expected to be incurred and reimbursed. The value of the indemnification asset at the acquisition date is $71,386 (loss threshold is $123,000 and 80% of the loss threshold is $98,400).

The estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the Transaction Date and NAFH NB believes that information provides a reasonable basis for estimating the fair values. However, NAFH NB may obtain additional information and evidence during the measurement period that may impact the estimated fair value amounts. NAFH NB expects to finalize the valuation and complete the purchase price allocation as soon as practicable.

3. Investment Securities

As of the acquisition date, the acquired security portfolio consisted of 20 security positions which were recorded at their estimated fair values. The amortized cost and estimated fair value of investment securities at the acquisition date are presented below:

Available for Sale	Estimated Fair Value
States and political subdivisions—tax exempt	$	2,798
States and political subdivisions—taxable		7,239
Mortgage-backed securities—residential		30,527
	$	40,564

The estimated fair value of investment securities available for sale at the acquisition date, by contractual maturity, are shown as follows. Expected maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	Available for Sale
Due in one year or less	$	–
Due after one year through five years		–
Due after five years through ten years		1,427
Due after ten years		8,610
Mortgage-backed securities		30,527
	$	40,564

At the acquisition date, no securities were subject to call during 2011.

F-82

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Statement of Assets Acquired and Liabilities Assumed of First National Bank of the South

as of July 16, 2010

(dollars in thousands)

4. Loans

The composition of loans acquired at July 16, 2010 is as follows:

	Fair Value
Covered acquired loans:
Commercial real estate	$	241,247
Residential		77,391
Commercial and agricultural loans		19,738
Home equity loans		47,160
Other consumer loans		5
Total covered loans		385,541
Non-covered acquired loans—consumer loans		4,062
Total acquired loans	$	389,603

Covered loans represent loans acquired from the FDIC subject to the loss sharing agreements. Loans are further broken out into (i) loans acquired with evidence of credit impairment, which we call purchased credit impaired, and (ii) non PCI loans.

Loans acquired are recorded at fair value in accordance with the fair value, exclusive of the shared-loss agreements with the FDIC. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. At the time of acquisition, NAFH NB accounted for the impaired purchased loans by segregating each portfolio into loan pools with similar risk characteristics, which included:

• Whether the loan was performing according to contractual terms at the time of acquisition;

• The loan type based on regulatory reporting guidelines, namely whether the loan was a mortgage, consumer, or commercial loan; and

• The nature of collateral.

From these pools, NAFH NB used certain loan information, including outstanding principal balance, estimated expected losses, weighted average maturity, weighted average term to re-price (if a variable rate loan), weighted average margin, and weighted average interest rate to estimate the expected cash flow for each loan pool.

Purchased credit-impaired loans for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

Cash flows expected to be collected at acquisition	$	361,162
Accretable yield		(19,894	)
Fair value of acquired loans at acquisition	$	341,268

The accretable yield represents the excess of estimated cash flows expected to be collected over the initial recorded investment in the PCI loans, which is their fair value at the time of acquisition by NAFH NB. The accretable yield is accreted into interest income over the estimated life of the PCI loans using the level yield method. The accretable yield will change due to changes in:

• The estimate of the remaining life of PCI loans which may change the amount of future interest income, and possibly principal, expected to be collected;

F-83

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Statement of Assets Acquired and Liabilities Assumed of First National Bank of the South

as of July 16, 2010

(dollars in thousands)

• The estimate of the amount of contractually required principal and interest payments over the estimated life that will not be collected (the nonaccretable difference); and

• Indices for PCI loans with variable rates of interest.

For PCI loans, the impact of loan modifications is included in the evaluation of expected cash flows for subsequent decreases or increases of cash flows. For variable rate PCI loans, expected future cash flows will be recalculated as the rates adjust over the lives of the loans. At acquisition, the expected future cash flows were based on the variable rates that were in effect at that time.

The total fair value of non-PCI loans acquired at July 16,2010 was $48,335.

5. Operating Leases

NAFH NB is obligated under operating leases assumed for office and banking premises which expire in periods varying from one to twenty-two years. Future minimum lease payments, before considering renewal options that generally are present, are as follows at July 16, 2010:

Years Ending December 31,
2010 (Period from July 16, 2010 through December 31, 2010)	$	541
2011		1,147
2012		1,007
2013		994
2014		994
Thereafter		14,585
	$	19,268

6. Goodwill and Intangible Assets

The acquisition of FNB resulted in tax deductible goodwill of $6,616.

Tax deductible intangible assets acquired consist of the following:

	Gross Carrying Amount
Core deposit intangible due to acquisition of FNB	$	2,100
Mortgage servicing right due to acquisition of FNB		114
Balance, July 16, 2010	$	2,214

The identified intangible assets are amortized as noninterest expense over their estimated lives.

Estimated amortization expense for each of the next five years is as follows:

Years ending December 31,
2010 (Period from July 16, 2010 through December 31, 2010)	$	254
2011		554
2012		554
2013		554
2014		298
	$	2,214

F-84

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Statement of Assets Acquired and Liabilities Assumed of First National Bank of the South

as of July 16, 2010

(dollars in thousands)

7. Time Deposits

Time deposits of $100 or more were $153,148 at the acquisition date.

At July 16, 2010, the scheduled maturities of time deposits are as follows:

Years Ending December 31,
2010 (Period from July 16, 2010 through December 31, 2010)	$	136,988
2011		136,254
2012		30,097
2013		18,444
2014		228
2015 and beyond		559
	$	322,570

8. Short-Term Borrowings and Federal Home Loan Bank Advances

Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, advances from the Federal Home Loan Bank, and a Treasury, tax and loan note option.

NAFH NB also acquired securities sold under agreements to repurchase with commercial account holders whereby NAFH NB sweeps the customer’s accounts on a daily basis and pays interest on these amounts. These agreements are collateralized by investment securities chosen by NAFH NB.

Through the acquisition of FNB, NAFH NB assumed FHLB advances outstanding with a face value of $51,776 and a fair value of $54,655. The advances consist of the following:

Fair Value		Contractual Outstanding Amount		Maturity Date	Repricing Frequency	Rate at July 16, 2010
	$    4,059	$	4,052	August 2010	Fixed	3.36%
	5,203		5,000	June 2011(a)	Fixed	4.95%
	1,969		1,944	September 2011	Fixed	2.99%
	2,119		2,083	September 2011	Fixed	3.58%
	583		572	October 2011	Fixed	3.91%
	646		625	April 2012	Fixed	4.70%
	5,353		5,000	May 2012(a)	Fixed	4.59%
	7,736		7,500	March 2013	Fixed	2.29%
	5,185		5,000	May 2013(a)	Fixed	2.27%
	5,600		5,000	May 2014(a)	Fixed	4.60%
	5,786		5,000	June 2017(a)	Fixed	4.58%
	5,210		5,000	July 2018(a)	Fixed	2.14%
	5,206		5,000	July 2018(a)	Fixed	2.12%
$	54,655	$	51,776

(a) These advances have quarterly conversion dates. If the FHLB chooses to convert the advance, NAFH NB has the option of prepaying the entire balance without penalty. Otherwise, the advance will convert to an adjustable rate, repricing on a quarterly basis. If the FHLB does not convert the advance, it will remain at the contracted fixed rate until the maturity date.

F-85

NAFH National Bank

(Subsidiary of North American Financial Holdings, Inc.)

Statement of Assets Acquired and Liabilities

Assumed of Metro Bank of Dade County

as of July 16, 2010

Report of Independent Registered Certified Public Accounting Firm

To the Board of Directors and Shareholders of

North American Financial Holdings, Inc.

In our opinion, the accompanying statement of assets acquired and liabilities assumed of NAFH National Bank (subsidiary of North American Financial Holdings, Inc.) presents fairly, in all material respects, the assets acquired and liabilities assumed by NAFH National Bank of Metro Bank of Dade County as of July 16, 2010 in conformity with accounting principles generally accepted in the United States of America. This statement of assets acquired and liabilities assumed is the responsibility of the Company’s management; our responsibility is to express an opinion on this statement of assets acquired and liabilities assumed based on our audit. We conducted our audit of the statement in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of assets acquired and liabilities assumed, assessing the accounting principles used and significant estimates made by management, and evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

June 23, 2011

Ft. Lauderdale, Florida

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Statement of Assets Acquired and Liabilities Assumed of Metro Bank of Dade County

as of July 16, 2010

(dollars in thousands)

Assets Acquired
Cash and due from banks	$	79,267
Investment securities—held to maturity		250
Investment securities—available for sale		30,083
Loans		226,826
Other real estate owned		7,547
Indemnification asset		44,191
Intangible assets		1,400
Other assets		3,921
Total assets acquired	$	393,485
Liabilities Assumed
Deposits
Noninterest-bearing demand	$	73,271
Interest-bearing		263,110
Total deposits		336,381
Borrowings		31,981
Accrued interest payable and other liabilities		10,312
Total liabilities assumed	$	378,674
Net assets acquired	$	14,811

The accompanying notes are an integral part of these financial statements.

F-88

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Notes to Statement of Assets Acquired and Liabilities Assumed of Metro Bank of Dade County

as of July 16, 2010

(dollars in thousands)

1. Summary of Significant Accounting Policies

North American Financial Holdings, Inc. (“NAFH” or the “Company”) is a bank holding company incorporated in Delaware and headquartered in Florida whose business is conducted primarily through our subsidiary, NAFH National Bank (“NAFH NB”).

On July 16, 2010, NAFH NB acquired the operations and certain assets and liabilities from the Federal Deposit Insurance Corporation (“FDIC”) as receiver of the former MetroBank of Dade County (“Metro”).

The accounting and reporting policies conform to accounting principles generally accepted in the United States of America. The following is a summary of the more significant of these policies.

Use of Estimates and Assumptions

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. Material estimates that are particularly susceptible to significant change include the determination of fair value and goodwill and intangible assets. Changes in assumptions or in market conditions could significantly affect the fair value estimates. The measurement of assets acquired and liabilities assumed at their estimated fair values represent material estimates which are subject to change during the measurement period.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and items with an original maturity of three months or less, including amounts due from banks, federal funds sold, and interest-bearing deposits at the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank of Atlanta.

Investment Securities

Investment securities were acquired at their fair values. Investments which may be sold prior to maturity are classified as available for sale and reported at fair value. Investment securities where the Company has both the intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost. Other securities such as Federal Home Loan Bank stock are carried at cost and are included in other assets on the statement of assets acquired and liabilities assumed.

Accounting for Acquired Loans

NAFH NB accounts for its acquisitions using the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value, exclusive of the shared-loss agreements with the FDIC. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

Loans acquired in a transfer, including business combinations, where there is evidence of credit deterioration since origination and it is probable at the date of acquisition that NAFH NB will not

F-89

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Notes to Statement of Assets Acquired and Liabilities Assumed of Metro Bank of Dade County

as of July 16, 2010

(dollars in thousands)

collect all contractually required principal and interest payments, are accounted for under accounting guidance for purchased credit-impaired (“PCI”) loans. NAFH NB has generally aggregated the purchased loans into pools of loans with common risk characteristics. Refer to Note 4 for further discussion of risk characteristics.

FDIC Indemnification Asset

As part of a purchase and assumption agreement with the FDIC, NAFH NB has entered into a loss share agreement in which the FDIC will reimburse NAFH NB for certain amounts related to certain acquired loans and other real estate owned should NAFH NB experience a loss, as a result, an indemnification asset has been recorded at fair value at the acquisition date. The indemnification asset is recognized at the same time as the indemnified loans and other assets, and measured on the same basis, subject to collectability or contractual limitations. The indemnification asset on the acquisition date reflects the present value of future cash flows expected to be received from the FDIC, using an appropriate discount rate, which reflects counterparty credit risk. Loss assumptions used in the basis of the indemnified loans are consistent with the loss assumptions used to measure the indemnification asset.

Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure or repossession are generally held for sale and are recorded at the lesser of their recorded investment or fair value less costs to sell when acquired.

Intangible Assets

Intangible assets include a core deposit base premium arising from the acquisition and was measured at fair value.

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Defered Income Taxes

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various balance sheet assets and liabilities.

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates include uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

F-90

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Notes to Statement of Assets Acquired and Liabilities Assumed of Metro Bank of Dade County

as of July 16, 2010

(dollars in thousands)

2. FDIC-Assisted Purchase and Assumption of Assets and Liabilities of MetroBank of Dade County

NAFH NB entered into a purchase and assumption agreement to acquire certain assets and assume certain liabilities of Metro from the FDIC as receiver on July 16, 2010 (the “Transaction Date”). As part of this agreement, the FDIC also granted NAFH NB an option to purchase at appraised value the premises, furniture, fixtures, and equipment of the acquired institution and assume the leases associated with these offices. NAFH NB acquired certain assets, assumed all of the deposits, and assumed certain other liabilities from the FDIC in a whole-bank acquisition for consideration paid of $4,191.

The acquisition was accounted for under the purchase method of accounting. Both the purchased assets and liabilities assumed were recorded at their respective acquisition date fair values. An identifiable intangible asset, a core deposit intangible, was recorded at fair value. As the fair value of consideration paid in the Metro acquisition was less than the estimated fair value of net assets acquired, a gain on acquisition of $10,620 was recorded by NAFH NB on the acquisition date.

As part of the purchase and assumption agreement, certain loans and other real estate owned acquired in this acquisition are covered by loss share agreements between NAFH NB and the FDIC which afford NAFH NB significant protection against future losses. Under the agreements, the FDIC will cover 80% of losses on the disposition of loans and other real estate owned up to certain thresholds presented in the following table. The term for loss sharing on single-family residential real estate loans is ten years, while the term for loss sharing on nonresidential loans is five years and NAFH NB reimbursement to the FDIC for a total of eight years for recoveries. The reimbursable losses from the FDIC are based on the book value of the relevant loans as determined by the FDIC at the date of the transaction. New loans made after that date are not covered by the provisions of the loss share agreements. As part of the acquisition, NAFH NB has recorded an indemnification asset that represents the estimated fair value of the FDIC’s portion of the losses that are expected to be incurred and reimbursed. The value of the indemnification asset at the acquisition date is $44,191 (loss threshold is $81,000 and 80% of the loss threshold is $64,800).

The estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the Transaction Date and NAFH NB believes that information provides a reasonable basis for estimating the fair values. However, NAFH NB may obtain additional information and evidence during the measurement period that may impact the estimated fair value amounts. NAFH NB expects to finalize the valuation and complete the purchase price allocation as soon as practicable.

3. Investment Securities

As of the acquisition date, the acquired security portfolio consisted of 18 security positions which were recorded at their estimated fair values. The amortized cost and estimated fair value of investment securities at the acquisition date are presented below:

Held to Maturity	Estimated Fair Value
Foreign government	$	250
Available for Sale	Estimated Fair  Value
U.S. Government agencies and corporations	$	5,026
Mortgage-backed securities—residential		25,057
	$	30,083

F-91

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Notes to Statement of Assets Acquired and Liabilities Assumed of Metro Bank of Dade County

as of July 16, 2010

(dollars in thousands)

The estimated fair value of investment securities available for sale at the acquisition date, by contractual maturity, are shown as follows. Expected maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	Held to Maturity		Available for Sale
Due in one year or less	$	250	$	3,006
Due after one year through five years		–		2,020
Due after five years through ten years		–		–
Due after ten years		–		–
Mortgage-backed securities		–		25,057
	$	250	$	30,083

At the acquisition date, there were no securities subject to call during 2011.

4. Loans

The composition of loans acquired at July 16, 2010 is as follows:

	Fair Value
Covered acquired loans:
Commercial real estate	$	182,061
Residential		7,168
Commercial and agricultural loans		18,976
Home equity loans		17,230
Other consumer loans		160
Total covered loans		225,595
Non-covered acquired loans
Commercial and agricultural loans		98
Other consumer loans		1,133
Total non-covered loans		1,231
Total acquired loans	$	226,826

Covered loans represent loans acquired from the FDIC subject to the loss sharing agreements. Covered loans are further broken out into (i) loans acquired with evidence of credit impairment, which we call purchased credit impaired, and (ii) non PCI loans.

Loans acquired are recorded at fair value in accordance with the fair value, exclusive of the shared-loss agreements with the FDIC. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. At the time of acquisition, NAFH NB accounted for the impaired purchased loans by segregating each portfolio into loan pools with similar risk characteristics, which included:

• Whether the loan was performing according to contractual terms at the time of acquisition;

• The loan type based on regulatory reporting guidelines, namely whether the loan was a mortgage, consumer, or commercial loan; and

• The nature of collateral.

F-92

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Notes to Statement of Assets Acquired and Liabilities Assumed of Metro Bank of Dade County

as of July 16, 2010

(dollars in thousands)

From these pools, NAFH NB used certain loan information, including outstanding principal balance, estimated expected losses, weighted average maturity, weighted average term to re-price (if a variable rate loan), weighted average margin, and weighted average interest rate to estimate the expected cash flow for each loan pool.

Purchased credit-impaired loans for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

Cash flows expected to be collected at acquisition	$	227,871
Accretable yield		(13,345	)
Fair value of acquired loans at acquisition	$	214,526

The accretable yield represents the excess of estimated cash flows expected to be collected over the initial recorded investment in the PCI loans, which is their fair value at the time of acquisition by NAFH NB. The accretable yield is accreted into interest income over the estimated life of the PCI loans using the level yield method. The accretable yield will change due to changes in:

• The estimate of the remaining life of PCI loans which may change the amount of future interest income, and possibly principal, expected to be collected;

• The estimate of the amount of contractually required principal and interest payments over the estimated life that will not be collected (the nonaccretable difference); and

• Indices for PCI loans with variable rates of interest.

For PCI loans, the impact of loan modifications is included in the evaluation of expected cash flows for subsequent decreases or increases of cash flows. For variable rate PCI loans, expected future cash flows will be recalculated as the rates adjust over the lives of the loans. At acquisition, the expected future cash flows were based on the variable rates that were in effect at that time.

The total fair value of non-PCI loans acquired at July 16, 2010 was $12,300.

5. Operating Leases

NAFH NB is obligated under operating leases assumed for office and banking premises which expire in periods varying from two to four years. Future minimum lease payments, before considering renewal options that generally are present, are as follows at July 16, 2010:

Years Ending December 31,
2010 (Period from July 16, 2010 through December 31, 2010)	$	471
2011		1,027
2012		529
2013		435
2014		405
Thereafter		–
	$	2,867

F-93

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Notes to Statement of Assets Acquired and Liabilities Assumed of Metro Bank of Dade County

as of July 16, 2010

(dollars in thousands)

6. Intangible Assets

Tax deductible intangible assets acquired consist of the following at July 16, 2010:

	Gross Carrying Amount
Core deposit intangible due to acquisition of Metro	$	1,400

The identified intangible assets are amortized as noninterest expense over their estimated lives.

Estimated amortization expense for each of the next five years is as follows:

Years ending December 31,
2010 (Period from July 16, 2010 through December 31, 2010)	$	160
2011		350
2012		350
2013		350
2014		190
	$	1,400

7. Time Deposits

Time deposits of $100 or more were $55,249 at the acquisition date.

At July 16, 2010, the scheduled maturities of time deposits are as follows:

Years Ending December 31,
2010 (Period from July 16, 2010 through December 31, 2010)	$	133,519
2011		98,911
2012		50
2013		–
2014		–
2015		–
	$	232,480

8. Short-Term Borrowings and Federal Home Loan Bank Advances

Short-term borrowings include securities sold under agreements to repurchase, advances from the Federal Home Loan Bank, and a Treasury, tax and loan note option.

NAFH NB also acquired securities sold under agreements to repurchase with commercial account holders whereby NAFH NB sweeps the customer’s accounts on a daily basis and pays interest on these amounts. These agreements are collateralized by investment securities chosen by NAFH NB.

NAFH NB also assumed an agreement with another financial institution in which securities had been sold which would be repurchased at a future date. The interest rates on these repurchase agreements are fixed for the remaining term of the agreement. The outstanding fair value amount at July 16, 2010 was $10,188. As of July 16, 2010, $11,856 of securities of the United States Government or its agencies were pledged to collateralize these borrowings.

F-94

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Notes to Statement of Assets Acquired and Liabilities Assumed of Metro Bank of Dade County

as of July 16, 2010

(dollars in thousands)

Through the acquisition of Metro, NAFH NB assumed FHLB advances outstanding with a face value of $21,000 and a fair value of $21,012. The advances consist of the following:

Fair Value	Contractual Outstanding Amount	Maturity Date	Repricing Frequency	Rate at July 16, 2010
$    5,004	$    5,000	September 2010	Fixed	0.69%
6,005	6,000	December 2010	Fixed	0.68%
5,003	5,000	February 2011	Fixed	0.51%
5,000	5,000	June 2011	Daily	0.49%
$  21,012	$  21,000

F-95

NAFH National Bank

(Subsidiary of North American Financial Holdings, Inc.)

Statement of Assets Acquired and Liabilities

Assumed of Turnberry Bank as of July 16, 2010

Report of Independent Registered Certified Public Accounting Firm

To the Board of Directors and Shareholders of

North American Financial Holdings, Inc.

In our opinion, the accompanying statement of assets acquired and liabilities assumed of NAFH National Bank (subsidiary of North American Financial Holdings, Inc.) presents fairly, in all material respects, the assets acquired and liabilities assumed by NAFH National Bank of Turnberry Bank as of July 16, 2010 in conformity with accounting principles generally accepted in the United States of America. This statement of assets acquired and liabilities assumed is the responsibility of the Company’s management; our responsibility is to express an opinion on this statement of assets acquired and liabilities assumed based on our audit. We conducted our audit of the statement in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of assets acquired and liabilities assumed, assessing the accounting principles used and significant estimates made by management, and evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

June 23, 2011

Ft. Lauderdale, Florida

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Statement of Assets Acquired and Liabilities Assumed of Turnberry Bank

as of July 16, 2010

(dollars in thousands)

Assets Acquired
Cash and due from banks	$	40,353
Investment securities available for sale		3,495
Loans		152,125
Other real estate owned		5,439
Indemnification asset		21,739
Intangible assets		600
Other assets		4,392
Total assets acquired	$	228,143
Liabilities Assumed
Deposits
Noninterest-bearing demand	$	14,192
Interest-bearing		161,209
Total deposits		175,401
Borrowings		59,024
Accrued interest payable and other liabilities		6,089
Total liabilities assumed	$	240,514
Net liabilities assumed	$	(12,371	)

The accompanying notes are an integral part of these financial statements.

F-98

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Notes to Statement of Assets Acquired and Liabilities Assumed of Turnberry Bank

as of July 16, 2010

(dollars in thousands)

1. Summary of Significant Accounting Policies

North American Financial Holdings, Inc. (“NAFH” or the “Company”) is a bank holding company incorporated in Delaware and headquartered in Florida whose business is conducted primarily through our subsidiary, NAFH National Bank (“NAFH NB”).

On July 16, 2010, NAFH NB acquired the operations and certain assets and liabilities from the Federal Deposit Insurance Corporation (“FDIC”) as receiver of the former Turnberry Bank (“Turnberry”).

The accounting and reporting policies conform to accounting principles generally accepted in the United States of America. The following is a summary of the more significant of these policies.

Use of Estimates and Assumptions

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. Material estimates that are particularly susceptible to significant change include the determination of fair value and goodwill and intangible assets. Changes in assumptions or in market conditions could significantly affect the fair value estimates. The measurement of assets acquired and liabilities assumed at their estimated fair values represent material estimates which are subject to change during the measurement period.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and items with an original maturity of three months or less, including amounts due from banks, federal funds sold, and interest-bearing deposits at the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank of Atlanta.

Investment Securities

Investment securities were acquired at their fair values. Investments which may be sold prior to maturity are classified as available for sale and reported at fair value. Investment securities where NAFH NB has both the intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost. Other securities such as Federal Home Loan Bank stock are carried at cost and are included in other assets on the statement of assets acquired and liabilities assumed.

Accounting for Acquired Loans

NAFH NB accounts for its acquisitions using the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value, exclusive of the shared-loss agreements with the FDIC. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

Loans acquired in a transfer, including business combinations, where there is evidence of credit deterioration since origination and it is probable at the date of acquisition that NAFH NB will not collect all contractually required principal and interest payments, are accounted for under accounting guidance for

F-99

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Notes to Statement of Assets Acquired and Liabilities Assumed of Turnberry Bank

as of July 16, 2010

(dollars in thousands)

purchased credit-impaired (“PCI”) loans. NAFH NB has generally aggregated the purchased loans into pools of loans with common risk characteristics. Refer to Note 4 for further discussion of risk characteristics.

FDIC Indemnification Asset

As part of a purchase and assumption agreement with the FDIC, NAFH NB has entered into a loss share agreement in which the FDIC will reimburse NAFH NB for certain amounts related to certain acquired loans and other real estate owned should NAFH NB experience a loss, as a result, an indemnification asset has been recorded at fair value at the acquisition date. The indemnification asset is recognized at the same time as the indemnified loans and other assets, and measured on the same basis, subject to collectability or contractual limitations. The indemnification asset on the acquisition date reflects the present value of future cash flows expected to be received from the FDIC, using an appropriate discount rate, which reflects counterparty credit risk. Loss assumptions used in the basis of the indemnified loans are consistent with the loss assumptions used to measure the indemnification asset.

Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure or repossession are generally held for sale and are recorded at the lesser of their recorded investment or fair value less costs to sell when acquired.

Intangible Assets

Intangible assets include a core deposit base premium arising from the acquisition and was measured at fair value.

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Deferred Income Taxes

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various balance sheet assets and liabilities.

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates include uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

F-100

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Notes to Statement of Assets Acquired and Liabilities Assumed of Turnberry Bank

as of July 16, 2010

(dollars in thousands)

2. FDIC-Assisted Purchase and Assumption of Assets and Liabilities of Turnberry Bank

NAFH NB entered into a purchase and assumption agreement to acquire certain assets and assume certain liabilities of Turnberry from the FDIC as receiver on July 16, 2010 (the “Transaction Date”). As part of this agreement, the FDIC also granted NAFH NB an option to purchase at appraised value the premises, furniture, fixtures, and equipment of the acquired institution and assume the leases associated with these offices. NAFH NB acquired certain assets, assumed all of the deposits, and assumed certain other liabilities from the FDIC in a whole-bank acquisition. Net cash consideration received from the FDIC in connection with the acquisition was $16,926.

The acquisition was accounted for under the purchase method of accounting. Both the purchased assets and liabilities assumed were recorded at their respective acquisition date fair values. An Identifiable intangible asset, a core deposit intangible, was recorded at fair value. As the fair value of consideration received in the Turnberry acquisition was greater than the estimated fair value of net liabilities assumed, a gain on acquisition of $4,555 was recorded by NAFH NB on the acquisition date.

As part of the purchase and assumption agreement, certain loans and other real estate owned acquired in this acquisition are covered by loss share agreements between NAFH NB and the FDIC which afford NAFH NB significant protection against future losses. Under the agreements, the FDIC will cover 80% of losses on the disposition of loans and other real estate owned up to certain thresholds presented in the following table. The term for loss sharing on single-family residential real estate loans is ten years, while the term for loss sharing on nonresidential loans is five years and NAFH NB reimbursement to the FDIC for a total of eight years for recoveries. The reimbursable losses from the FDIC are based on the book value of the relevant loans as determined by the FDIC at the date of the transaction. New loans made after that date are not covered by the provisions of the loss share agreements. As part of the acquisition, NAFH NB has recorded an indemnification asset that represents the estimated fair value of the FDIC’s portion of the losses that are expected to be incurred and reimbursed. The value of the indemnification asset at the acquisition date is $21,739 (loss threshold is $28,000 and 80% of the loss threshold is $22,400).

The estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the Transaction Date and NAFH NB believes that information provides a reasonable basis for estimating the fair values. However, NAFH NB may obtain additional information and evidence during the measurement period that may impact the estimated fair value amounts. NAFH NB expects to finalize the valuation and complete the purchase price allocation as soon as practicable.

3. Investment Securities

As of the acquisition date, the acquired security portfolio consisted of 8 security positions which were recorded at their estimated fair values. The amortized cost and estimated fair value of investment securities at the acquisition date are presented below:

Available for Sale	Estimated Fair Value
U.S. Government agencies and corporations	$	2,015
Collateralized Mortgage Obligations		1,480
	$	3,495

F-101

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Notes to Statement of Assets Acquired and Liabilities Assumed of Turnberry Bank

as of July 16, 2010

(dollars in thousands)

The estimated fair value of investment securities available for sale at the acquisition date, by contractual maturity, are shown as follows. Expected maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	Available for Sale
Due in one year or less	$	–
Due after one year through five years		206
Due after five years through ten years		1,288
Due after ten years		2,001
	$	3,495

At the acquisition date, securities with a fair value of approximately $2,014 are subject to call during 2011.

4. Loans

The composition of loans acquired at July 16, 2010 is as follows:

	Fair Value
Covered acquired loans:
Commercial real estate	$	45,412
Residential		85,905
Commercial and agricultural loans		299
Home equity loans		19,490
Other consumer loans		–
Total covered loans	$	151,106
Non-covered acquired loans—consumer loans		1,019
Total acquired loans	$	152,125

Covered loans represent loans acquired from the FDIC subject to the loss sharing agreements. Covered loans are further broken out into (i) loans acquired with evidence of credit impairment, which we call purchased credit impaired, and (ii) non PCI loans.

Loans acquired are recorded at fair value in accordance with the fair value, exclusive of the shared-loss agreements with the FDIC. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. At the time of acquisition, NAFH NB accounted for the impaired purchased loans by segregating each portfolio into loan pools with similar risk characteristics, which included:

• Whether the loan was performing according to contractual terms at the time of acquisition;

• The loan type based on regulatory reporting guidelines, namely whether the loan was a mortgage, consumer, or commercial loan; and

• The nature of collateral.

F-102

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Notes to Statement of Assets Acquired and Liabilities Assumed of Turnberry Bank

as of July 16, 2010

(dollars in thousands)

From these pools, NAFH NB used certain loan information, including outstanding principal balance, estimated expected losses, weighted average maturity, weighted average term to re-price (if a variable rate loan), weighted average margin, and weighted average interest rate to estimate the expected cash flow for each loan pool.

Purchased credit-impaired loans for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

Cash flows expected to be collected at acquisition	$	148,572
Accretable yield		(13,331	)
Fair value of acquired loans at acquisition	$	135,241

The accretable yield represents the excess of estimated cash flows expected to be collected over the initial recorded investment in the PCI loans, which is their fair value at the time of acquisition by NAFH NB. The accretable yield is accreted into interest income over the estimated life of the PCI loans using the level yield method. The accretable yield will change due to changes in:

• The estimate of the remaining life of PCI loans which may change the amount of future interest income, and possibly principal, expected to be collected;

• The estimate of the amount of contractually required principal and interest payments over the estimated life that will not be collected (the nonaccretable difference); and

• Indices for PCI loans with variable rates of interest.

For PCI loans, the impact of loan modifications is included in the evaluation of expected cash flows for subsequent decreases or increases of cash flows. For variable rate PCI loans, expected future cash flows will be recalculated as the rates adjust over the lives of the loans. At acquisition, the expected future cash flows were based on the variable rates that were in effect at that time.

The total fair value of non-PCI loans acquired at July 16, 2010 was $16,884.

5. Operating Leases

NAFH NB is obligated under operating leases assumed for office and banking premises which expire in periods varying from 10 months to one year. Future minimum lease payments, before considering renewal options that generally are present, are as follows at July 16, 2010:

Years Ending December 31,
2010 (Period from July 16, 2010 through December 31, 2010)	$	84
2011		97
2012		–
2013		–
2014		–
Thereafter		–
	$	181

F-103

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Notes to Statement of Assets Acquired and Liabilities Assumed of Turnberry Bank

as of July 16, 2010

(dollars in thousands)

6. Intangible Assets

Tax deductible intangible assets acquired consist of the following at July 16, 2010:

	Gross Carrying Amount
Core deposit intangible due to acquisition of Turnberry	$	600

The identified intangible assets are amortized as noninterest expense over their estimated lives.

Estimated amortization expense for each of the next five years is as follows:

Years ending December 31,
2010 (Period from July 16, 2010 through December 31, 2010)	$	69
2011		150
2012		150
2013		150
2014		81
	$	600

7. Time Deposits

Time deposits of $100 or more were $97,082 at the acquisition date.

At July 16, 2010, the scheduled maturities of time deposits are as follows:

Years Ending December 31,
2010 (Period from July 16, 2010 through December 31, 2010)	$	64,772
2011		46,150
2012		10,065
2013		2,036
2014		2,132
2015 and beyond		1,006
	$	126,161

8. Short-Term Borrowings and Federal Home Loan Bank Advances

Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, advances from the Federal Home Loan Bank, and a Treasury, tax and loan note option.

NAFH NB also acquired securities sold under agreements to repurchase with commercial account holders whereby NAFH NB sweeps the customer’s accounts on a daily basis and pays interest on these amounts. These agreements are collateralized by investment securities chosen by NAFH NB.

F-104

NAFH National Bank (Subsidiary of North American Financial Holdings, Inc.)

Notes to Statement of Assets Acquired and Liabilities Assumed of Turnberry Bank

as of July 16, 2010

(dollars in thousands)

Through the acquisition of Turnberry, NAFH NB assumed FHLB advances outstanding with a face value of $55,000 and a fair value of $59,017. The advances consist of the following:

Fair Value		Contractual Outstanding Amount		Maturity Date	Repricing Frequency		Rate at July 16, 2010
$	3,034	$	3,000	March 2011		Fixed		2.12	%
	3,028		3,000	May 2011		Fixed		1.65	%
	5,212		5,000	June 2011(a)		Fixed		5.04	%
	5,107		5,000	July 2011(a)		Fixed		2.81	%
	5,292		5,000	January 2012(a)		Fixed		4.56	%
	4,372		4,000	March 2013(a)		Fixed		4.58	%
	5,625		5,000	June 2014(a)		Fixed		4.67	%
	5,239		5,000	February 2015(a)		Fixed		2.83	%
	5,431		5,000	June 2015(a)		Fixed		3.71	%
	5,469		5,000	July 2015(a)		Fixed		3.57	%
	5,558		5,000	November 2017(a)		Fixed		3.93	%
	5,650		5,000	July 2018(a)		Fixed		3.94	%
$	59,017	$	55,000

(a) These advances have quarterly conversion dates. If the FHLB chooses to convert the advance, NAFH NB has the option of prepaying the entire balance without penalty. Otherwise, the advance will convert to an adjustable rate, repricing on a quarterly basis. If the FHLB does not convert the advance, it will remain at the contracted fixed rate until the maturity date.

F-105

TIB Financial Corp.

Unaudited Consolidated Financial Statements as of and for the

Six Months Ended June 30, 2011 and 2010

TIB FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars and shares in thousands, except per share data)

	(Unaudited)
	June 30, 2011		December 31, 2010
Assets
Cash and due from banks	$	6,145	$	153,794
Investment securities available for sale		–		418,092
Loans, net of deferred loan costs and fees		–		1,004,630
Less: Allowance for loan losses		–		402
Loans, net		–		1,004,228
Premises and equipment, net		–		43,153
Goodwill		–		29,999
Intangible assets, net		3,288		11,406
Other real estate owned		–		25,673
Deferred income tax asset		–		19,973
Accrued interest receivable and other assets		743		50,548
Equity method investment in Capital Bank, NA		199,927		–
Total Assets	$	210,103	$	1,756,866
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest-bearing demand	$	–	$	198,092
Interest-bearing		–		1,168,933
Total deposits		–		1,367,025
Federal Home Loan Bank (FHLB) advances		–		131,116
Short-term borrowings		–		47,158
Long-term borrowings		23,031		22,887
Accrued interest payable and other liabilities		7,036		11,930
Total liabilities		30,067		1,580,116
Shareholders’ equity
Common stock-$.10 par value per share: 50,000 shares authorized, 12,350 and 11,817 shares issued and outstanding, respectively		1,235		1,182
Additional paid in capital		174,903		177,316
Retained earnings		2,588		560
Accumulated other comprehensive income (loss)		1,310		(2,308	)
Total shareholders’ equity		180,036		176,750
Total Liabilities and Shareholders’ Equity	$	210,103	$	1,756,866

See accompanying notes to consolidated financial statements

F-107

TIB FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars and shares in thousands, except per share amounts)

	Successor Company		Predecessor Company			Successor Company		Predecessor Company
	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010			Six Months Ended June 30, 2010		Six Months Ended June 30, 2011
Interest and dividend income
Loans, including fees	$	4,347	$	14,636		$	17,745	$	30,635
Investment securities:
Taxable		902		2,229			3,238		4,373
Tax-exempt		4		41			19		108
Interest-bearing deposits in other banks		31		75			101		149
Federal Home Loan Bank stock		6		7			31		10
Total interest and dividend income		5,290		16,988			21,134		35,275
Interest expense
Deposits		822		4,509			3,276		9,411
Federal Home Loan Bank advances		64		1,181			301		2,395
Short-term borrowings		4		25			19		48
Long-term borrowings		466		671			922		1,325
Total interest expense		1,356		6,386			4,518		13,179
Net interest income		3,934		10,602			16,616		22,096
Provision for loan losses		136		7,700			621		12,625
Net interest income after provision for loan losses		3,798		2,902			15,995		9,471
Non-interest income
Service charges on deposit accounts		257		839			1,070		1,754
Fees on mortgage loans originated and sold		144		481			498		764
Investment advisory and trust fees		379		313			766		620
Loss on sale of indirect auto loans		–		–			–		(346	)
Equity in income from investment in Capital Bank, NA		658		–			658		–
Other income		464		868			1,669		1,481
Investment securities gains (losses), net		–		993			12		2,635
Other-than-temporary impairment losses on investments
Gross impairment losses		–		–			–		–
Less: Impairments recognized in other comprehensive income		–		–			–		–
Net impairment losses recognized in earnings		–		–			–		–
Total non-interest income		1,902		3,494			4,673		6,908
Non-interest expense
Salaries and employee benefits		2,250		6,413			8,751		13,249
Net occupancy and equipment expense		692		2,273			2,740		4,557
Foreclosed asset related expense		43		5,149			565		6,249
Other expense		1,614		6,660			5,868		11,474
Total non-interest expense		4,599		20,495			17,924		35,529
Income (loss) before income taxes		1,101		(14,099	)		2,744		(19,150	)
Income tax expense		141		–			716		–
Net income (loss)	$	960	$	(14,099	)	$	2,028	$	(19,150	)
Preferred dividends earned by preferred shareholders and discount accretion		–		669			–		1,329
Net loss allocated to common shareholders	$	960	$	(14,768	)	$	2,028	$	(20,479	)
Basic income (loss) per common share	$	0.08	$	(99.45	)	$	0.17	$	(137.96	)
Diluted income (loss) per common share	$	0.07	$	(99.45	)	$	0.14	$	(137.96	)

See accompanying notes to consolidated financial statements

F-108

TIB FINANCIAL CORP.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(Dollars and shares in thousands, except per share data)

Successor Company	Common Shares		Common Stock		Additional Paid in Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance April 1, 2011		12,350	$	1,235	$	185,039		$	1,628	$	(921	)	$	186,981
Comprehensive income
Net income									960					960
Net market valuation adjustment on securities available for sale											2,721
Less: reclassification adjustment for gains											–
Other comprehensive income, net of tax expense of $1,642														2,721
Comprehensive income														3,681
Effects of merger of TIB Bank into Capital Bank, NA						(10,123	)				(490	)		(10,613	)
Common stock issued in Rights Offering						(13	)							(13	)
Balance, June 30, 2011		12,350	$	1,235	$	174,903		$	2,588	$	1,310		$	180,036

Predecessor Company	Preferred Shares		Preferred Stock		Common Shares		Common Stock		Additional Paid in Capital		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive (Loss)			Treasury Stock			Total Shareholders’ Equity
Balance, April 1, 2010		37	$	33,919		149	$	15	$	76,304	$	(55,234	)	$	(3,649	)	$	(569	)	$	50,786
Comprehensive loss:
Net loss												(14,099	)								(14,099	)
Net market valuation adjustment on securities available for sale															3,236
Less: reclassification adjustment for gains															(993	)
Other comprehensive income																					2,243
Comprehensive loss																					(11,856	)
Preferred stock discount accretion				191								(191	)								–
Stock-based compensation and related tax effect										106											106
Balance, June 30, 2010		37	$	34,110		149	$	15	$	76,410	$	(69,524	)	$	(1,406	)	$	(569	)	$	39,036

F-109

Successor Company	Common Shares		Common Stock		Additional Paid in Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance January 1, 2011		11,817	$	1,182	$	177,316		$	560	$	(2,308	)	$	176,750
Comprehensive income:
Net income									2,028					2,028
Net market valuation adjustment on securities available for sale											4,115
Less: reclassification adjustment for gains											(7	)
Other comprehensive income, net of tax expense of $2,479														4,108
Comprehensive income														6,136
Common stock issued in Rights Offering		533		53		7,710								7,763
Effects of merger of TIB Bank into Capital Bank, NA						(10,123	)				(490	)		(10,613	)
Balance, June 30, 2011		12,350	$	1,235	$	174,903		$	2,588	$	1,310		$	180,036

Predecessor Company	Preferred Shares		Preferred Stock		Common Shares		Common Stock		Additional Paid in Capital		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive (Loss)			Treasury Stock			Total Shareholders’ Equity
Balance, January 1, 2010		37	$	33,730		149	$	15	$	76,154	$	(49,994	)	$	(3,818	)	$	(569	)	$	55,518
Comprehensive loss:
Net loss												(19,150	)								(19,150	)
Net market valuation adjustment on securities available for sale															5,047
Less: reclassification adjustment for gains															(2,635	)
Other comprehensive income																					2,412
Comprehensive loss																					(16,738	)
Preferred stock discount accretion				380								(380	)								–
Stock-based compensation and related tax effect										256											256
Balance, June 30, 2010		37	$	34,110		149	$	15	$	76,410	$	(69,524	)	$	(1,406	)	$	(569	)	$	39,036

F-110

TIB FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(Unaudited)

(Dollars in thousands)

	Successor Company			Predecessor Company
	Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
Cash flows from operating activities:
Net income (loss)	$	2,028		$	(19,150	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Accretion of acquired loans		(17,059	)		–
Equity in income from investment in Capital Bank, NA		(658	)		–
Depreciation and amortization		337			2,267
Provision for loan losses		621			12,625
Deferred income tax expense		287			–
Investment securities net realized gains		(12	)		(2,635	)
Net amortization of investment premium/discount		1,967			1,588
Stock-based compensation		–			256
(Gain)/Loss on sales of OREO		(121	)		111
OREO valuation adjustments		–			4,776
Loss on the sale of indirect auto loans		–			346
Other		(656	)		264
Mortgage loans originated for sale		(17,154	)		(37,650	)
Proceeds from sales of mortgage loans originated for sale		24,854			36,264
Fees on mortgage loans sold		(498	)		(764	)
Change in accrued interest receivable and other assets		(2,641	)		3,819
Change in accrued interest payable and other liabilities		5,063			4,834
Net cash (used in) provided by operating activities		(3,642	)		6,951
Cash flows from investing activities:
Net change in cash due to merger of TIB Bank with and into Capital Bank, NA		(103,654	)		–
Investment in Capital Bank, NA		(5,241	)		–
Purchases of investment securities available for sale		(15,474	)		(265,628	)
Sales of investment securities available for sale		2,319			188,601
Repayments of principal and maturities of investment securities available for sale		43,101			48,202
Sales of FHLB Stock		244			–
Principal repayments on loans, net of loans originated or acquired		(7,069	)		29,752
Purchases of premises and equipment		(405	)		(12,350	)
Proceeds from sales of loans		–			25,767
Proceeds from sale of OREO		8,844			3,604
Proceeds from disposal of equipment		–			41
Net cash (used in) provided by investing activities		(77,335	)		17,989
Cash flows from financing activities:
Net increase (decrease) in demand, money market and savings accounts		78,957			(87,461	)
Net increase (decrease) in time deposits		(138,414	)		59,576
Net change in federal funds purchased and securities sold under agreements to repurchase		(4,979	)		(6,581	)
Repayment of long term FHLB advances		(10,000	)		–
Net proceeds from common stock rights offering		7,764			–
Net cash used in financing activities		(66,672	)		(34,466	)
Net decrease in cash and cash equivalents		(147,649	)		(9,526	)
Cash and cash equivalents at beginning of period		153,794			167,402
Cash and cash equivalents at end of period	$	6,145		$	157,876
Supplemental disclosures of cash paid:
Interest	$	5,304		$	10,999
Supplemental information:
Transfer of loans to OREO		4,752			25,702

See accompanying notes to consolidated financial statements

F-111

TIB Financial Corp. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

June 30, 2011

(Dollars and shares in thousands except per share data)

Note 1—Basis of Presentation & Accounting Policies

TIB Financial Corp. is a bank holding company headquartered in Naples, Florida. Prior to April 29, 2011, TIB Financial Corp. (the “Company”) conducted its business primarily through its wholly-owned subsidiaries, TIB Bank (together with its successor entities following the Merger (as defined below), the “Bank”) and Naples Capital Advisors, Inc. As described in additional detail in Note 2, on April 29, 2011 (the “Merger Date”), the Bank merged (the “Merger”) with and into NAFH National Bank (“NAFH Bank”), a subsidiary of our majority shareholder, North American Financial Holdings, Inc. (“NAFH”) in an all-stock transaction, with NAFH Bank as the surviving entity. On June 30, 2011, NAFH Bank merged with Capital Bank, a wholly-owned subsidiary of Capital Bank Corporation, a controlled subsidiary of our majority shareholder, with NAFH Bank as the surviving entity (the “Capital Bank Merger”). On June 30, 2011, NAFH Bank changed its name to Capital Bank, National Association (“Capital Bank, NA”). The Company’s approximately 33% ownership interest in Capital Bank, NA is recorded as an equity-method investment in that entity. As of June 30, 2011, the Company’s investment in Capital Bank, NA totaled $199,927, which reflected the Company’s pro rata ownership of Capital Bank, NA’s total shareholders’ equity. In periods subsequent to the Merger Date, the Company will adjust this equity investment balance based on its equity in Capital Bank, NA’s net income and comprehensive income. In connection with the Merger, assets and liabilities of the Bank were de-consolidated from the Company’s balance sheet resulting in a significant decrease in the total assets and total liabilities of the Company in the second quarter of 2011. Accordingly, as of June 30, 2011, no investments, loans or deposits are reported on the Company’s Consolidated Balance Sheet. Subsequent to the Merger Date, the Company’s significant assets and liabilities included in the Consolidated Balance Sheet are comprised of a customer relationship intangible associated with Naples Capital Advisors, Inc., the company’s wholly-owned registered investment advisor, along with current and deferred income tax accounts, trust preferred securities and the related accrued interest payable. The Company’s operating results subsequent to the Merger Date include interest income and interest expense resulting from cash deposited in Capital Bank, NA and the outstanding trust preferred securities issued by the Company, respectively. Unless otherwise specified, this report describes TIB Financial Corp. and its subsidiaries including TIB Bank through the Merger Date, and subsequent to that date, includes TIB Financial Corp. and Naples Capital Advisors, Inc.

The accompanying unaudited consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information and an additional description of the Company’s accounting policies, refer to the Company’s annual report on Form 10-K for the year ended December 31, 2010.

Share and per share amounts have been adjusted to account for the effects of the 1 for 100 reverse stock split on December 15, 2010. As a result of the reverse stock split, every 100 shares of the Company’s common stock issued and outstanding immediately prior to the effective time were combined and reclassified into 1 share of common stock. Information presented in this document “as of” June 30, 2011 gives effect to the completion of the Capital Bank Merger. All numerical dollar and share amounts are in thousands, other than per-share amounts or as otherwise noted. We have considered the impact on these consolidated financial statements of subsequent events.

As used in this document, the terms “we,” “us,” “our,” “TIB Financial,” and “Company” mean TIB Financial Corp. and its subsidiaries (unless the context indicates another meaning) and the term “Bank” means TIB Bank, and, after the Merger, its successor entities.

F-112

TIB Financial Corp. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

June 30, 2011

(Dollars and shares in thousands except per share data)

North American Financial Holdings, Inc. Investment

On September 30, 2010, (the “Transaction Date”) the Company completed the issuance and sale to NAFH of 7,000 shares of common stock, 70 shares of Series B Preferred Stock and a warrant (the “Warrant”) to purchase up to 11,667 shares of Common Stock of the Company (the “Warrant Shares”) for aggregate consideration of $175,000 (the “Investment”). The consideration was comprised of approximately $162,840 in cash and approximately $12,160 in the form of a contribution to the Company of all 37 outstanding shares of Series A Preferred Stock previously issued to the U.S. Treasury Department (“Treasury”) under the TARP Capital Purchase Program and the related warrant to purchase shares of the Company’s common stock, which NAFH purchased directly from the Treasury. The Series A Preferred Stock and the related warrant were retired on September 30, 2010 and are no longer outstanding. The 70 shares of Series B Preferred Stock received by NAFH converted into an aggregate of 4,667 shares of common stock following shareholder approval of an amendment to increase the number of authorized shares of common stock to 50,000. The Warrant is exercisable, in whole or in part, and from time to time, from September 30, 2010 to March 30, 2012, at an exercise price of $15.00 per Warrant Share.

As a result of the Investment, pursuant to which NAFH acquired approximately 99% (which has subsequently been reduced to approximately 94% as a result of the Rights Offering) of the voting securities of the Company, the Company followed the acquisition method of accounting as required by the Business Combinations Topic of the FASB Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). Under the accounting guidance the application of “push down” accounting was required.

Acquisition accounting requires that the assets purchased, the liabilities assumed, and non-controlling interests all be reported in the acquirer’s financial statements at their fair value, with any excess of purchase consideration over the net assets being reported as goodwill. Acquisition accounting requires that the valuation of assets, liabilities, and non-controlling interests be recorded in the acquiree’s records as well. Accordingly, the Company’s Consolidated Financial Statements and transactional records prior to the NAFH Investment reflect the historical accounting basis of assets and liabilities and are labeled “Predecessor Company,” while such records subsequent to the NAFH Investment are labeled “Successor Company” and reflect the push down basis of accounting for the new fair values in the Company’s financial statements. This change in accounting basis is represented in the Consolidated Financial Statements by a vertical black line which appears between the columns entitled “Predecessor Company” and “Successor Company” on the statements and in the relevant notes. The black line signifies that the amounts shown for the periods prior to and subsequent to the NAFH Investment are not comparable.

In addition to the new accounting basis established for assets, liabilities and noncontrolling interests, acquisition accounting also requires the reclassification of any retained earnings from periods prior to the acquisition to be recognized as common share equity and the elimination of any accumulated other comprehensive income or loss and surplus within the Company’s Shareholders’ Equity section of the Company’s Consolidated Financial Statements. Accordingly, retained earnings and accumulated other comprehensive income at June 30, 2011 and December 31, 2010 represent only the results of operations subsequent to September 30, 2010, the date of the NAFH Investment.

Pursuant to the Investment Agreement, shareholders as of July 12, 2010 received non-transferable rights to purchase a number of shares of the Company’s common stock proportional to the number of shares of common stock held by such holders on such date, at a purchase price equal to $15.00 per share, subject to certain limitations (the “Rights Offering”). Approximately 533 shares of the Company’s common stock were issued in

F-113

TIB Financial Corp. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

June 30, 2011

(Dollars and shares in thousands except per share data)

exchange for net proceeds of approximately $7,764 upon completion of the Rights Offering on January 18, 2011. Subsequent to the Rights Offering, NAFH owned 94% of the Company’s outstanding common stock.

Critical Accounting Policies

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted within the United States of America and conform to general practices within the banking industry.

Earnings (Loss) Per Common Share

Basic earnings (loss) per share is net income (loss) allocated to common shareholders divided by the weighted average number of common shares and vested restricted shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options, warrants and restricted shares computed using the treasury stock method.

Earnings (loss) per share have been computed based the following for the periods ended:

	Successor Company		Predecessor Company		Successor Company		Predecessor Company
	Three Months Ended June 30, 2010		Three Months Ended June 30, 2010		Six Months Ended June 30, 2011		Six Months Ended June 30, 2011
Weighted average number of common shares outstanding:
Basic		12,350		148		12,055		148
Dilutive effect of options outstanding		–		–		–		–
Dilutive effect of restricted shares		–		–		–		–
Dilutive effect of warrants outstanding		1,080		–		1,993		–
Diluted		13,430		148		14,048		148

The dilutive effect of stock options and warrants and the dilutive effect of unvested restricted shares are the only common stock equivalents for purposes of calculating diluted earnings per common share.

Weighted average anti-dilutive stock options and warrants and unvested restricted shares excluded from the computation of diluted earnings per share are as follows:

	Successor Company		Predecessor Company		Successor Company		Predecessor Company
	Three Months Ended June 30, 2010		Three Months Ended June 30, 2010		Six Months Ended June 30, 2011		Six Months Ended June 30, 2011
Anti-dilutive stock options		6		8		7		8
Anti-dilutive restricted stock awards		–		0		–		0
Anti-dilutive warrants		–		24		5		24

Income Taxes

Income tax expense (or benefit) is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred income tax assets and liabilities are determined using the liability

F-114

TIB Financial Corp. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

June 30, 2011

(Dollars and shares in thousands except per share data)

(or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 amends current guidance by (i) eliminating the option to present components of other comprehensive income (OCI) as part of the statement of changes in shareholders’ equity, (ii) requiring the presentation of each component of net income and each component of OCI either in a single continuous statement or in two separate but consecutive statements, and (iii) requiring the presentation of reclassification adjustments on the face of the statement. The amendments of ASU 2011-05 do not change the option to present components of OCI either before or after related income tax effects, the items that must be reported in OCI, when an item of OCI should be reclassified to net income, or the computation of earnings per share (which continues to be based on net income). ASU 2011-05 is effective for interim and annual periods beginning on or after December 15, 2011 for public companies, with early adoption permitted and retrospective application required. The adoption of ASU 2011-05 will not have an impact on the Company’s consolidated financial condition or results of operations but will alter disclosures.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The amended guidance of ASU 2011-04 (i) clarifies how a principal market is determined, (ii) establishes the valuation premise for the highest and best use of nonfinancial assets, (iii) addresses the fair value measurement of instruments with offsetting market or counterparty credit risks, (iv) extends the prohibition on blockage factors to all three levels of the fair value hierarchy, and (v) requires additional disclosures including transfers between Level 1 and Level 2 of the fair value hierarchy, quantitative and qualitative information and a description of an entity’s valuation process for Level 3 fair value measurements, and fair value hierarchy disclosures for financial instruments not measured at fair value. ASU 2011-04 is effective for interim and annual periods beginning on or after December 15, 2011, with early adoption prohibited. The adoption of ASU 2011-04 is not expected to have a material impact on the Company’s consolidated financial condition or results of operations.

In April 2011, the FASB issued ASU 2011-02, Receivables. The new guidance amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring. The amendments clarify the guidance for a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. This guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. Management is currently evaluating the impact the new guidance will have on the consolidated financial statements.

In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations, to amend ASC Topic 805, Business Combinations. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and

F-115

TIB Financial Corp. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

June 30, 2011

(Dollars and shares in thousands except per share data)

earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this update are effective prospectively for 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, 2010. Adoption of this update did not have a material impact on the Company’s consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to amend ASC Topic 320, Receivables. The amendments in this update are intended to provide disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Adoption of this update did not have a material impact on the Company’s consolidated financial statements.

Note 2—Equity Method Investment in Capital Bank, NA

On April 29, 2011, the Company’s primary operating subsidiary, TIB Bank, was merged with and into NAFH Bank, an affiliate institution which had been wholly-owned by the Company’s controlling shareholder, NAFH, preceding the Merger. Pursuant to the merger agreement dated April 27, 2011, between NAFH Bank and the Bank, the Company exchanged its 100% ownership interest in TIB Bank for an approximately 53% ownership interest in the surviving combined entity, NAFH Bank. NAFH is deemed to control NAFH Bank due to NAFH’s 94% ownership interest in the Company and NAFH’s direct ownership of the remaining 47% interest in NAFH Bank subsequent to the Merger. Accordingly, subsequent to April 29, 2011, the Company began to account for its ownership in NAFH Bank under the equity method of accounting and the assets and liabilities of the Bank were de-consolidated from the Company’s balance sheet. The deconsolidation resulted in a significant decrease in the total assets and total liabilities of the Company in the second quarter of 2011. Accordingly, as of June 30, 2011, no investments, loans or deposits are reported on the Company’s Consolidated Balance Sheet and subsequent to the Merger Date, interest income and interest expense are the result of cash deposited in Capital Bank, NA and the outstanding trust preferred securities issued by the Company, respectively.

On June 30, 2011, Capital Bank, a wholly-owned subsidiary of Capital Bank Corp., an affiliated bank holding company in which NAFH has an 83% ownership interest, was merged with and into NAFH Bank, with NAFH Bank as the surviving entity. Subsequently and as a result of that transaction, the Company’s ownership interest in NAFH Bank was reduced to 33%. In connection with the transaction, NAFH Bank also changed its name to Capital Bank, National Association.

The merger of the Bank into NAFH Bank and the subsequent merger of Capital Bank into NAFH Bank were restructuring transactions between commonly-controlled entities. The difference between the amount of the Company’s initial equity method investment in NAFH Bank, subsequent to the merger, and the Company’s investment in the Bank, immediately preceding the merger, was accounted for as a reduction in additional paid in capital. The amount of the equity method investment in NAFH Bank on April 29, 2011, immediately subsequent to the merger, was equal to approximately 53% of the total shareholders’ equity of NAFH Bank post-merger (the combined entity). Additionally, at the time of the merger, due to the de-consolidation of the Bank, the balance of accumulated other comprehensive income was reclassified as additional paid in capital. As the Company began to account for its investment in the combined entity under the equity method, the change in the Company’s equity method investment between April 29, 2011 and June 30, 2011, immediately preceding the merger of

F-116

TIB Financial Corp. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

June 30, 2011

(Dollars and shares in thousands except per share data)

Capital Bank into NAFH Bank, was related to the Company’s proportional share of the net income and other comprehensive income of NAFH Bank during that period. Subsequent to and as a result of the Capital Bank merger, the Company’s equity method investment increased to equal its proportional ownership of Capital Bank, NA with the increase being recorded as an increase in additional paid in capital. Cumulatively, the mergers resulted in a net decrease in the total shareholders’ equity of the Company of $10,613.

Subsequent to the mergers, NAFH, the Company and Capital Bank Corp. made contributions of additional capital to Capital Bank, NA of $4,695, $5,241 and $6,063, respectively, in proportion to their respective ownership interests in Capital Bank, NA. The contributions were made to provide additional capital support for the general business operations of Capital Bank, NA.

At June 30, 2011, the Company’s net investment of $199,927 in Capital Bank, NA, was recorded in the Consolidated Balance Sheet as “Equity method investment in Capital Bank, NA.” The Company’s share of earnings of $658 was recorded in “Equity in income from investment in Capital Bank, NA.” in the Company’s Consolidated Statement of Income for the three and six months ended June 30, 2011

The following table presents summarized financial information for the Company’s equity method investee; Capital Bank, NA:

(Successor Company)	Period From April 29, 2011 Through June 30, 2011
Interest income	$	20,710
Interest expense		3,280
Net interest income		17,430
Provision for loan losses		6,496
Non-interest income		4,465
Non-interest expense		13,388
Net income	$	1,248

Note 3—Investment Securities

As discussed in Note 2, due to the deconsolidation of the Bank during the second quarter of 2011, no investment securities are reported on the Company’s consolidated balance sheet as of June 30, 2011. The amortized cost, estimated fair value and the related gross unrealized gains and losses recognized in accumulated other comprehensive income of investment securities available for sale at December 31, 2010 are presented below:

	December 31, 2010
(Successor Company)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Government agencies and corporations	$	40,980	$	15	$	296	$	40,699
States and political subdivisions—tax exempt		3,082		2		25		3,059
States and political subdivisions—taxable		2,308		–		151		2,157
Marketable equity securities		102		–		28		74
Mortgage-backed securities—residential		372,409		946		4,152		369,203
Corporate bonds		2,104		1		–		2,105
Collateralized debt obligation		807		–		12		795
	$	421,792	$	964	$	4,664	$	418,092

F-117

TIB Financial Corp. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

June 30, 2011

(Dollars and shares in thousands except per share data)

Proceeds from sales and calls of securities available for sale were $17,550 and $20,144 for the three and six months ended June 30, 2011, respectively. Gross gains of approximately $0 and $12 were realized on these sales and calls during the three and six months ended June 30, 2011, respectively.

Securities with unrealized losses not recognized in income, and the period of time they have been in an unrealized loss position, are as follows:

	December 31, 2010
	Less than 12 Months				12 Months or Longer				Total
(Successor Company)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	14,304	$	296		–		–	$	14,304	$	296
States and political subdivisions—tax exempt		2,458		25		–		–		2,458		25
States and political subdivisions-taxable		2,157		151		–		–		2,157		151
Marketable equity securities		74		28		–		–		74		28
Mortgage-backed securities— residential		213,153		4,152		–		–		213,153		4,152
Corporate bonds		–		–		–		–		–		–
Collateralized debt obligation		795		12		–		–		795		12
Total temporarily impaired	$	232,941	$	4,664	$	–	$	–	$	232,941	$	4,664

Note 4—Loans

As discussed in Note 2, due to the deconsolidation of the Bank during the second quarter of 2011, no loans are reported on the Company’s consolidated balance sheet as of June 30, 2011. Major classifications of loans as of December 31, 2010 are as follows:

(Successor Company)	December 31, 2010
Real estate mortgage loans:
Commercial	$	612,455
Residential		225,850
Construction and vacant land		38,956
Commercial and agricultural loans		60,642
Indirect auto loans		28,038
Home equity loans		29,658
Other consumer loans		8,730
Total loans		1,004,329
Net deferred loan costs		301
Loans, net of deferred loan costs	$	1,004,630

F-118

TIB Financial Corp. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

June 30, 2011

(Dollars and shares in thousands except per share data)

Accretable yield, or income expected to be collected, related to purchased credit-impaired loans is as follows:

(Successor Company)	Three Months Ended June 30, 2011			Six Months Ended June 30, 2011
Balance, beginning of period	$	250,840		$	263,381
New loans purchased		–			–
Accretion of income		(4,518	)		(17,059	)
Reclassifications from nonaccretable difference		–			–
Reduction due to deconsolidation of the Bank		(246,322	)		(246,322	)
Balance, end of period	$	–		$	–

The contractually required payments represent the total undiscounted amount of all uncollected contractual principal and contractual interest payments both past due and scheduled for the future, adjusted for the timing of estimated prepayments and any full or partial charge-offs prior to the NAFH Investment. Nonaccretable difference represents contractually required payments in excess of the amount of estimated cash flows expected to be collected. The accretable yield represents the excess of estimated cash flows expected to be collected over the initial fair value of the PCI loans, which is their fair value at the time of the NAFH Investment. The accretable yield is accreted into interest income over the estimated life of the PCI loans using the level yield method. The accretable yield will change due to changes in:

• the estimate of the remaining life of PCI loans which may change the amount of future interest income, and possibly principal, expected to be collected;

• the estimate of the amount of contractually required principal and interest payments over the estimated life that will not be collected (the nonaccretable difference); and

• indices for PCI loans with variable rates of interest.

For PCI loans, the impact of loan modifications is included in the evaluation of expected cash flows for subsequent decreases or increases of cash flows. For variable rate PCI loans, expected future cash flows will be recalculated as the rates adjust over the lives of the loans. At acquisition, the expected future cash flows were based on the variable rates that were in effect at that time.

F-119

TIB Financial Corp. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

June 30, 2011

(Dollars and shares in thousands except per share data)

Note 5—Allowance for Loan Losses

As discussed in Note 2, due to the deconsolidation of the Bank during the second quarter of 2011, no loans or allowance for loan losses were reported on the Company’s consolidated balance sheet as of June 30, 2011. Activity in the allowance for loan losses for the three and six months ended June 30, 2011 and 2010 follows:

	Successor Company			Predecessor Company			Successor Company			Predecessor Company
	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010			Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
Balance, beginning of period	$	877		$	27,829		$	402		$	29,083
Provision for loan losses charged to expense		136			7,700			621			12,625
Loans charged off		(14	)		(8,634	)		(24	)		(14,987	)
Recoveries of loans previously charged off		–			815			–			989
Reduction due to deconsolidation of the Bank		(999	)		–			(999	)		–
Balance, end of period	$	–		$	27,710		$	–		$	27,710

Roll forward of allowance for loan losses for the three months ended June 30, 2011:

(Successor Company)	March 31, 2011		Provision		Net Charge-offs		Reduction Due to Deconsolidation of the Bank			June 30, 2011
Real estate mortgage loans:
Commercial	$	158	$	50	$	–	$	(208	)	$	–
Residential		341		29		–		(370	)		–
Construction and vacant land		61		14		–		(75	)		–