As filed with the Securities and Exchange Commission on June 23, 2011

Registration No. 333-                

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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  ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to Be Registered	Proposed Maximum Aggregate Offering Price(1)(2)	Amount of Registration Fee
Class A common stock, par value $0.01 per share	$300,000,000	$34,830

⁽¹⁾  Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. This amount represents the proposed maximum aggregate offering price of the securities registered hereunder to be sold by the Registrant.

⁽²⁾  Includes shares of Class A common stock which may be sold pursuant to the underwriters’ option to purchase additional shares.

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 June 23, 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 13 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		13
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		37
USE OF PROCEEDS		38
DIVIDEND POLICY		39
CAPITALIZATION		40
DILUTION		41
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION		43
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION		46
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		56
BUSINESS		99
SUPERVISION AND REGULATION		114
MANAGEMENT		127
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND SELLING STOCKHOLDERS		143
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS		146
DESCRIPTION OF CAPITAL STOCK		148
SHARES ELIGIBLE FOR FUTURE SALE		152
MATERIAL U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS		153
CERTAIN ERISA CONSIDERATIONS		156
UNDERWRITING		157
ADDITIONAL INFORMATION		162
WHERE YOU CAN FIND MORE INFORMATION		162
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 NAFH National Bank, a national banking association (which we refer to as “NAFH Bank” and whose name is expected to change to “Capital Bank” in June 2011), 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 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 our 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, and we make no representations as to the accuracy or completeness of the data. 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 our 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 March 31, 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 March 31, 2011, we had approximately $7.2 billion in total assets, $4.4 billion in loans, $2.8 billion in core deposits (which exclude time deposits), $5.5 billion in total deposits and $973.2 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 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 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 $2.4 billion in assets reported as of March 31, 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 90.1% of Green Bankshares’ common stock. Total assets as of March 31, 2011 included $1.7 billion of gross loans. This transaction will extend our market area in the fast-growing Tennessee metropolitan areas of Nashville and Knoxville.

Within a six-month period, we integrated and centralized the underwriting, risk and pricing functions of each of our acquired institutions and combined four of our acquired institutions onto a single information processing system. We expect to have all five of our acquired institutions fully integrated by July 2011.

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, we intend to merge Capital Bank, the wholly owned bank subsidiary of Capital Bank Corp., and, assuming the completion of our Green Bankshares investment, GreenBank, the wholly owned bank subsidiary of Green Bankshares, with and into NAFH National Bank, which will be rebranded as Capital Bank, N.A. In addition, concurrent with the completion of this offering, we intend to merge each of our majority-held 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 our 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 our Class A common stock to the other shareholders of our bank holding company subsidiaries that will be merged with the Company in the reorganization.

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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 June 22, 2011 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 Bank in an all-stock transaction. See “Business—Our Acquisitions—TIB Financial Corp.”

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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. 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 the credit, finance, technology and operations. 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.

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 existing books of business in certain of our markets. 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.

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

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markets, increase our earnings power or enhance 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.

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 expect Capital Bank Corp. to be fully integrated 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.

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.

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• 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 $170.5 million of commercial and consumer loan originations and $120.6 million in net core deposit growth in the first quarter of 2011.

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

• 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 March 31, 2011, approximately 22% 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 March 31, 2011, we had a 17.5% tangible common equity ratio and a 19.2% Tier 1 leverage ratio, which provides us with $392.7 million in excess capital relative to the 10% Tier 1 leverage standard required under our operating agreement with the Office of the Comptroller of the Currency (which we refer to as the “OCC”). As of March 31, 2011, NAFH Bank had a 12.7% Tier 1 leverage ratio, a 45.8% Tier 1 risk-based ratio and a 46.2% total risk-based capital ratio. As of March 31, 2011, we had cash and securities equal to 30% of total assets, representing $742.5 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.

• Scalable Back-Office Systems. By July 2011, we expect that all of our acquired institutions will be 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.

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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 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%. Miami is already considered a large metropolitan area with a population in excess of 5 million. 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		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		5,513		1.4	%	$	51,835		13.5	%
Charlotte-Gastonia-Rock Hill, NC-SC		1		1,793		14.8			62,215		13.2
Nashville-Davidson-Murfreesboro-Franklin, TN		21		1,608		9.6			58,639		11.3
Raleigh-Cary, NC		13		1,162		19.4			68,373		15.4
Columbia, SC		6		758		8.2			52,348		11.9
Knoxville, TN		10		703		6.4			48,593		13.8
Durham-Chapel Hill, NC		2		505		8.8			55,185		13.2
Spartanburg, SC		3		290		7.7			48,476		10.1
Weighted Average: Target MSAs(1)		68		12,333		9.1			56,504		12.8
Weighted Average: NAFH Consolidated(1)		148		18,119		6.3			62,213		12.7
Aggregate: National				311,213		3.9			54,442		12.4

Source: SNL Financial.

⁽¹⁾  Population growth and median household income metrics are deposit weighted by MSA.

⁽²⁾  Population in thousands.

Risk Factors

For a discussion of certain risk factors you should consider before making an investment, see “Risk Factors” beginning on page 13.

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             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 the 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.⁽²⁾

We intend to use the net proceeds from the 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 our 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 13 for a discussion of some of the factors you should consider before buying our Class A common stock.

⁽¹⁾  Based on 20,888,549 shares of Class A common stock and 25,261,449 shares of Class B non-voting common stock issued and outstanding as of March 31, 2011, and includes 1,029,823 shares of restricted stock issued under the NAFH 2010 Equity Incentive Plan. As of March 31, 2011, there were 57 holders of our Class A common stock and 23 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 the 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 March 31, 2011.

⁽²⁾  Except as otherwise indicated in this prospectus, all references to an assumed initial offer price mean $            , the midpoint of the price range set forth on the cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

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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 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 three months ended March 31, 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 three months ended March 31, 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 three months ended March 31, 2011 has been derived from NAFH’s, Capital Bank Corp.’s and Green Bankshares’ historical unaudited financial statements as of and for the three months ended March 31, 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 March 31, 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 and (3) the issuance of approximately              shares of our 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 operations acquired during these periods and because of the substantial change in the operations of each acquired business in connection with its acquisition,

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our results of operations 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 date 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
(Dollars in thousands, other than per share data)	Three Months Ended March 31, 2011		Year Ended December 31, 2010		Three Months Ended March 31, 2011			Three Months Ended March 31, 2010			Year Ended December 31, 2010			November 30 Through December 31, 2009
	(Unaudited)
Summary Results of Operations
Interest income	$	73,376	$	267,063	$	40,305		$	725		$	42,745		$	72
Interest expense		14,893		69,872		7,466			—			6,234			—
Net interest income		58,483		226,744		32,839			725			36,511			72
Provision for loan losses		1,545		753		1,545			—			753			—
Net interest income after provision for loan losses		56,938		225,991		31,294			725			35,758			72
Noninterest income		12,960		68,681		4,501			—			19,659			—
Noninterest expense		59,916		223,392		35,040			3,114			44,421			214
Income (loss) before income taxes		9,982		71,280		755			(2,389	)		10,996			(142	)
Income tax expense (benefit)		3,911		21,867		405			(1,008	)		(1,041	)		(50	)
Net income (loss) before attribution of noncontrolling interests		6,071		66,422		350			(1,381	)		12,037			(92	)
Net income (loss) attributable to noncontrolling interests		—		—		(50	)		—			7			—
Net income (loss) attributable to NAFH.	$	6,071	$	66,422	$	400		$	(1,381	)	$	12,030		$	(92	)
Per Share Data
Earnings
Basic	$		$		$	0.01		$	(0.04	)	$	0.31		$	(0.01	)
Diluted	$		$		$	0.01		$	(0.04	)	$	0.31		$	(0.01	)
Tangible book value	$		$		$	17.76		$	18.82		$	18.26		$	18.86
Weighted average shares outstanding
Basic						45,120,175			31,117,106			38,205,677			8,243,830
Diluted						45,250,175			31,117,106			38,205,677			8,243,830
Common shares outstanding						46,149,998			32,094,240			45,120,175			27,906,524

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	Pro Forma
(Dollars in thousands, except per share data)	Three Months Ended March 31, 2011			Three Months Ended March 31, 2011			Three Months Ended March 31, 2010			Year Ended December 31, 2010			November 30 Through December 31, 2009
				(Unaudited)
Summary Balance Sheet Data
Cash and cash equivalents	$			$	719,804		$	603,794		$	886,925		$	526,711
Investment securities		991,249			765,402			—			479,716			—
Loans held for sale		2,384			1,424			—			—			—
Loans receivable:
Not covered under FDIC loss sharing agreements		3,781,175			2,282,926			—			1,046,463			—
Covered under FDIC loss sharing agreements		656,842			656,842			—			696,284			—
Allowance for loan losses		(2,287	)		(2,287	)		—			(753	)		—
Net loans		4,435,730			2,937,481			—			1,741,994			—
Other real estate owned		132,566			84,533			—			70,817			—
FDIC indemnification asset		77,597			77,597			—			91,467			—
Receivable from FDIC		45,095			45,095			—			46,585			—
Goodwill and intangible assets, net		142,194			86,950			—			51,770			—
Other assets		440,400			232,852			887			127,717			50
Total assets	$			$	4,951,138		$	604,681		$	3,496,991		$	526,761
Deposits	$	5,524,357		$	3,538,722		$	—		$	2,260,097		$	—
Advances from FHLB		446,739			280,151			—			243,067			—
Borrowings		233,382			148,008			—			84,856			—
Other liabilities		62,220			43,953			542			27,735			441
Total liabilities					4,010,834			542			2,615,755			441
Shareholders’ equity					940,304			604,139			881,236			526,320
Total liabilities and shareholders’ equity	$			$	4,951,138		$	604,681		$	3,496,991		$	526,761
Performance Ratios
Return on average assets					0.03	%		(0.95	)%		0.76	%		(0.71	)%
Return on average equity					0.15	%		(0.95	)%		1.67	%		(0.71	)%
Net interest margin					3.42	%		0.50	%		2.51	%		0.55	%
Interest rate spread					3.24	%		0.50	%		2.14	%		0.55	%
Efficiency ratio(1)					93.84	%		NM			79.08	%		NM
Average interest-earning assets to average interest-bearing liabilities					124.03	%		NA			186.42	%		NA
Average loans receivable to average deposits					81.44	%		NA			79.40	%		NA
Cost of interest-bearing liabilities					0.87	%		NA			0.69	%		NA
Asset Quality
Nonperforming loans to loans receivable(2)
Not covered under loss sharing agreements with the FDIC					5.81	%		NA			5.40	%		NA
Covered under loss sharing agreements with the FDIC					19.68	%		NA			19.71	%		NA
Nonperforming assets to total assets					7.06	%		NA			7.65	%		NA
Allowance for loan losses to nonperforming loans					0.87	%		NA			0.39	%		NA
Capital Ratios
Average equity to average total assets					20.77	%		99.91	%		45.51	%		99.79	%
Tangible common equity					17.54	%		99.91	%		24.08	%		99.92	%
Tier 1 leverage					19.20	%		NM			24.30	%		NM
Tier 1 risk-based capital					30.80	%		NM			41.80	%		NM
Total risk-based capital					31.10	%		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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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 four of the acquired banking platforms (the Failed Banks and TIB Financial) into a single unified operating platform and we are in the process of integrating Capital Bank Corp. 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. Our business is 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 March 31, 2011, 48% of our loans were in Florida, 38% were in North Carolina and 14% 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 NAFH Bank’s capital, we and NAFH 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 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.

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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 may result in significant losses, 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 a significant portion of the losses related to the covered assets will be borne by the FDIC. We are subject to audit by the FDIC at its discretion to ensure we are in compliance with the terms of these agreements. We, however, may experience difficulties in complying with the requirements of the loss sharing agreements, which could result in the covered assets losing some or all of their loss protection. The required terms of the agreements are extensive and failure to comply with any of the guidelines could result in a specific asset or group of assets losing their loss sharing coverage.

Although we have entered into loss sharing agreements 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 not protected from all such losses. The FDIC has the right to refuse or delay payment partially or in full for such loan losses if the loss sharing agreements are not managed in accordance with their terms, 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, which 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.

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.

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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 $40.3 million, $7.5 million and 3.4%, respectively, in the first quarter 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 $4.5 million in the first quarter 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 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 March 31, 2011, approximately 87% of our loans had real estate as a primary or secondary component of collateral. The real estate collateral in

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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 and recent trends suggest a continued decline with home prices falling 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). 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. As of March 31, 2011, these loans totaled $404.0 million (or 14% of our total loan portfolio). Approximately $82.7 million of this amount was for construction and/or development of residential properties and $321.3 million was for construction/development of commercial properties. As of March 31, 2011, $116.2 million of our C&D loans were classified as nonperforming.

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 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 nonperforming loans as well as an increase in delinquencies.

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. As of March 31, 2011, our non-owner occupied commercial real estate loans totaled $742.1 million (or 25% of our total loan portfolio). Nonperforming

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non-owner occupied commercial real estate loans totaled $44.5 million as of March 31, 2011. 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.

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.

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.

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 begin providing for loan losses associated with the acquired loans. Through March 31, 2011, we had not recorded any provision for loan losses related to acquired loans.

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

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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.

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 March 31, 2011, we had $84.5 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

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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 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

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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.

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

As of March 31, 2011, approximately 98% 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 March 31, 2011, the fair value of our investment securities portfolio was approximately $765.4 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 $68.9 million as of March 31, 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 are continuing challenges for banking institutions that 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.

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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 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 57% of our deposits as of March 31, 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

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offering competitive rates, as well as non-banks to offer products and services traditionally provided by banks. 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.

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 90.1% 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.

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 the parameters of our business (see “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.

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.

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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 accounting principles, or 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 and deposit insurance funds, 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;

• 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;

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• 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 banks.

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 banks, 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

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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 the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to material penalties.

The CRA and other 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 and other federal 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 CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions 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 program 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.

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.

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

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 any of our subsidiary banks that experience 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 NAFH 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.

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;

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• 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 March 31, 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 our 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 our 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.

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

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“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.

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.

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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 banks to pay dividends to us, which in turn will be restricted by the requirement that they maintain an adequate level of capital in accordance with requirements of their 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 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. 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

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Directors to designate the terms of and issue new series of preferred stock, which may make more difficult the removal of management 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.

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 NAFH 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. 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 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:

• 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; 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 the 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, after deducting estimated underwriting discounts and commissions and estimated offering expenses, would increase (decrease) the net proceeds to us of the 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 the 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 our 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 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. 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.”

39

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of March 31, 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 our 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 as if each event had occurred on March 31, 2011.

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 March 31, 2011
	Actual			Pro Forma(1)
	(unaudited)
	(dollars in thousands, except per share data)
Cash and cash equivalents	$	719,804		$
Long-term debt		97,358
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, 20,888,549 shares issued and outstanding, actual; 200,000,000 shares authorized,              shares issued and outstanding, as adjusted		209
Class B non-voting common stock, $0.01 par value per share: 200,000,000 shares authorized, 25,261,449 shares issued and outstanding, actual; 200,000,000 shares authorized,              shares issued and outstanding, as adjusted		252
Additional paid-in capital		878,485
Retained earnings		12,338
Accumulated other comprehensive loss		(97	)
Noncontrolling interest		49,117
Total shareholders’ equity		940,304
Total capitalization	$	1,037,662		$

⁽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, after deducting estimated underwriting discounts and commissions and estimated offering expenses, would increase (decrease) total stockholder’s equity and total capitalization by $         million and increase (decrease) cash and cash equivalents 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 estimated and offering expenses.

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 increase total cash and cash equivalents, total stockholder’s equity and total capitalization by $         million. 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 decrease total cash and cash equivalents, total stockholder’s equity and total capitalization by $         million.

40

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 March 31, 2011, net tangible book value attributable to our stockholders was $819.5 million, or $17.76 per share of common stock. Net tangible book value, including noncontrolling interests, was $853.4 million as of March 31, 2011. Net tangible book value per share equals total consolidated tangible assets minus total consolidated liabilities divided by the number of outstanding shares of our Class A common stock outstanding and Class B common stock.

Our net tangible book value as of March 31, 2011 would have been approximately $        , or $         per share of Class A common stock, after giving effect to the sale by us of          shares of Class A common stock in this offering at the 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 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 March 31, 2011	$	17.76
Increase in net tangible book value per share attributable to this offering
Net tangible book value per share after this offering
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 March 31, 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 March 31, 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 March 31, 2011 of approximately $         million, or $         per share, and the dilution per 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 full in this offering, our net tangible book value at March 31, 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.

41

The following table summarizes, as of March 31, 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, before 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 March 31, 2011, the net tangible book value per share after this offering 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

• 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.

42

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 three months ended March 31, 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 three months ended March 31, 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 operations acquired during these periods and because of the substantial change in the operations of each acquired business in connection with its acquisition, our results of operations for the three months ended March 31, 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 date 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.

43

(Dollars in thousands, except per share data)	As of and for Three Months Ended March 31, 2011			As of and for  the Three Months Ended March 31, 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 Data
Interest income	$	40,305		$	725		$	42,745		$	72
Interest expense		7,466			—			6,234			—
Net interest income		32,839			725			36,511			72
Provision for loan losses		1,545			—			753			—
Net interest income after provision for loan losses		31,294			725			35,758			72
Non-interest income		4,501			—			19,659			—
Non-interest expense		35,040			3,114			44,421			214
Income (loss) before income taxes		755			(2,389	)		10,996			(142	)
Income tax expense (benefit)		405			(1,008	)		(1,041	)		(50	)
Net income (loss) before attribution of noncontrolling interests		350			(1,381	)		12,037			(92	)
Net income (loss) attributable to noncontrolling interests		(50	)		—			7			—
Net income (loss) attributable to North American Financial Holdings, Inc.	$	400		$	(1,381	)	$	12,030		$	(92	)
Summary Balance Sheet Data
Cash and cash equivalents	$	719,804		$	603,794		$	886,925		$	526,711
Investment securities		765,402			—			479,716			—
Loans held for sale		1,424			—			—			—
Loans receivable:
Not covered under FDIC loss sharing agreements		2,282,926			—			1,046,463			—
Covered under FDIC loss sharing agreements.		656,842			—			696,284			—
Allowance for loan losses		(2,287	)		—			(753	)		—
Net loans		2,937,481			—			1,741,994			—
Other real estate owned		84,533			—			70,817			—
FDIC indemnification assets		77,597			—			91,467			—
Receivable from FDIC		45,095			—			46,585			—
Goodwill and intangible assets, net		86,950			—			51,770			—
Other assets		232,852			887			127,717			50
Total assets	$	4,951,138		$	604,681		$	3,496,991		$	526,761
Deposits		3,538,722			—			2,260,097			—
Advances from FHLB		280,151			—			243,067			—
Borrowings		148,008			—			84,856			—
Other liabilities		43,953			542			27,735			441
Total liabilities		4,010,834			542			2,615,755			441
Shareholders’ equity		940,304			604,139			881,236			526,320
Total liabilities and shareholders’ equity	$	4,951,138		$	604,681		$	3,496,991		$	526,761

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(Dollars in thousands, except per share data)	As of and for Three Months Ended March 31, 2011			As of and for the Three Months Ended March  31, 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	$	0.01		$	(0.04	)	$	0.31		$	(0.01	)
Diluted	$	0.01		$	(0.04	)	$	0.31		$	(0.01	)
Tangible book value	$	17.76		$	18.82		$	18.26		$	18.86
Weighted average shares outstanding
Basic		45,120,175			31,117,106			38,205,677			8,243,830
Diluted		45,250,175			31,117,106			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		0.03	%		(0.95	)%		0.76	%		(0.71	)%
Return on average equity		0.15	%		(0.95	)%		1.67	%		(0.71	)%
Net interest margin		3.42	%		0.50	%		2.51	%		0.55	%
Interest rate spread		3.24	%		0.50	%		2.14	%		0.55	%
Efficiency ratio(1)		93.84	%		NM			79.08	%		NM
Average interest-earning assets to average interest-bearing liabilities		124.03	%		NA			186.42	%		NA
Average loans receivable to average deposits		81.44	%		NA			79.40	%		NA
Cost of interest-bearing liabilities		0.87	%		NA			0.69	%		NA
Asset Quality
Nonperforming loans to loans receivable(2)
Not covered under loss sharing agreements with the FDIC		5.81	%		NA			5.40	%		NA
Covered under loss sharing agreements with the FDIC		19.68	%		NA			19.71	%		NA
Nonperforming assets to total assets		7.06	%		NA			7.65	%		NA
Allowance for loan losses to nonperforming loans		0.87	%		NA			0.39	%		NA
Capital Ratios
Average equity to average total assets		20.77	%		99.91	%		45.51	%		99.79	%
Tangible common equity		17.54	%		99.91	%		24.08	%		99.92	%
Tier 1 leverage		19.20	%		NM			24.30	%		NM
Tier 1 risk-based capital		30.80	%		NM			41.80	%		NM
Total risk-based capital		31.10	%		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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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined balance sheet as of March 31, 2011 and the unaudited pro forma condensed combined statements of income for the three months ended March 31, 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 our 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 March 31, 2011 presents our consolidated financial position giving pro forma effect to the following transactions as if they had occurred as of March 31, 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 our 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.

46

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.

Our unaudited pro forma condensed combined statements of income for the three months ended March 31, 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;

• 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.

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 three months ended March 31, 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 three months ended March 31, 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 three months ended March 31, 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.

47

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of March 31, 2011

	North American Financial Holdings, Inc.						Green Bankshares, Inc.						North American Financial Holdings, Inc.
(Dollars in thousands)	March 31, 2011 (As Reported)			Adjustments for Investment in Green Bankshares(1)			March 31, 2011 (As Reported)			Adjustments for Investment and TARP Repurchase(2)			Adjustments for this Offering and the Reorganization (Pro Forma)			March 31, 2011 (Pro Forma)
Assets
Cash and cash equivalents	$	719,804		$	(223,250	)	$	331,416		$	144,722	(3)	$			$
Investment securities		765,402			—			226,847			(1,000	)(4)		—			991,249
Loans held for sale		1,424			—			960			—			—			2,384
Loans, net of deferred costs and fees		2,939,768			—			1,680,249			(182,000	)(5)		—			4,438,017
Less: Allowance for loan losses		2,287			—			65,109			(65,109	)(5)		—			2,287
Loans, net		2,937,481			—			1,615,140			(116,891	)		—			4,435,730
Other real estate owned		84,533			—			60,033			(12,000	)(6)		—			132,566
FDIC indemnification asset		77,597			—			—			—			—			77,597
Receivable from FDIC		45,095			—			—			—			—			45,095
Goodwill and other intangible assets, net		86,950			—			6,125			49,119	(7)		—			142,194
Other assets		232,852			2,375			152,173			53,000	(8)		—			440,400
Total assets	$	4,951,138		$	(220,875	)	$	2,392,694		$	116,950		$			$
Liabilities and Shareholders’ Equity
Deposits	$	3,538,722		$	—		$	1,975,635		$	10,000	(9)	$	—		$	5,524,357
Advances from FHLB		280,151			—			158,588			8,000	(10)		—			446,739
Borrowings		148,008			—			107,374			(22,000	)(11)		—			233,382
Other liabilities		43,953			—			18,267			—			—			62,220
Total liabilities	$	4,010,834		$	—		$	2,259,864		$	(4,000	)	$	—		$	6,266,698
Preferred Stock	$	—		$	—		$	68,468		$	(68,468	)	$			$
Common stock—Class A		209			—			—			—				(12)
Common stock—Class B		253			—			—			—
Common stock—Green Bankshares		—			—			26,366			(26,366	)
Additional paid-in capital		878,484			(220,875	)		195,956			57,824				(12)
Retained earnings (accumulated deficit)		12,338			—			(158,997	)		158,997
Accumulated other comprehensive income (loss)		(97	)		—			1,037			(1,037	)
Noncontrolling interest		49,117			—			—			—				(12)
Total shareholders’ equity	$	940,304		$	(220,875	)	$	132,830		$	120,950		$			$
Total liabilities and shareholders’ equity	$	4,951,138		$	(220,875	)	$	2,392,694		$	116,950		$			$

⁽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 90.1% of Green Bankshares’ common stock.

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⁽²⁾  Adjustments in this column reflect purchase 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 March 31, 2011:

Fair value of assets acquired:
Cash and cash equivalents	$	476,138
Investment securities		225,847
Loans held for sale		960
Loans, net		1,498,249
Other real estate owned		48,033
Goodwill and other intangible assets		55,244
Other assets		205,173
Total assets acquired		2,509,644
Fair value of liabilities assumed:
Deposits		1,985,635
Advances from FHLB		166,588
Borrowings		85,374
Other liabilities		18,267
Total liabilities assumed		2,255,864
Net assets acquired		253,780
Less: Non-controlling interest		(36,780	)
Purchase price	$	217,000

In determining the estimated fair value of the non-controlling interest, we utilized the closing market price per share on Nasdaq of Green Bankshares’ common stock ($2.79) on March 31, 2011 and multiplied this stock price by the 13,182,797 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 March 31, 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 March 31, 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. Adjustment relates to a reduction in estimated fair value of securities that do not have a readily determinable fair value and are priced with internal models.

⁽⁵⁾  Upon analyzing estimated credit losses as well as evaluating differences between contractual interest rates and market interest rates as of March 31, 2011, we estimated a total loan fair value discount of $182,000. Additionally, since all loans were adjusted to estimated fair value, the historical allowance for loan losses of $65,109 was eliminated, resulting in a net loan adjustment of $116,891.

⁽⁶⁾  Other real estate owned was reduced by $12,000 based on our estimate of property values given current market conditions.

⁽⁷⁾  Adjustment includes goodwill of $37,353 and a core deposit intangible (which we refer to as “CDI”) of $11,000, less elimination of historical CDI and other intangibles of $6,125. 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 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 $62,000. 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

49

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 $6,339 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 $10,000 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 $8,000.

⁽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 $49,117 of noncontrolling interest as of March 31, 2011, which will be reclassified to common stock and additional paid in capital at the reorganization date.

50

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

Three Months Ended March 31, 2011

	North American Financial Holdings, Inc.			Capital Bank Corp.						Green Bankshares, Inc.						North American Financial Holdings, Inc.
(Dollars in thousands except per share data)	Three Months Ended March 31, 2011 (As Reported)			Period From January 1 to January 28, 2011 (As Reported)			Adjustments			Three Months Ended March 31, 2011 (As Reported)			Adjustments			Adjustments for the Reorganization			Three Months Ended March 31, 2011 (Pro Forma)
Interest income:
Loans, including fees	$	35,551		$	5,479		$	291	(1)	$	24,600		$	200	(1)	$	—		$	66,121
Investment securities		3,913			465			—			1,706			—			—			6,084
Interest–bearing deposits in other banks		710			11			—			181			—			—			902
FHLB and other stock dividends		131			—			—			138			—			—			269
Total interest income		40,305			5,955			291			26,625			200			—			73,376
Interest expense:
Deposits		5,926			1,551			(429	)(2)		5,330			(1,250	)(2)		—			11,128
Borrowings and other debt		1,540			445			(68	)(3)		2,028			(180	)(3)		—			3,765
Total interest expense		7,466			1,996			(497	)		7,358			(1,430	)		—			14,893
Net interest income		32,839			3,959			788			19,267			1,630			—			58,483
Provision for loan losses		1,545			40			(40	)(4)		13,897			(13,897	)(4)		—			1,545
Net interest income after provision for loan losses		31,294			3,919			828			5,370			15,527			—			56,938
Noninterest income:
Service charges on deposit accounts		1,919			291			—			5,830			—			—			8,040
Mortgage banking income		531			210			—			87			—			—			828
Investment advisory and trust fees		387			78			—			515			—			—			980
Investment securities losses, net		(57	)		—			—			—			—			—			(57	)
Other income		1,721			253			—			1,195			—			—			3,169
Total non-interest income		4,501			832			—			7,627			—			—			12,960
Noninterest expense:
Salaries and employee benefits		15,093			1,977			—			9,108			—			—			26,178
Occupancy and equipment expense		5,338			823			—			3,590			—			—			9,751
OREO losses and related expenses		1,178			176			(16	)(5)		3,803			(2,099	)(5)		—			3,042
Conversion expenses		3,737			—			—			—			—			—			3,737
Other expense		9,694			1,179			(191	)(6)		6,526			—	(7)		—			17,208
Total non-interest expense		35,040			4,155			(207	)		23,027			(2,099	)		—			59,916
Income (loss) before income taxes		755			596			1,035			(10,030	)		17,626			—			9,982
Income tax expense		405			—			620	(8)		281			2,605	(8)		—			3,911
Net income (loss)		350			596			415			(10,311	)		15,021			—			6,071
Dividends and accretion on preferred stock		—			861			(861	)(9)		1,250			(1,250	)(9)		—			—
Net income (loss) attributable to common shareholders		350			(265	)		1,276			(11,561	)		16,271			—			6,071
Net income (loss) attributable to noncontrolling interests		(50	)		—			171	(10)		—			466	(10)		(587	)(11)		—
Net income (loss) attributable to North American Financial Holdings, Inc.	$	400		$	(265	)	$	1,105		$	(11,561	)	$	15,805		$	587		$	6,071
Earnings per share—basic	$	0.01		$	(0.01	)	$	0.02		$	(0.26	)	$	0.35		$			$
Earnings per share—diluted	$	0.01		$	(0.01	)	$	0.02		$	(0.26	)	$	0.35		$			$
Weighted average shares—basic		45,120,175			—			—			—			—				(11)
Weighted average shares—diluted		45,250,175			—			—			—			—				(11)

⁽¹⁾ Adjustments reflect the estimated impact of loan yield accretion on the first quarter of 2011 related to fair value acquisition adjustments. The loan yield accretion impact at Capital Bank Corp. was based on fair value acquisition adjustments actually recorded as of their respective transaction dates. The loan yield accretion impact at Green Bankshares was based on an estimated $4,000 loan fair value discount, excluding the impact of credit deterioration, and an estimated five-year accretion period.

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⁽²⁾  Adjustments reflect the estimated impact of time deposit premium amortization on the first quarter of 2011 related to fair value acquisition adjustments. The time deposit premium amortization impact at Capital Bank Corp. was based on fair value acquisition adjustments actually recorded as of their respective transaction dates. The time deposit premium amortization impact at Green Bankshares was based on an estimated $10,000 time deposit fair value premium and a two-year amortization period.

⁽³⁾  Adjustments reflect the estimated impact of premium amortization/discount accretion on the first quarter of 2011 from fair value acquisition adjustments related to other borrowings and debt, which includes FHLB advances, borrowings and subordinated debt. The premium amortization/discount accretion impact at Capital Bank Corp. was based on fair value acquisition adjustments actually recorded as of their respective transaction dates. The impact at Green Bankshares was based on an estimated $8,000 FHLB advance fair value premium with a five-year amortization period as well as an estimated $22,000 subordinated debt fair value discount with a 25-year accretion period.

⁽⁴⁾  Adjustments reflect the elimination of provision for loan losses due to the estimated impact of fair value credit adjustments required by acquisition accounting and the proper accounting for acquired loans with evidence of credit deterioration. These loan loss provisions and related loan charge-offs were assumed to have been included in the fair value discount estimated on the loan portfolio at acquisition and would have affected goodwill recorded in the purchase price allocation instead of provision for loan losses in the statement of income.

⁽⁵⁾  Adjustments reflect the reversal of other real estate write downs and losses recorded during the first quarter of 2011. These write downs were assumed to have been reflected in the acquisition method fair value estimate as the one-year measurement period would have improved the underlying assumptions used in valuing these assets at acquisition. Remaining expense in this line item represent other foreclosure-related costs that were not directly related to the valuation of these properties.

⁽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 is not materially different from actual amortization recorded in the first quarter of 2011.

⁽⁸⁾  Adjustments reflect reversal of valuation allowances recorded against deferred tax assets in the first quarter of 2011 as well as recognition of tax expense associated with the adjusted net income 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. transaction 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, 16.95% noncontrolling ownership for Capital Bank Corp. and 9.90% 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

	NAFH, Inc.			TIB Financial Corp.						Capital Bank Corp.						Green Bankshares, Inc.						NAFH, 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		$	800	(2)	$	—	$	267,063
Investment securities		2,713			6,616			—			9,079			—			6,179			—			—		24,587
Interest-bearing deposits in other banks		3,462			204			—			89			—			434			—			—		4,189
FHLB and other stock dividends		141			26			—			80			—			530			—			—		777
Total interest income		42,745			52,317			(1,641	)		77,722			3,809			120,864			800			—		296,616
Interest expense:
Deposits		4,656			13,803			(3,179	)(3)		21,082			(6,675	)(3)		28,434			(5,000	)(3)		—		53,121
Borrowings and other debt		1,578			5,632			(2,841	)(4)		5,677			(1,412	)(4)		8,837			(720	)(4)		—		16,751
Total interest expense		6,234			19,435			(6,020	)		26,759			(8,087	)		37,271			(5,720	)		—		69,872
Net interest income		36,511			32,882			4,379			50,963			11,896			83,593			6,520			—		226,744
Provision for loan losses		753			29,697			(29,697	)(5)		58,545			(58,545	)(5)		71,107			(71,107	)(5)		—		753
Net interest income (loss) after provision for loan losses		35,758			3,185			34,076			(7,582	)		70,441			12,486			77,627			—		225,991
Noninterest income:
Service charges on deposit accounts		1,992			2,585			—			3,311			—			24,179			—			—		32,067
Mortgage banking income		449			1,219			—			1,640			—			703			—			—		4,011
Investment advisory and trust fees		354			948			—			963			—			2,842			—			—		5,107
Investment securities gains (losses), net		—			2,635			(2,635	)(6)		5,855			(5,855	)(6)		(93	)		93	(6)		—		—
Gain on acquisition of banks		15,175			—			—			—			—			—			—			—		15,175
Other income		1,689			1,939			—			3,780			—			4,913			—			—		12,321
Total non-interest income		19,659			9,326			(2,635	)		15,549			(5,855	)		32,544			93			—		68,681
Noninterest expense:
Salaries and employee benefits		17,229			19,859			—			22,675			—			35,368			—			—		95,131
Net occupancy and equipment expense		4,673			6,948			—			9,089			—			13,277			—			—		33,987
Professional fees		11,721			2,866			—			2,514			—			2,777			—			—		19,878
Other real estate owned losses and related expenses		—			21,687			(19,171	)(7)		5,006			(2,536	)(7)		35,447			(29,895	)(7)		—		10,538
Other expense		10,798			13,956			(76	)(8)		15,025			209	(8)		23,946			—	(9)		—		63,858
Total non-interest expense		44,421			65,316			(19,247	)		54,309			(2,327	)		110,815			(29,895	)		—		223,392
Income (loss) before income taxes		10,996			(52,805	)		50,688			(46,342	)		66,913			(65,785	)		107,615			—		71,280
Income tax expense (benefit)		(1,041	)		—			(804	)(10)		15,124			(7,307	)(10)		14,910			985	(10)		—		21,867
Net income (loss)		12,037			(52,805	)		51,492			(61,466	)		74,220			(80,695	)		106,630			—		49,413

53

	NAFH, Inc.		TIB Financial Corp.						Capital Bank Corp.						Green Bankshares, Inc.						NAFH, 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) loss on retirement of preferred stock		—		(24,276	)		572	(12)		—			1,152	(12)		—			5,543	(12)					(17,009	)
Net income (loss) attributable to common stockholders		12,037		(30,538	)		52,929			(63,821	)		75,423			(85,696	)		106,088						66,422
Net income (loss) attributable to noncontrolling interests		7		—			1,238	(13)		—			1,967	(13)		—			2,019	(13)		(5,231	)(14)		—
Net income (loss) attributable to North American Financial Holdings, Inc.	$	12,030	$	(30,538	)	$	51,691		$	(63,821	)	$	73,456		$	(85,696	)	$	104,069		$	5,231		$	66,422
Earnings per share —   basic	$	0.31	$	(0.80	)	$	1.35		$	(1.67	)	$	1.92		$	(2.24	)	$	2.72		$			$
Earnings per share —   diluted	$	0.31	$	(0.80	)	$	1.35		$	(1.67	)	$	1.92		$	(2.24	)	$	2.72		$			$
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 estimated impact of loan yield accretion on 2010 related to fair value acquisition adjustments. The loan yield accretion/amortization impact at TIB Financial and Capital Bank Corp. was based on fair value acquisition adjustments actually recorded as of their respective transaction dates. The loan yield accretion impact at Green Bankshares was based on an estimated $4,000 loan fair value discount, excluding the impact of credit deterioration, and an estimated five-year accretion period.

⁽³⁾  Adjustments reflect the estimated impact of time deposit premium amortization on 2010 related to fair value acquisition adjustments. The time deposit premium amortization impact at TIB Financial and Capital Bank Corp. was based on fair value acquisition adjustments actually recorded as of their respective transaction dates. The time deposit premium amortization impact at Green Bankshares was based on an estimated $10,000 time deposit fair value premium and a two-year amortization period.

⁽⁴⁾  Adjustments reflect the estimated impact of premium amortization/discount accretion on 2010 from fair value acquisition adjustments related to other borrowings and debt, which includes FHLB advances, borrowings and subordinated debt. The premium amortization/discount accretion impact at TIB Financial and Capital Bank Corp. was based on fair value acquisition adjustments actually recorded as of their respective transaction dates. The impact at Green Bankshares was based on an estimated $8,000 FHLB advance fair value premium with a five-year amortization period as well as an estimated $22,000 subordinated debt fair value discount with a 25-year accretion period.

⁽⁵⁾  Adjustments reflect the elimination of provision for loan losses due to the estimated impact of fair value credit adjustments required by acquisition accounting and the proper accounting for acquired loans with evidence of credit deterioration. These loan loss provisions and related loan charge-offs were assumed to have been included in the fair value discount estimated on the loan portfolio at acquisition and would have affected goodwill recorded in the purchase price allocation instead of provision for loan losses in the statement of income.

⁽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⁾  Adjustments reflect the reversal of other real estate write downs and losses recorded during 2010. These write downs were assumed to have been reflected in the acquisition method fair value estimate as the one-year measurement period would have improved the underlying assumptions used in valuing these assets at acquisition. Remaining expense in this line item represent other foreclosure-related costs that were not directly related to the valuation of these properties.

⁽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 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. transactions and is expected to be repurchased concurrent with the proposed Green Bankshares investment.

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⁽¹²⁾  Adjustment reflects reversal of accretion on preferred stock recorded in the nine months ended September 30, 2010. TIB Financial would have ceased accreting the preferred stock discount had the transaction occurred on January 1, 2010, and the gain on retirement of preferred stock would have been reduced accordingly.

⁽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. 16.95% noncontrolling ownership for Capital Bank Corp. and 9.90% 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. 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 March 31, 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 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

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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 $2.4 billion in assets reported as of March 31, 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 90.1% of Green Bankshares’ common stock. Total assets as of March 31, 2011 included $1.7 billion of gross loans. This transaction will extend our market area in 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 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 Acquired Tangible Book Value(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	$	2,393	(4)		18.9	%		119.0	%(4)

⁽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⁾  Amount reported by Green Bankshares as of March 31, 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 ended March 31, 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 operations acquired during these periods and because of the substantial change in the operations of each acquired business in connection with its acquisition, our results of operations for the three months ended March 31, 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 date 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 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 and integrated Capital Bank, Capital Bank Corp.’s banking subsidiary, under our line of business model and policies and procedures. We expect to merge Capital Bank with and into NAFH Bank which will be rebranded as Capital Bank, N.A., in June 2011 and to convert Capital Bank to our core processing platform in July 2011. In connection with the integration of Capital Bank Corp., during the first quarter of 2011, we accrued $3.6 million in termination fees associated with information systems we are abandoning in converting to our common platform.

Following the completion of our acquisition of Green Bankshares, we expect to convert GreenBank, Green Bankshares’ banking subsidiary, to our existing platform, which will be simplified due to the fact that GreenBank currently operates on the same core processing platform used by our banking subsidiary. 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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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 increased from $52.9 million in the fourth quarter of 2010 to $170.5 million in the first quarter of 2011, of which approximately one-half consisted of commercial loans. Growth in core deposits was $120.6 million in the first quarter of 2011, up from $55.6 million in the fourth quarter of 2010, and helped lower the contractual rate on deposits from 1.20% as of December 31, 2010 to 1.11% as of March 31, 2011.

Southeast Florida loan origination increased significantly in the first quarter 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 origination was 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 34.6%, 21.0%, 30.3% and 14.1%, respectively, of our new loan originations in the first quarter of 2011.

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 through the first quarter of 2011 by 52% from peak levels reached in the third quarter of 2006, 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. 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

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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, commercial and development loans (which we refer to as “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, real estate fees, 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 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 quarter of 2011, we originated $82.9 million of commercial loans, $57.1 million of consumer loans, $25.9 million of commercial real estate loans and $4.6 million in other loans.

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.

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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As part of our operating strategy, we plan to fund asset growth primarily with low-cost customer deposits.

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 ratios 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 non-accrual loans or charge-offs. Rather, we monitor the performance of our legacy portfolio by tracking the ratio of 90-day past due but still accruing/accreting 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. To the extent that we decrease our estimate of lifetime credit losses for loans in a given pool, we will amortize that decrease into interest income over the remaining life of that pool.

Capital

We manage capital to comply with our internal planning targets and regulatory capital standards, including the requirements of our operating agreement with the OCC. 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 and other short-term borrowings.

Our net interest income increased from $24.7 million in the fourth quarter of 2010 to $32.8 million in the first quarter of 2011 primarily due to the inclusion of Capital Bank Corp.’s results from January 28, 2011 through the end of the quarter. The net interest margin was 3.42% during the quarter, up from 3.16% in the preceding quarter. As discussed below, we lowered the average contractual rates on our deposits from 1.20% as of December 31, 2010 to 1.11% as of March 31, 2011 by generating core deposit growth and allowing certain high-cost and wholesale certificates of deposit to mature. Our net interest margin is affected by our holdings of significant liquidity, which included average balances of $751.0 million in cash on deposit at other banks and $619.2 million in securities. We expect to use much of this liquidity to fund loan growth and retire higher-cost borrowings and deposits over time.

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	Three Months Ended March 31, 2011							Three Months Ended December 31, 2010
(Dollars in thousands)	Average Balances		Income/ Expense		Yields/ Rates			Average Balances		Income/ Expense		Yields/ Rates
Interest-earning assets:
Loans(1)(2)	$	2,504,191	$	35,584		5.76	%	$	1,765,881	$	26,460		5.94	%
Interest-bearing deposits in other banks		751,016		710		0.38	%		873,187		896		0.41	%
Investment securities(2)		619,232		4,013		2.63	%		446,108		2,330		2.07	%
FHLB stock		30,846		132		1.74	%		23,792		88		1.47	%
Federal funds sold and securities sold under agreements to resell		13		—		0.00	%		—		—		—
Total interest-earning assets	$	3,905,298	$	40,439		4.20	%	$	3,108,968	$	29,774		3.80	%
Non-interest-earning assets:
Cash and due from banks	$	47,973						$	33,624
Allowance for loan losses		2,324							3,876
Other assets		463,100							363,433
Total non-interest-earning assets	$	513,397						$	400,933
Total assets	$	4,418,695						$	3,509,901
Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits	$	1,790,638	$	4,598		1.04	%	$	1,355,677	$	3,082		0.90	%
Negotiable order of withdrawal accounts		355,129		424		0.48	%		216,495		173		0.32	%
Money market		475,452		719		0.61	%		315,992		583		0.73	%
Savings deposits		137,866		185		0.54	%		89,782		138		0.61	%
Total interest-bearing deposits	$	2,759,085	$	5,926		0.87	%	$	1,977,946	$	3,976		0.80	%
Other interest-bearing liabilities:
Short-term borrowings and FHLB advances	$	317,221	$	658		0.84	%	$	296,028	$	588		0.79	%
Long-term borrowings		72,250		882		4.95	%		47,691		463		3.85	%
Total interest-bearing liabilities	$	3,148,556	$	7,466		0.96	%	$	2,321,665	$	5,027		0.86	%
Non-interest-bearing liabilities and shareholders’ equity:
Demand deposits	$	315,668						$	260,507
Other liabilities		36,838							39,822
Shareholders’ equity		917,633							887,907
Total non-interest-bearing liabilities and shareholders’ equity	$	1,270,139						$	1,188,236
Total liabilities and shareholders’ equity	$	4,418,695						$	3,509,901
Interest rate spread (tax equivalent basis)						3.24	%						2.94	%
Net interest income (tax equivalent basis)			$	32,973						$	24,747
Net interest margin (tax equivalent basis)						3.42	%						3.16	%

⁽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.

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	Three Months Ended March 31, 2011							Three Months Ended March 31, 2010
(Dollars in thousands)	Average Balances		Income/ Expense		Yields/ Rates			Average Balances		Income/ Expense		Yields/ Rates
Interest-earning assets:
Loans(1)(2)	$	2,504,191	$	35,584		5.76	%	$	—	$	—		—
Interest-bearing deposits in other banks		751,016		710		0.38	%		588,405		725		0.50	%
Investment securities(2)		619,232		4,013		2.63	%		—		—		—
FHLB stock		30,846		132		1.74	%		—		—		—
Federal funds sold and securities sold under agreements to resell		13		—		0.00	%		—		—		—
Total interest-earning assets	$	3,905,298	$	40,439		4.20	%	$	588,405	$	725		0.50	%
Non-interest-earning assets:
Cash and due from banks	$	47,973						$	563
Allowance for loan losses		2,324							—
Other assets		463,100							50
Total non-interest-earning assets	$	513,397						$	613
Total assets	$	4,418,695						$	589,018
Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits	$	1,790,638	$	4,598		1.04	%	$	—	$	—		—
Money market		475,452		719		0.61	%		—		—		—
Negotiable order of withdrawal accounts		355,129		424		0.48	%		—		—		—
Savings deposits		137,866		185		0.54	%		—		—		—
Total interest-bearing deposits(2)	$	2,759,085	$	5,926		0.87	%	$	—	$	—		—
Other interest-bearing liabilities:
Short-term borrowings and FHLB advances	$	317,221	$	658		0.84	%	$	—	$	—		—
Long-term borrowings		72,250		882		4.95	%		—		—		—
Total interest-bearing liabilities	$	3,148,556	$	7,466		0.96	%	$	—	$	—		—
Non-interest-bearing liabilities and shareholders’ equity:
Demand deposits	$	315,668						$	—
Other liabilities		36,838							534
Shareholders’ equity		917,633							588,485
Total non-interest-bearing liabilities and shareholders’ equity	$	1,270,139						$	589,018
Total liabilities and shareholders’ equity	$	4,418,695						$	589,018
Interest rate spread (tax equivalent basis)						3.24	%						0.50	%
Net interest income (tax equivalent basis)			$	32,973						$	725
Net interest margin (tax equivalent basis)						3.42	%						0.50	%

⁽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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	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	%		—			—		—
Federal funds sold and securities sold under agreements to resell		—			—		0.00	%		—			—		—
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							$	—
Allowance for loan losses		947								—
Other assets		113,403								—
Total non-interest-earning assets	$	124,593							$	—
Total assets	$	1,580,919							$	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	$	1,580,9191							$	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 March 31, 2011

Net interest income was $32.8 million for the three months ended March 31, 2011 and included the effects of having a high level of cash and highly liquid investment securities maintained during the period.

Three months ended March 31, 2010

Net interest income was $725,000 for the three months ended March 31, 2010 and included the effects of having a high level of cash and highly liquid investment securities maintained during the period.

Year ended December 31, 2010

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

Rate/Volume Analysis

The table below details the components of the changes in net interest income for first quarter of 2011 compared to fourth quarter of 2010. 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 March 31, 2011 Compared to Three Months Ended December 31, 2010 Due to Changes in
(Dollars in thousands)	Average Volume			Average Rate			Net Increase (Decrease)
Interest income
Loans(1)(2)	$	10,554		$	(1,430	)	$	9,124
Investment securities(1)		1,039			644			1,683
Interest-bearing deposits in other banks		(119	)		(67	)		(186	)
FHLB stock		29			15			44
Federal funds sold		—			—			—
Total interest income	$	11,503		$	(838	)	$	10,665
Interest expense
Negotiable order of withdrawal accounts	$	142		$	109		$	251
Money market		255			(119	)		136
Savings deposits		66			(19	)		47
Time deposits		1,080			436			1,516
Short-term borrowings and FHLB advances		43			27			70
Long-term borrowings		279			140			419
Total interest expense	$	1,865		$	574		$	2,439
Change in net interest income	$	9,638		$	(1,412	)	$	8,226

⁽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.

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We are unable to provide a rate and volume variance analyses in this discussion for periods other than the first quarter of 2011 compared to the fourth quarter of 2010 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-month period ending March 31, 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

The provision for loan losses increased from $753,000 in the fourth quarter of 2010 to $1.5 million in the first quarter of 2011 due to growth in new loan production volumes. During the first quarter of 2011, the legacy portfolios 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 $3.4 million in the fourth quarter of 2010 to $4.5 million in the first quarter of 2011 due to the inclusion of Capital Bank Corp.’s results from January 28, 2011 through the end of the quarter. The following table sets forth the components of non-interest income for the periods indicated:

(Dollars in thousands)	Three Months Ended March 31, 2011			Three Months Ended December 31, 2010		Three Months Ended March 31, 2010		Year Ended December 31, 2010		Period From November 30, 2009 (Inception) Through December 31, 2009
Service charges on deposit accounts	$	1,919		$	1,462	$	—	$	1,992	$	—
Debit card income		775			383		—		382		—
Fees on mortgage loans sold		531			449		—		449		—
Investment advisory and trust fees		387			354		—		354		—
Accretion on FDIC indemnification asset		318			381		—		736		—
Wire transfer fees		127			83		—		51		—
Earnings on bank owned life insurance policies		122			110		—		110		—
Brokerage fees		97			—		—		—		—
Investment securities gains (losses), net		(57	)		—		—		—		—
Bargain purchase gain		—			—		—		15,175		—
Other		282			220		—		366		—
Total non-interest income	$	4,501		$	3,442	$	—	$	19,615	$	—

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, 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 $27.7 million in the fourth quarter of 2010 to $35.0 million in the first quarter of 2011 due to the inclusion of Capital Bank Corp.’s results and the nonrecurring technology conversion

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accrual and legal fees noted above. For more information on the Capital Bank Corp. acquisition, see “Note 2—Business Combination and Acquisitions” in the accompany notes to our financial statements as of and for the three months ended March 31, 2011. The following table sets forth the components of non-interest expense for the periods indicated:

(Dollars in thousands)	Three Months Ended March 31, 2011		Three Months Ended December 31, 2010		Three Months Ended March 31, 2010
Salary and employee benefits	$	15,093	$	11,495	$	851
Net occupancy expense		5,338		3,444		15
Conversion related expenses		3,737		1,027		—
Accounting, legal and other professional		2,260		4,923		3
FDIC and state assessments		2,132		1,662		—
Foreclosed asset related expense		1,178		646		—
Computer services		937		1,697		—
Amortization of intangibles		811		634		—
Marketing and community relations		564		388		—
Insurance, non-building		509		487		—
Postage, courier and armored car		430		390		—
Operating supplies		425		230		3
Organizational expense		—		—		2,100
Other operating expense		1,626		700		142
Total non-interest expense	$	35,040	$	27,723	$	3,114

(Dollars in thousands)	Year Ended December 31, 2010		Period From November 30, 2009 (Inception) Through December 31, 2009
Salary and employee benefits	$	17,229	$	40
Net occupancy and equipment expense		4,629		—
Conversion expense		1,991		—
Accounting, legal and other professional		9,511		48
FDIC and state assessments		2,097		—
Foreclosed asset related expense		701		—
Computer services		2,098		—
Amortization of intangibles		818		—
Marketing and community relations		498		—
Insurance, non-building		640		—
Postage, courier and armored car		460		—
Operating supplies		289		—
Organizational expenses		2,100		91
Other operating expenses		1,316		35
Total non-interest expense	$	44,377	$	214

During the three months ended March 31, 2011, $3.6 million related to accruals for the early termination of contracts associated with information systems which are in the process of being converted to our current operating platforms. During the three months ended March 31, 2010, non-interest expense of $3.1 million was primarily related to 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 quarter ended March 31, 2011, our efficiency ratio was

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approximately 94%. The efficiency ratio was significantly impacted by expenses associated with the early termination of information systems contracts and legal fees related to the acquisition of Capital Bank Corp. totaling $4.4 million during the quarter. Excluding these accruals, the efficiency ratio would have been approximately 82%.

Income Taxes

Income taxes were $405,000 in the first quarter of 2011. 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. The effective income tax rates were approximately 54%, (43%), (9%) and 35% for the three months ended March 31, 2011 and 2010, the year ended December 31, 2010 and the period from inception through December 31, 2009, respectively. A tax benefit was recorded during the year ended December 31, 2010 primarily due to the $15.2 million 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.

At March 31, 2011, we had a deferred tax asset of $68.9 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 March 31, 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.

Net Income

Three months ended March 31, 2011

During the first quarter of 2011, our net income of $350,000 represented a ROA of 0.03%. A net loss of $50,000 attributable to noncontrolling stockholders resulted in net income attributable to us of $400,000 (or $0.01 per basic and diluted share). Net income includes a deduction for an accrual for upcoming technology conversion costs at Capital Bank of $3.6 million ($2.3 million after tax) and acquisition-related legal costs of $750,000 (which are not tax-deductible). Net interest income of $32.8 million and non-interest income of $4.5 million were partially offset by the provision for loan losses of $1.5 million and non-interest expense of $35.0 million. Non-interest expense reported during the first quarter of 2011 included $3.6 million related to accruals for the early termination of contracts associated with information systems, which are in the process of being converted to our current operating platforms.

Three months ended March 31, 2010

We reported a net loss of $1.4 million for the three months ended March 31, 2010, which equated to a negative ROA of (0.95%) and a basic and diluted net loss per common share of $0.04. Net interest income of $725,000 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 $3.1 million was primarily related to organizational expenses.

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% and a basic and diluted net income per common share of $0.32. Net interest income of $36.5 million and

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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 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, which equated to an annualized negative ROA of (0.71)%. 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 $5.0 billion and $3.5 billion at March 31, 2011 and December 31, 2010, respectively. Total loans at March 31, 2011 and December 31, 2010 were $2.9 billion and $1.7 billion, respectively. Total deposits were $3.5 billion and $2.3 billion at March 31, 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 $428.2 million and $327.9 million at December 31, 2010. The increases in total assets, loans, deposits and borrowings during the first quarter of 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 $940.3 million, $881.2 million and $526.3 million at March 31, 2011, December 31, 2010 and December 31, 2009, respectively. The increase in shareholders’ equity during the first quarter of 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.

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 characterized the acquisitions’ legacy portfolios, in order to achieve a more diversified portfolio mix.

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

(Dollars in thousands)	As of March 31, 2011					As of December 31, 2010					Sequential Change
Loan Type	Amount		Percent			Amount		Percent			Amount		Percent
Non-owner occupied commercial real estate	$	742,126		25.2	%	$	500,470		28.8	%	$	241,656		48.3	%
Other commercial C&D		321,333		10.9	%		113,681		6.5	%		207,652		182.6	%
Multifamily commercial real estate		93,499		3.2	%		56,105		3.2	%		37,394		66.7	%
1-4 family residential C&D		82,701		2.8	%		16,341		0.9	%		66,360		407.4	%
Total commercial real estate	$	1,239,659		42.1	%	$	686,597		39.4	%	$	553,062		80.6	%
Owner occupied commercial real estate		535,613		18.2	%		347,741		20.0	%		187,872		54.0	%
Commercial and industrial		245,280		8.3	%		94,302		5.4	%		150,978		160.1	%
Total commercial	$	780,893		26.6	%	$	442,043		25.4	%	$	338,850		76.7	%
1-4 family residential		588,560		20.0	%		422,057		24.2	%		166,503		39.4	%
Home equity		206,960		7.0	%		119,039		6.8	%		87,921		73.9	%
Consumer		60,819		2.1	%		43,054		2.5	%		17,765		41.1	%
Total consumer	$	856,339		29.1	%	$	584,150		33.5	%	$	272,189		46.6	%
Other		64,301		2.2	%		29,957		1.7	%		34,344		115.1	%
Total	$	2,941,192		100.0	%	$	1,742,747		100.0	%	$	1,198,445		68.8	%

During the first quarter of 2011, our loan portfolio increased by $1.2 billion due to the inclusion of Capital Bank Corp. and by $171 million of newly originated loans during the quarter.

Commercial loan production rose to $82.9 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 quarter of 2011, while commercial real estate loans were 15% of our new loan originations, consistent with our plans to reduce concentrations in this category.

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

(Dollars in millions)	Three months ended March 31, 2011					Three months ended December 31, 2010
Loan Type	Amount		Percent			Amount		Percent
Non-owner occupied commercial real estate	$	13.0		7.6	%	$	5.8		11.0	%
C&D		12.9		7.6	%		4.7		8.9	%
Multifamily		—		—			—		—
Total commercial real estate	$	25.9		15.2	%	$	10.5		19.9	%
Owner occupied commercial real estate		45.0		26.4	%		6.5		12.2	%
Commercial and industrial		37.9		22.2	%		9.5		18.0	%
Total commercial	$	82.9		48.6	%	$	16.0		30.2	%
1-4 family residential		37.0		21.7	%		15.7		29.6	%
Home equity		3.6		2.1	%		3.1		5.9	%
Consumer		16.5		9.7	%		7.5		14.2	%
Total consumer	$	57.1		33.5	%	$	26.3		49.7	%
Other		4.6		2.7	%		0.1		0.2	%
Total	$	170.5		100.0	%	$	52.9		100.0	%

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Southeast Florida loan origination increased significantly in the first quarter 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 origination was 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 34.6%, 21.0%, 30.3% and 14.1%, respectively, of our new loan originations in the first quarter of 2011.

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 quarter of 2011, we originated commercial loans from a variety of businesses. The industry groups in which we originated the most loans in the first quarter of 2011 were utilities, retail trade, manufacturing, educational services, real estate (including rental and leasing) and accommodation and food services, which accounted for 15.4%, 12.9%, 9.3%, 6.9%, 5.4% and 5.1% of new originations, respectively.

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 originations during the first quarter of 2011 tracked to two key metrics—FICO scores and loan-to-value ratios—used in underwriting consumer loans:

			FICO								LTV									Average Term (Months)
Type	Originations ($)		Average		%680-660			%<660			Average			%80-90			%>90%
1-4 family residential(1)		37.0		746.9		2.4	%		0.0	%		73.3	%		39.9	%		1.5	%		126.0
Auto		15.3		744.0		6.4	%		0.3	%		115.4	%		6.1	%		85.2	%		62.6
HELOC/Other		4.8		726.7		13.4	%		6.1	%		64.3	%		6.6	%		33.2	%		195.2
Total		57.1		744.5		4.4	%		0.6	%		83.3	%		28.1	%		26.6	%		114.7

⁽¹⁾  Includes portfolio originations only

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

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The contractual maturity distribution of our loan portfolio as of March 31, 2011 and December 31, 2010 are indicated in the tables below. The majority of these are amortizing loans.

	Loans Maturing (As of March 31, 2011)
(Dollars in thousands)	Within One Year		One to Five Years		After Five Years		Total
1-4 family residential C&D	$	67,366	$	2,644	$	12,691	$	82,701
Other commercial C&D		218,398		94,925		8,010		321,333
Non-owner occupied commercial real estate		118,366		397,301		226,459		742,126
Multifamily commercial real estate		18,579		52,050		22,870		93,499
Total commercial real estate	$	422,709	$	546,920	$	270,030	$	1,239,659
Commercial and industrial		87,599		110,353		47,328		245,280
Owner occupied commercial real estate		73,848		225,813		235,952		535,613
Total commercial	$	161,447	$	336,166	$	283,280	$	780,893
1-4 family residential		67,147		97,975		423,438		588,560
Home equity		15,467		47,363		144,130		206,960
Consumer		6,244		27,353		27,222		60,819
Total consumer	$	88,858	$	172,691	$	594,790	$	856,339
Other		10,580		12,293		41,428		64,301
Total loans	$	683,594	$	1,068,070	$	1,189,528	$	2,941,192

	Loans Maturing (As of March 31, 2011)
(Dollars in thousands)	Within One Year		One to Five Years		After Five Years		Total
Loans with:
Predetermined interest rates	$	191,886	$	525,186	$	283,191	$	1,000,263
Floating or adjustable rates		491,708		542,884		906,337		1,940,929
Total loans	$	683,594	$	1,068,070	$	1,189,528	$	2,941,192

	Loans Maturing (As of December 31, 2010)
(Dollars in thousands)	Within One Year		One to  Five Years		After Five Years		Total
Real estate mortgage loans:
Commercial	$	210,873	$	375,773	$	428,116	$	1,014,762
Residential		7,585		13,618		299,861		321,064
Farmland		4,142		4,229		13,010		21,381
Construction and vacant land		90,346		31,231		9,785		131,362
Commercial and agricultural loans		37,965		35,920		24,430		98,315
Indirect auto loans		1,549		14,526		12,044		28,119
Home equity loans		4,284		32,104		64,156		100,544
Other consumer loans		12,309		11,933		2,958		27,200
Total loans	$	369,053	$	519,334	$	854,360	$	1,742,747

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	Loans Maturing (As of December 31, 2010)
(Dollars in thousands)	Within One Year		One to  Five Years		After Five Years		Total
Loans with:
Predetermined interest rates	$	131,105	$	212,358	$	57,560	$	401,023
Floating or adjustable rates		237,948		306,976		796,800		1,341,724
Total loans	$	369,053	$	519,334	$	854,360	$	1,742,747

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 the NAFH loan policy manual 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 March 31, 2011, covered loans were $656.6 million, representing 22.3% of our loan portfolio. Also as of March 31, 2011, the covered loans were 2.7% past due 30-89 days and 19.7% greater than 90 days past due and still accruing/accreting, 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 this portfolio 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 reported in the FDIC indemnification asset, which was $77.6 million in other assets as of March 31, 2011. Actual claims for reimbursement filed with the FDIC for incurred losses on covered loans were $45.1 million at March 31, 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. Additionally, the loss sharing agreements limit coverage to ten years for residential loans and five years for other covered 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.

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

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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. Through June 15, 2011, all claims filed by us for losses realized through January 31, 2011, totaling $50.0 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.

Non-Covered Loans

As of March 31, 2011, non-covered loans were $2.3 billion, representing 77.6% of our loan portfolio. Also as of March 31, 2011, our non-covered loans were 2.4% past due 30-89 days and 5.8% 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 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 March 31, 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			Portfolio Balance		% 30-89 Days Past Due			% Greater Than 90 Days Past Due and Accruing/ Accreting
Covered Portfolio
Non-owner occupied commercial real estate	$	159.7		2.7	%		14.9	%	$	172.0		4.2	%		16.8	%
Other commercial C&D		77.7		0.4	%		63.8	%		81.2		7.4	%		55.6	%
Multifamily		29.1		0.4	%		27.5	%		30.4		0.2	%		30.7	%
1-4 family residential C&D		7.1		1.5	%		75.3	%		7.9		0.0	%		75.6	%
Total commercial real estate	$	273.6		1.8	%		31.7	%	$	291.5		4.6	%		30.6	%
Owner occupied commercial real estate		123.8		4.6	%		7.7	%		129.2		7.7	%		9.8	%
Commercial & Industrial		30.3		2.4	%		12.1	%		33.4		3.9	%		5.7	%
Total commercial	$	154.1		4.2	%		8.6	%	$	162.6		6.9	%		9.0	%
1-4 family residential		145.3		2.9	%		15.0	%		153.4		3.4	%		12.6	%
Home equity		75.3		3.4	%		6.0	%		79.4		3.4	%		11.6	%
Consumer		0.1		0.0	%		0.0	%		0.1		0.0	%		0.0	%
Total consumer	$	220.7		3.1	%		11.9	%	$	232.9		3.4	%		12.3	%
Other		8.2		0.0	%		36.3	%		9.2		3.4	%		51.6	%
Total covered	$	656.6		2.7	%		19.7	%	$	696.2		4.7	%		19.7	%
Non-covered Portfolio
1-4 family residential C&D		75.6		0.9	%		5.0	%		8.5		0.0	%		0.0	%
Other commercial C&D		243.6		5.8	%		23.6	%		32.5		5.5	%		25.3	%
Non-owner occupied commercial real estate		582.4		2.5	%		2.8	%		328.4		2.7	%		3.3	%
Multifamily		64.4		1.9	%		0.0	%		25.7		0.0	%		0.0	%
Total commercial real estate	$	966.0		3.2	%		8.1	%	$	395.1		2.7	%		4.8	%
Commercial and industrial		214.9		3.4	%		1.7	%		60.9		2.4	%		0.7	%
Owner occupied commercial real estate		411.9		2.7	%		7.6	%		218.5		1.0	%		10.4	%
Total commercial	$	626.8		2.9	%		5.5	%	$	279.4		1.3	%		8.2	%
1-4 family residential		443.3		0.8	%		3.8	%		268.7		0.6	%		4.4	%
Home equity		131.7		1.1	%		1.4	%		39.6		1.4	%		2.4	%
Consumer		60.7		1.0	%		0.6	%		42.9		2.6	%		0.9	%
Total consumer	$	635.7		0.9	%		3.0	%	$	351.2		0.9	%		3.8	%
Other		56.1		0.7	%		2.0	%		20.8		0.8	%		5.9	%
Total non-covered	$	2,284.6		2.4	%		5.8	%	$	1,046.5		1.7	%		5.4	%
Total	$	2,941.2		2.5	%		8.9	%	$	1,742.7		2.9	%		11.1	%

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

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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 March 31, 2011 and December 31, 2010, no loans originated by us met the criteria required for classification as nonaccrual.

Of the loans which migrated to past due greater than 90 days and still accruing/accreting status during 2010 and the first quarter of 2011, $60.6 million (or approximately 48%) were loans covered by loss sharing agreements with the FDIC and reflect the low quality of these loans, combined with continued high unemployment and weak real estate markets. 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.

Three months ended March 31, 2011

Total non-performing loans as of March 31, 2011 were 262.8 million. The change in non-performing loans during the first quarter of 2011 was attributable to $44.3 million in additional non-performing loans acquired through the acquisition of Capital Bank Corp. as well as $57.1 million of loans that became non-performing. Partially offsetting these increases were $32.4 million in transfers to other real estate owned through foreclosures, receipt of deeds in lieu of foreclosures and other reductions.

During the first quarter of 2011, we foreclosed, or received deeds in lieu of foreclosure, on $13.7 million in loans, of which approximately 51% consisted of commercial real estate loans and approximately 43% and 36% were associated with the covered loans in Southeast Florida and South Carolina, respectively. Of the loans transferred to other real estate owned during the first quarter of 2011, 79% were covered by loss sharing agreements.

Sales of other real estate owned were $15.1 million during the first quarter of 2011. Approximately 55% of the first quarter sales were commercial real estate loans, and approximately 13% and 23% were associated with the covered loans in Southeast Florida and South Carolina, respectively. 36% of these sales were covered under loss sharing agreements.

In connection with the acquisitions, we recorded the acquisition 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 March 31, 2011 (which includes all amounts contractually owed by borrowers) set forth in the table below:

(Dollars in millions)
Loan Type	Gross Customer Balance  Owed March 31, 2011		Carrying Amount March 31,  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	$	201.5	$	159.7		79.3	%	$	28.1		17.6	%
Other commercial C&D		111.2		77.7		69.9	%		49.9		64.2	%
Multifamily		36.9		29.1		78.9	%		8.1		27.9	%
1-4 family residential C&D		10.1		7.1		70.7	%		5.5		76.9	%
Total commercial real estate	$	359.7	$	273.6		76.1	%	$	91.6		33.5	%
Owner occupied commercial real estate	$	141.2	$	123.8		87.7	%	$	15.2		12.3	%
Commercial and industrial		34.9		30.3		86.8	%		4.4		14.5	%
Total commercial	$	176.1	$	154.1		87.5	%	$	19.6		12.70	%
1-4 family residential	$	169.7	$	145.3		85.6	%	$	26.1		17.9	%
Home equity		100.7		75.3		74.8	%		7.0		9.4	%
Consumer		0.2		0.1		86.9	%		0.0		0.0	%
Total consumer	$	270.6	$	220.7		81.6	%	$	33.1		15.0	%
Farm	$	15.0	$	8.2		54.5	%	$	3.0		36.3	%
Government/non-profit		—		—		—	%		—		0.0	%
Total other		15.0		8.2		54.5	%		3.0		36.3	%
Total covered	$	821.4	$	656.6		79.9	%	$	147.3		22.4	%
Covered discount to customer balance owed			$	164.8
Non-Covered Portfolio
Non-owner occupied commercial real estate	$	613.2	$	582.4		95.0	%	$	31.0		5.3	%
Other commercial C&D		319.1		243.6		76.3	%		71.6		29.4	%
Multifamily		66.2		64.4		97.3	%		1.2		1.9	%
1-4 family residential C&D		80.7	$	75.6		93.6	%		4.5		5.9	%
Total commercial real estate	$	1,079.2	$	966.0		89.5	%	$	108.3		11.2	%
Owner occupied commercial real estate	$	438.8	$	411.9		93.9	%	$	42.3		10.3	%
Commercial and industrial		226.6		214.9		94.9	%		10.8		5.0	%
Total commercial	$	665.4	$	626.8		94.2	%	$	53.1		8.5	%
1-4 family residential	$	466.2	$	443.3		95.1	%	$	20.4		4.6	%
Home equity		140.7		131.7		93.6	%		3.4		2.6	%
Consumer		62.9		60.7		96.4	%		1.0		1.6	%
Total Consumer	$	669.8	$	635.7		94.9	%	$	24.8		3.9	%
Farm	$	23.7	$	21.9		92.6	%	$	1.5		6.8	%
Government/non-profit		35.7		34.2		95.8	%		—		0.0	%
Total other		59.4		56.1		94.5	%		1.5		6.8	%
Total Non-Covered	$	2,473.8	$	2,284.6		92.3	%	$	187.7		8.2	%
Non-Covered discount to customer balance owed			$	189.2

⁽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 March 31, 2011:

March 31, 2011	PCI Loans		Non PCI Loans		Total  Covered Loans
Real estate mortgage loans
Commercial	$	385,307	$	—	$	385,307
Residential		85,499		—		85,499
Construction and vacant land		85,311		—		85,311
Commercial and agricultural loans		28,136		2,282		30,418
Home equity loans		—		70,307		70,307
Total loans	$	584,253	$	72,589	$	656,842

The following is a summary of the purchased credit impaired and non purchased credit impaired non-covered loans outstanding as of March 31, 2011:

March 31, 2011	PCI Loans		Non PCI Loans		Total  Noncovered Loans
Real estate mortgage loans
Commercial	$	1,047,649	$	79,747	$	1,127,396
Residential		372,240		39,973		412,213
Construction and vacant land		305,904		13,540		319,444
Commercial and agricultural loans		194,997		53,817		248,814
Indirect auto loans		18,325		22,328		40,653
Home equity loans		25,347		87,936		113,283
Other consumer loans		7,924		11,555		19,479
Total loans		1,972,386		308,896		2,281,282
Net deferred loan costs		—		1,644		1,644
Loans, net of deferred loan costs	$	1,972,386	$	310,540	$	2,282,926

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, 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.

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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
Real estate mortgage loans
Commercial	$	412,266	$	—	$	412,266
Residential		89,077		—		89,077
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

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 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

Allowance for Loan Losses

For newly originated loans, we have recorded a provision to establish an allowance against loan losses. At March 31, 2011, the allowance was $2.3 million. As of March 31, 2011, we had not taken any loss provisions associated with the acquired legacy loan portfolios.

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 March 31, 2011 and 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, no amount of the allowance for loan losses was required to be allocated for purchased credit impaired loans. 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 primarily encompass 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

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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 $1.5 million for the three months ended March 31, 2011 and $753,000 for the year ended December 31, 2010 reflects the allowance for loan losses established for loans originated by us. Net charge offs of approximately $10,000 for the three months ended March 31, 2011 were related to indirect auto loans. No provision was taken related to purchased impaired loans, as actual credit losses experienced during the periods presented 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 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 months ended March 31, 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 months ended March 31, 2010 or for the period from inception through December 31, 2009):

(Dollars in thousands)	Three Months Ended March 31, 2011		Year Ended December 31, 2010
Balance at beginning of period	$	753	$	—
Charge-offs:
Real estate mortgage loans:
Commercial		—		—
Residential		—		—
Construction and vacant land		—		—
Commercial and agricultural loans		—		—
Indirect auto loans		11		—
Home equity loans		—		—
Other consumer loans		—		—
Total charge-offs	$	11	$	—
Recoveries:
Real estate mortgage loans:
Commercial	$	—	$	—
Residential		—		—
Construction and vacant land		—		—
Commercial and agricultural loans		—		—
Indirect auto loans		—		—
Home equity loans		—		—
Other consumer loans		—		—
Total recoveries	$	—	$	—
Net charged off		—		—
Provision for loan losses		1,545		753
Allowance for loan losses at end of period	$	2,287	$	753
Ratio of net charge-offs to average net loans outstanding		NM		NM

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No portion of the allowance 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 portfolio based on information available as of March 31, 2011 and December 31, 2010. The provision for loan losses of $1.5 million and $753,000 for the three months ended March 31, 2011 and for the year ended December 31, 2010, respectively, reflects the allowance for loan losses established for loans originated by us. The following table allocates the allowance for loan losses by loan category as of the dates indicated:

	March 31, 2011					December 31, 2010
(Dollars in thousands)	Allowance		Percent of Non PCI Loans			Allowance		Percent of Non PCI Loans
Real estate mortgage loans:
Commercial	$	759		0.95	%	$	149		0.83	%
Residential		451		1.13	%		215		1.35	%
Construction and vacant land		215		1.59	%		25		1.34	%
Commercial and agricultural loans		550		0.98	%		133		0.73	%
Indirect auto loans		217		0.97	%		184		2.92	%
Home equity loans		70		0.04	%		33		0.03	%
Other consumer loans		25		0.22	%		14		0.23	%
Total	$	2,287		0.60	%	$	753		0.45	%

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 Capital Bank Corp. 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 March 31, 2011 or December 31, 2010, and based upon the most recent estimates of pool expected cash flows, no additional impairment of purchased credit impaired loans was identified.

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 specified, but is still expected to occur in its entirety). Collectively, purchased credit impaired loans and loans classified as impaired comprise the potential problem loans individually considered along with historical portfolio loss experience and trends and other quantitative and qualitative factors applied to the balance of our portfolios in our evaluation of the adequacy of the allowance for loan losses.

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Non-Performing Assets

Non-performing assets include accruing/accreting loans delinquent 90 days or more, non-accrual loans and investments 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:

(Dollars in thousands)	March 31, 2011			March 31, 2010		December 31, 2010			December 31, 2009
Total non-accrual loans	$	—		$	—	$	—		$	—
Accruing/accreting loans delinquent 90 days or more		261,968			—		193,818			—
Total non-performing loans		261,968			—		193,818			—
Non-accrual investment securities		791			—		795			—
Repossessed personal property (primarily indirect auto loans)		108			—		104			—
Other real estate owned		84,533			—		70,817			—
Other assets		2,136			—		2,111			—
Total non-performing assets	$	349,536		$	—	$	267,645		$	—
Allowance for loan losses	$	2,287			NA	$	753			NA
Non-performing assets as a percent of total assets		7.1	%		NA		5.4	%		NA
Non-performing loans as a percent of total loans		8.9	%		NA		6.6	%		NA
Allowance for loan losses as a percent of non-performing loans		0.9	%		NA		0.4	%		NA
Allowance for loan losses as a percent of non-PCI loans		0.6	%		NA		0.5	%		NA

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 the requirements of (1) and (2).

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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. Of the securities in the portfolio, 94% were rated AAA, and 97% were rated A or higher. The following table sets forth our investment securities (including trading, available for sale and held to maturity securities) as of March 31, 2011:

(Dollars in thousands) Security Type	Book Value		Fair Value		Percent of Total Portfolio			Yield			Effective Duration (years)
Mortgage backed securities	$	662,494	$	662,084		86.5	%		2.76	%		3.74
U.S. Government agencies		62,564		62,205		8.1	%		1.19	%		1.78
States and political subdivisions
Tax exempt		26,234		27,084		3.6	%		4.23	%		7.73
Taxable		7,229		7,131		0.9	%		4.99	%		7.56
Corporate bonds		3,220		3,394		0.5	%		2.53	%		11.14
Equity		2,435		2,463		0.3	%		NA	%		NA
Collateralized debt obligations		803		791		0.1	%		0.00	%		NA
Foreign government		250		250		0.0	%		5.10	%		0.08
Total	$	765,229	$	765,402		100.0	%		2.70	%		3.79

Contractual maturities of investment securities at March 31, 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 March 31, 2011	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount
Securities Available for Sale:
U.S. Government agencies and corporations	$	2,009		0.57	%	$	33,202		1.05	%	$	20,043		0.93	%	$	6,951		2.84	%	$	—
States and political subdivisions—tax-exempt		276		0.92	%		2,718		1.77	%		4,151		3.33	%		19,939		4.79	%		—
States and political subdivisions—taxable		—		—			—		—			2,494		4.61	%		4,637		5.19	%		—
Marketable equity securities		—		—			—		—			—		—			—		—			2,463
Mortgage-backed securities—residential		—		—			—		—			—		—			—		—			662,084
Foreign government		250		5.10	%		—		—			—		—			—		—			—
Corporate bonds		—		—			—		—			724		0.00	%		2,670		3.23	%		—
Collateralized debt obligations		—		—			—		—			—		—			791		0.00	%		—
Total	$	2,535		1.05	%	$	35,920		1.10	%	$	27,412		1.60	%	$	34,988		4.23	%	$	664,547

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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	%		2,830		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 March 31, 2010 or December 31, 2009):

(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
As of March 31, 2011:
Held to Maturity
Foreign government	$	250	$	—	$	—	$	250
Total held to maturity	$	250	$	—	$	—	$	250
Available for Sale
U.S. Government agencies and corporations	$	62,564	$	26	$	385	$	62,205
States and political subdivisions—tax-exempt		26,234		966		116		27,084
States and political subdivisions—taxable		7,229		6		104		7,131
Mortgage-backed securities—residential		662,494		2,545		2,955		662,084
Marketable equity securities		1,833		37		9		1,861
Corporate bonds		3,220		174		—		3,394
Collateralized debt obligations		803		—		12		791
Total available for sale	$	764,377	$	3,754	$	3,581	$	764,550
As of December 31, 2010:
Held to Maturity
Foreign government	$	250	$	—	$	—	$	250
Total held to maturity	$	250	$	—	$	—	$	250
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

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 first quarter of 2011, we emphasized growth in “core

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deposits,” which we define as demand deposit accounts, savings and money-market accounts, in order to reduce the reliance on certificates of deposit that characterized certain of the acquisitions under their historic business models. During the first quarter of 2011, we grew core deposits by $120.6 million and allowed certificates of deposit to be reduced by $193.4 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 1.11% as of March 31, 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 March 31, 2011					As of December 31, 2010					Sequential Change
(Dollars in thousands)	Balance		Percent of Total			Balance		Percent of Total			Amount		Percent of Total			Percent of Balance
Non-interest demand deposit accounts	$	463,207		13	%	$	295,713		13	%	$	167,494		0	%		57	%
Interest Bearing demand deposit accounts		430,671		12	%		243,672		11	%		186,999		1	%		77	%
Savings		157,470		4	%		94,422		4	%		63,048		0	%		67	%
Money Market		456,181		13	%		272,780		12	%		183,401		1	%		67	%
Total Core Deposits	$	1,507,529		43	%	$	906,587		40	%	$	600,942		2	%		66	%
Customer Time Deposits		1,936,765		55	%		1,339,625		59	%		597,140		-4	%		45	%
Wholesale Time Deposits		94,429		3	%		13,885		1	%		80,544		2	%		580	%
Total Time Deposits	$	2,031,194		57	%	$	1,353,510		60	%	$	677,684		-2	%		50	%
Total Deposits	$	3,538,723		100	%	$	2,260,097		100	%	$	1,278,626		0	%		57	%

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 3,841 new demand deposit accounts during the first quarter of 2011. The following table sets forth our deposits and the average rates expenses for the periods indicated:

(Dollars in thousands)	Three Months Ended March 31, 2011					Year Ended December 31, 2010
	Average Amount		Average Rate			Average Amount		Average Rate
Non-interest bearing deposits	$	315,668		—	%	$	66,967		—	%
Interest-bearing deposits
Negotiable order of withdrawal accounts		355,129		0.48	%		66,994		0.29	%
Money market		475,452		0.61	%		131,949		0.54	%
Savings deposit		137,866		0.54	%		25,064		0.59	%
Time deposits(1)		1,790,638		1.04	%		446,372		0.81	%
Total	$	3,074,753		0.87	%	$	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 March 31, 2011				Three months ended December 31, 2010
	Increase in Deposits		Number of Accounts		Increase in Deposits		Number of Accounts
Non-interest bearing demand deposit accounts	$	37.5		2,463	$	13.8		1,684
Interest bearing demand deposit accounts		3.8		1,378		4.4		891
Savings		32.0		1,690		7.9		688
Money market		47.3		606		29.5		207
Total Core	$	120.6		6,137	$	55.6		3,470

During the three months ended March 31, 2011, our Florida markets accounted for 73% 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)	December 31, 2010
	Time Deposits of $100 and Greater		Time Deposits of Less Than $100		Total
Months to maturity:
Three or less	$	217,852	$	217,655	$	435,507
Four to Six		72,009		106,307		178,316
Seven through Twelve		222,852		168,033		390,885
Over Twelve		190,854		157,948		348,802
Total	$	703,567	$	649,943	$	1,353,510

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.

As of March 31, 2011, we had a Tier 1 leverage ratio of 19.2%, providing us with $392.7 million in excess capital relative to the 10% Tier 1 leverage ratio required under our operating agreement with the OCC and $478.3 million relative to our longer-term target of 8%. As of March 31, 2011, we had cash and securities equal to 30% of total assets, representing $742.5 million of excess liquidity in excess of our target of 15%. As of March 31, 2011, NAFH Bank had a 12.7% Tier 1 leverage ratio, a 45.8% Tier 1 risk-based ratio and a 46.2% total risk-based capital ratio.

At present, our operating agreement with the OCC requires NAFH Bank 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 operations at the acquisitions, improved our profitability and reduced legacy problem assets.

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

	Well Capitalized Requirement			Adequately Capitalized Requirement			March 31, 2011 Actual			December 31, 2010 Actual
Tier 1 Capital (to Average Assets)
NAFH Consolidated		NA			³4.0	%		19.2	%		24.3	%
TIB Financial		NA			³4.0	%		9.0	%		8.2	%
Capital Bank Corp.		NA			³4.0	%		10.0	%		NA
TIB Bank		³5.0	%		³4.0	%		8.4	%		8.1	%
NAFH Bank		³5.0	%		³4.0	%		12.7	%		12.1	%
Capital Bank		³5.0	%		³4.0	%		8.8	%		NA
Tier 1 Capital (to Risk Weighted Assets)
NAFH Consolidated		NA			³4.0	%		30.8	%		41.8	%
TIB Financial		NA			³4.0	%		14.2	%		13.4	%
Capital Bank Corp.		NA			³4.0	%		13.2	%		NA
TIB Bank		³6.0	%		³4.0	%		13.2	%		13.1	%
NAFH Bank		³6.0	%		³4.0	%		45.8	%		17.1	%
Capital Bank		³6.0	%		³4.0	%		11.6	%		NA
Total Capital (to Risk Weighted Assets)
NAFH Consolidated		NA			³8.0	%		31.1	%		41.9	%
TIB Financial		NA			³8.0	%		14.3	%		13.4	%
Capital Bank Corp.		NA			³8.0	%		13.6	%		NA
TIB Bank		³10.0	%		³8.0	%		13.3	%		13.1	%
NAFH Bank		³10.0	%		³8.0	%		46.2	%		17.1	%
Capital Bank		³10.0	%		³8.0	%		12.0	%		NA

(Dollars in millions)	March 31, 2011			December 31, 2010
NAFH
Tier 1 Capital	$	821		$	838
Tier 1 Leverage Ratio		19.2	%		24.3	%
Tier 1 Risk Based Capital Ratio		30.8	%		41.8	%
Total Risk Based Ratio		31.1	%		41.9	%
Excess Tier 1 Capital
vs. 10% regulatory requirement	$	393		$	493
vs. 8% target		478			562
NAFH National Bank
Tier 1 Capital	$	147		$	146
Tier 1 Leverage Ratio		12.7	%		12.1	%
Tier 1 Risk Based Capital Ratio		45.8	%		17.1	%
Total Risk Based Ratio		46.2	%		17.1	%
Excess Tier 1 Capital
vs. 10% regulatory requirement	$	31		$	25
vs. 8% target		54			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

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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, Federal Reserve discount window 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 March 31, 2011, cash and liquid securities totaled 30% of assets, providing us with $743 million in excess liquidity relative to our 15% planning target, and the ratio of wholesale to total funding was 18%, below our planning target of 25%. 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 March 31, 2011 and December 31, 2010, there were $244.4 million and $230.8 million in advances outstanding, with carrying amounts of $280.2 million and $243.1 million, respectively. In addition, we had $25.2 million in letters of credit outstanding as of March 31, 2011 and December 31, 2010. As of March 31, 2011 and December 31, 2010, collateral availability under our agreements with the FHLB provided for total borrowings of up to approximately $450.4 million and $309.6 million, respectively, of which $180.8 million and $53.6 million was available.

We had unsecured overnight federal funds purchased accommodations up to a maximum of $45.0 million and $30.0 million from its correspondent banks as of March 31, 2011 and December 31, 2010, respectively. As of March 31, 2011 and December 31, 2010, collateral availability under our agreement with the FRB provided for up to $115.9 million and $39.7 million, respectively, of borrowing availability from the FRB discount window. We believe that we have adequate funding sources through unused borrowing capacity from our correspondent banks, the Federal Home Loan Bank and the Federal Reserve, 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.

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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)	Year Ended December 31, 2010
Securities sold to customers under agreements to repurchase:
Balance:
Average daily outstanding	$	13,584
Year-end outstanding		50,226
Maximum month-end outstanding		51,221
Rate:
Weighted average		0.1	%
Weighted average interest rate		0.1	%
Treasury, tax and loan note option:
Balance:
Average daily outstanding	$	238
Year-end outstanding		1,728
Maximum month-end outstanding		1,728
Rate:
Weighted average		0.0	%
Weighted average interest rate		0.0	%
Securities sold to financial institution under agreements to repurchase:
Balance:
Average daily outstanding	$	6,411
Year-end outstanding		10,015
Maximum month-end outstanding		20,031
Rate:
Weighted average		2.7	%
Weighted average interest rate		2.1	%
Advances from the Federal Home Loan Bank:
Balance:
Average daily outstanding	$	90,061
Year-end outstanding		243,067
Maximum month-end outstanding		256,069
Rate:
Weighted average		1.0	%
Weighted average interest rate		1.0	%

As of March 31, 2011, our holding company had cash of approximately $359.3 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 subordinated debentures underlying TIB Financial’s trust preferred securities is allowed for up to 60 months without being considered an event of default. Because it is deferring interest on these subordinated debentures, our subsidiary, TIB Financial, is restricted from declaring or paying dividends on its capital stock, or, with certain exceptions, repurchasing its capital stock without first having paid all interest that is due. We are currently in the process of requesting that the Federal Reserve allow TIB Financial to resume payment of interest on the subordinated debentures underlying the trust preferred securities.

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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 $37.9 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 book value and carrying value of our outstanding trust preferred securities as of March 31, 2011 as well as the rate paid thereon and maturities:

(Dollars in thousands) Issuer	Book Value		Carrying Value		Rate			Maturity
TIBFL Statutory Trust I	$	8,000	$	8,852		10.60	%		9/7/2030
TIBFL Statutory Trust II		5,000		3,689		3m Libor + 3.58	%		7/31/2031
TIBFL Statutory Trust III		20,000		10,417		3m Libor + 1.55	%		7/7/2036
Total TIB Trust Preferred	$	33,000	$	22,958
Capital Bank Statutory Trust I		10,000		5,518		3m Libor + 3.10	%		6/30/2033
Capital Bank Statutory Trust II		10,000		5,303		3m Libor + 2.85	%		12/31/2033
Capital Bank Statutory Trust III		10,000		4,078		3m Libor + 1.40	%		12/31/2035
Total CBKN Trust Preferred	$	30,000	$	14,899
Total Trust Preferred	$	63,000	$	37,857

We calculate tangible book value, which is not a measure as defined under U.S. generally accepted accounting principles (which we refer to as “GAAP”) 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 March 31, 2011
Total shareholders’ equity	$	940,304
Less: Noncontrolling interest		(49,117	)
Less: NAFH Inc. proportional share of goodwill(1)		(60,697	)
Less: NAFH Inc. proportional share of core deposit intangibles, net of taxes(1)		(11,003	)
Tangible Book Value	$	819,487
Book Value Per Share	$	19.31
Tangible Book Value Per Share	$	17.76

⁽¹⁾  Proportional share is calculated based upon 94.467% ownership of TIB Financial and 83.051% ownership of Capital Bank Corp. as of March 31, 2011.

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 the following guidelines:

• Net Interest Income Exposure to a +/-200 basis point rate shock should result in no greater than a 10% reduction to forecast net interest income in year one and no greater than a 15% reduction in year two.

• A +/- 200 basis point rate shock should result in no greater than a 15% reduction in the economic value of equity.

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Based upon the current interest rate environment, as of March 31, 2011, our sensitivity to interest rate risk using these two measures was as follows:

(Dollars in Millions)
Interest Rate Change in Basis Points	Next 12 Months               Net Interest Income					Present Value Equity
	$ Change		% Change			$ Change			% Change
400	$	21.0		14	%	$	(17.7	)		-2	%
300		15.3		10	%		(12.8	)		-1	%
200		8.7		6	%		(7.6	)		-1	%
100		3.1		2	%		(3.4	)		0	%
0		—		0	%		—			0	%

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.

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.

Off-Balance Sheet Arrangements and Contractual Obligations

Our off-balance sheet arrangements and contractual obligations at December 31, 2010 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	$	179,891	$	103,895	$	21,638	$	7,830	$	46,528
Standby letters of credit		2,080		1,645		35		400		—
Total	$	181,971	$	105,540	$	21,673	$	8,230	$	46,528
Contractual obligations
Time deposits	$	1,353,510	$	1,004,708	$	319,520	$	29,282	$	—
Operating lease obligations		24,791		3,062		3,685		2,899		15,145
Purchase obligations		24,843		3,841		8,031		8,519		4,452
FHLB Advances		243,067		91,179		97,514		27,112		27,262
Long-term debt		22,887		—		—		—		22,887
Other long-term liabilities reflected on the balance sheet under GAAP(1)		1,534		32		93		123		1,286
Total	$	1,670,632	$	1,102,822	$	428,843	$	67,935	$	71,032

⁽¹⁾  In the first quarter 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 under the plan.

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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. 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 NAFH Bank or other financial institutions, and securities.

We had unfunded loan commitments and unfunded letters of credit totaling $359.0 million and $182.0 million at March 31, 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.

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 $24.8 million at December 31, 2010.

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, at December 31, 2010, consists of subordinated debentures with notional amounts of $33.0 million and carrying values totaling $22.9 million.

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 $230.8 million at December 31, 2010.

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.

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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 its consolidated financial statements. Fair value measurements are used in one of four ways: (i) in the consolidated balance sheet with changes in fair value recorded in the consolidated statements of operations and other comprehensive income (loss); (ii) 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; (iii) 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 (iv) in the notes to our consolidated financial statements.

Fair value is defined as the price to sell an asset or transfer a liability 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. 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

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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 both our FDIC-assisted acquisition 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 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 is also recorded at fair value at the acquisition

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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 $50.0 million in reimbursements from the FDIC, representing all of our requests for reimbursement of covered losses from July 16, 2010 through January 31, 2011.

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 March 31, 2011, there was no valuation adjustment to our deferred tax asset.

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Recent Accounting Pronouncements

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.

In July 2010, the FASB issued new guidance impacting receivables. The new guidance requires additional disclosures that will allow users to understand the nature of credit risk inherent in a company’s loan portfolios, how that risk is analyzed and assessed in arriving at the allowance for loan and lease losses, and changes and reasons for those changes in the allowance for loan and lease losses. The new disclosures that relate to information as of the end of the reporting period are required as of December 31, 2010. The disclosures related to activity that occurs during a reporting period are effective for reporting periods beginning on or after December 15, 2010, except for the disclosure requirements relating to troubled debt restructurings, which are effective for reporting period beginning on or after June 15, 2011.

In December 2010, the FASB issued new guidance impacting business combinations. The new guidance specifies 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. This guidance is 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. The adoption of this guidance did not have a material impact on our consolidated financial statements.

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 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 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 March 31, 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 March 31, 2011, we had approximately $7.2 billion in total assets, $4.4 billion in loans, $2.8 billion in core deposits (which exclude time deposits), $5.5 billion in total deposits and $973.2 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 six-month period, we integrated and centralized the underwriting, risk and pricing functions of each of our acquired institutions and combined four of our acquired institutions onto a single information processing system. We expect to have all five of our acquired institutions fully integrated by July 2011.

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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, 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 March 31, 2011 was $77.6 million.

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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 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 NAFH Bank 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 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%. In June 2011, we expect to combine Capital Bank Corp.’s banking subsidiary, Capital Bank, with our banking subsidiary, NAFH National Bank, in an all-stock transaction. In connection with this merger, we plan to change the name of our banking subsidiary 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 $2.4 billion in assets reported as of March 31, 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 March 31, 2011 included gross loans of $1.7 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 90.1% 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 NAFH 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 March 31, 2011 of $2.4 billion, including $1.7 billion of loans, $226.8 million of investment securities and $331.4 million of cash and cash equivalents. We will also assume liabilities with a reported carrying value at March 31, 2011 of $2.3 billion, including $2.0 billion of deposits and $266.0 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, we intend to merge Capital Bank, the wholly owned bank subsidiary of Capital Bank Corp., and, assuming the completion of our Green Bankshares investment, GreenBank, the

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wholly owned bank subsidiary of Green Bankshares, with and into NAFH Bank, which will be rebranded as Capital Bank, N.A. In addition, concurrent with the completion of this offering, we intend to merge each of our majority-held 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 our Class A common stock 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 our Class A common stock to the other shareholders of our bank holding company subsidiaries that will be merged with the Company in the reorganization.

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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 June 22, 2011 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 Bank in an all-stock transaction. See “—Our Acquisitions—TIB Financial Corp.”

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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. 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 the credit, finance, technology and operations. 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.

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 existing books of business in certain of our markets. 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.

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

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markets, increase our earnings power or enhance 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.

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 expect Capital Bank Corp. to be fully integrated 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.

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• 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 $170.5 million of commercial and consumer loan originations and $120.6 million in net core deposit growth in the first quarter of 2011.

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

• 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 March 31, 2011, approximately 22% 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 March 31, 2011, we had a 17.5% tangible common equity ratio and a 19.2% Tier 1 leverage ratio, which provides us with $392.7 million in excess capital relative to the 10% Tier 1 leverage standard required under our operating agreement with the OCC. As of March 31, 2011, NAFH Bank had a 12.7% Tier 1 leverage ratio, a 45.8% Tier 1 risk-based ratio and a 46.2% total risk-based capital ratio. As of March 31, 2011, we had cash and securities equal to 30% of total assets, representing $742.5 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.

• Scalable Back-Office Systems. By July 2011, we expect that all of our acquired institutions will be 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.

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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 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%. Miami is already considered a large metropolitan area with a population in excess of 5 million. 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		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		5,513		1.4	%		51,835		13.5	%
Charlotte-Gastonia- Rock Hill, NC-SC		1		1,793		14.8			62,215		13.2
Nashville-Davidson-Murfreesboro-Franklin, TN		21		1,608		9.6		$	58,639		11.3
Raleigh-Cary, NC		13		1,162		19.4			68,373		15.4
Columbia, SC		6		758		8.2			52,348		11.9
Knoxville, TN		10		703		6.4			48,593		13.8
Durham-Chapel Hill, NC		2		505		8.8			55,185		13.2
Spartanburg, SC		3		290		7.7			48,476		10.1
Weighted Average: Target MSAs(1)		68		12,333		9.1			56,504		12.8
Weighted Average: NAFH Consolidated(1)		148		18,119		6.3			62,213		12.7
Aggregate: National				311,213		3.9			54,442		12.4

Source: SNL Financial.

⁽¹⁾  Population growth and median household income metrics are deposit weighted by MSA.

⁽²⁾  Population in thousands.

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 the Carolinas, Southwest Florida (Naples and the Keys), Southeast Florida and Miami-Dade markets. 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

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and other services to the owners and managers and employees of the bank’s commercial clients. At March 31, 2011, commercial loans totaled $2.0 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;

• working capital loans and lines of credit;

• demand, term and time loans; and

• equipment, inventory and accounts receivable financing.

During first quarter 2011, we originated $108.8 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 NAFH 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 quarter of 2011, we generated organic core deposit growth of $120.6 million (or 34.8% annualized growth). As of March 31, 2011, consumer loans totaled $856.3 million. During the first quarter of 2011, we originated $57.1 million of new consumer loans.

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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 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 $216 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 March 31, 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 March 31, 2011, our owner occupied commercial real estate loans, non-owner occupied commercial real estate loans, residential mortgage loans and commercial and industrial loans represented 18%, 25%, 20% and 8%, respectively, of our $2.9 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 March 31, 2011, the carrying value of our commercial real estate loans in North Carolina, South Carolina and Florida totaled $715.6 million, $247.0 million and $812.7 million, respectively, and reported value of Green Bankshares’ owner occupied real estate loans, which are primarily in Tennessee, totaled $906.6 million. At March 31, 2011, commercial real estate loans in all regions totaled $1.8 billion (30% of which was owner occupied commercial real estate). We have recently tightened underwriting and pricing standards for indirect auto and residential mortgage lending and deemphasized 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

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December 31, 2010 to March 31, 2011, our loan portfolio grew organically by $61.9 million, or 8.6%, with $170.5 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.

In addition, we operate an indirect auto lending business which originates loans for new and used cars through relationships with dealers in Southwest Florida, the Florida Keys and the Miami-Dade area. 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 March 31, 2011, we had $40.7 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 March 31, 2011, total deposits were $3.5 billion of which $3.4 billion (or 97%) were non-brokered deposits and $94.4 million (or 3%) were brokered deposits. At March 31, 2011, our core deposits (which are all deposits other than time deposits) consisted of $463.2 million of non-interest checking, $430.7 million of negotiable order of withdrawal accounts, $157.5 million of savings accounts and $456.2 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;

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

• adhere to safe and sound credit standards.

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 March 31, 2011, we had 952 full-time employees and 48 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 263,049 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, 63 in Tennessee and one in Virginia. Of these branches, 42 were leased and the rest were owned. In addition, the Company owns 108,117 and leases 97,595 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.

We believe these allegations lack merit and intend to defend them vigorously, but cannot predict their outcome.

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 objective of the U.S. bank regulatory regime is the protection of depositors, not the protection of stockholders.

As a bank holding company, we are subject to inspection, examination, supervision and regulation by the Federal Reserve. Our bank subsidiary is subject to supervision and regulation by the OCC. 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 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 a change in them, including changes in how they are interpreted or implemented, could have a material effect 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, NAFH 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 NAFH Bank or other depository institutions.

NAFH National Bank as a National Bank

NAFH Bank is a national bank and is subject to supervision and regular examination by its primary banking regulator, the OCC. NAFH Bank’s deposits are insured by the FDIC through the DIF up to applicable limits in the manner and extent provided by law. NAFH 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 and examination by the FDIC under certain circumstances.

NAFH Bank is subject to specific requirements pursuant to an operating agreement (which we refer to as the “OCC Operating Agreement”) it entered into with the OCC in connection with our acquisition of the Failed Banks. The OCC Operating Agreement requires, among other things, that NAFH Bank maintain various financial

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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 NAFH Bank.

NAFH Bank (and, with respect to certain provisions, the Company) is also subject to a separate 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 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, NAFH 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 NAFH Bank maintain Tier 1 common equity to total assets of at least ten percent during such three-year period and after such three-year period to remain “well capitalized.”

A failure by us or NAFH Bank to comply with the requirements of the OCC Operating Agreement or the FDIC Order, or the objection by the OCC or the FDIC to any materials or information submitted pursuant to the OCC Operating Agreement or the FDIC Order, could prevent us from executing our business strategy and materially and adversely affect our businesses and our consolidated results of operations and financial condition.

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 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, Examination 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 regulatory, examination and enforcement authority with regard to bank holding

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companies and banks, including the power to issue cease and desist orders, impose fines and other civil and criminal penalties, terminate deposit insurance and appoint a conservator or receiver. 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.

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

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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.

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 all of its affiliates in the aggregate are limited to 20% 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.

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Bank Holding Companies as a Source of Strength

The Federal Reserve 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 a 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 action is not in the best interests of the bank holding company or its stockholders. Because we are a bank holding company, the Federal Reserve views the Company (and its consolidated assets) as a source of financial and managerial strength for any controlled depository institutions.

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 a source 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 ability to serve as a source 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 NAFH Bank should it experience financial distress. Based on our ownership of a national bank subsidiary, the OCC could assess us if the capital of NAFH 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 NAFH Bank to cover the deficiency.

In addition, capital loans by us to NAFH Bank will be subordinate in right of payment to deposits and certain other indebtedness of NAFH Bank. In the event of our bankruptcy, any commitment by us to a federal bank regulatory agency to maintain the capital of NAFH 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 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-

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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. The ability of a bank to pay dividends and make other distributions 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 NAFH Bank from paying a dividend to the Company for three years following our acquisition of the Failed Banks and, once the three-year period has elapsed, imposes other restrictions on NAFH 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 maintain a rate of 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.

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. The FDIC may impose these requirements on NAFH Bank and other depository institution subsidiaries that we may acquire or control in the future.

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 FDI Act requires that the federal regulatory agencies adopt regulations defining five capital

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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 depository institution holding companies that (1) have more than $15 billion of total consolidated assets as of December 31, 2009 or (2) were not mutual holding companies on May 19, 2010, 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 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 NAFH 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

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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 NAFH 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 (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. When fully phased-in on January 19, 2019, Basel III increases the minimum Tier 1 common equity ratio to 4.5%, net of regulatory deductions and introduces a capital conservation buffer of an additional 2.5% of common equity to risk-weighted assets, raising the target minimum Tier 1 common equity ratio to at least 7.0%. Basel III increases the minimum Tier 1 capital ratio to 8.5% inclusive of the capital conservation buffer, increases the minimum total capital ratio to 10.5% inclusive of the capital conservation buffer and introduces a countercyclical capital buffer of up to 2.5% of common equity or other fully loss absorbing capital for periods of excess credit growth. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a Tier 1 common equity ratio above the minimum but below the conservation buffer may face constraints on dividends, equity repurchases and compensation based on the amount of such shortfall.

Basel III also introduces a non-risk adjusted Tier 1 leverage ratio of 3%, based on a measure of total exposure rather than total assets, and new 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. 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 and more restrictive leverage and 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. In addition, significant questions remain as to how the capital and liquidity mandates of the Dodd-Frank Act will be integrated with the requirements of Basel III.

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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. NAFH 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

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depository institutions, must maintain anti-money laundering programs that include established internal policies, 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 NAFH Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, we or NAFH 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 a new independent Consumer Finance Protection Bureau (which we refer to as the “Consumer Bureau”) that will have broad authority to regulate and supervise 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 NAFH Bank, will continue to be examined for consumer compliance by their bank regulator.

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. 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 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.

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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 financial institution to serve as a source of strength for the institution.

• Limitation on Federal Preemption. The Dodd-Frank Act reduces 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. The Dodd-Frank Act also eliminates the extension of preemption to operating subsidiaries of national banks. However, the Dodd-Frank Act preserves preemption and other 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 the various state attorney generals and state regulators.

• 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 $10 billion or more, the Consumer Bureau has exclusive rulemaking and examination and primary enforcement authority under federal consumer financial laws. In addition, the 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

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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.

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 June 22, 2011.

Name	Age		Position
Executive Officers:
R. Eugene Taylor		63	Chairman and Chief Executive Officer
Christopher G. Marshall		52	Chief Financial Officer
R. Bruce Singletary		60	Chief Risk Officer
Kenneth A. Posner		48	Chief of Investment Analytics and Research
Directors:
R. Eugene Taylor		63	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 31 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 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 29 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’ 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 Development 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 acquisition of NationsBank Corp., he served as 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 a manager in 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 Science 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 member 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 competitive with the base salary ranges for similar positions with other banking organizations of comparable size.

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, individual contribution to organizational performance and level of individual responsibilities.

Prior to the completion of this offering, we intend to adopt a written annual bonus plan.

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 stockholders 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.”

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 period of approximately three years 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 the 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		0		0		0		0
Christopher G. Marshall,
Chief Financial Officer		2010		438,000		438,000		0		0		0		0
R. Bruce Singletary,
Chief Risk Officer		2010		300,000		300,000		0		0		0		0
Kenneth A. Posner,
Chief of Investment Analytics and Research		2010		225,000		225,000		0		0		0		0

⁽¹⁾  No stock awards or option awards were granted to the named executive officers in 2009 or 2010.

Grants of Plan-Based Awards

No plan-based awards were granted to named executive officers during 2010.

Outstanding Equity Awards at 2010 Fiscal Year-End

There were no equity awards outstanding on December 31, 2010 for our named executive officers.

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

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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.

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

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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 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;

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• 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 ($)	Benefits ($)	Total ($)
R. Eugene Taylor	Resignation
	Involuntary Termination not for Cause
	Involuntary Termination for Cause
	Involuntary Termination Following Change of Control
	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 and the chair of the Compensation 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 ($)(1)	Stock Awards ($)(2)		Option Awards ($)(2)		All Other Compensation ($)	Total ($)
Richard M. DeMartini			0		0
Peter N. Foss			0		0
William A. Hodges			0		0
Jeffrey E. Kirt			0		0
Marc D. Oken			0		0

⁽¹⁾  Cash retainers relating to services as a director provided by (a) Mr. DeMartini, are paid by us to 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.

⁽²⁾  No stock awards or option awards were granted to directors or the entities that have the right to appoint directors in 2010.

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, 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 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 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 June 22, 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 June 22, 2011 (including 20,932,549 shares of Class A common stock and 25,217,449 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 June 22, 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 the Offering										Beneficial Ownership After the Offering(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	%		Additional Shares being offering	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)		2,096,235	(8)		9,163,688		11,259,923		24.40	%						%						%
Peter N. Foss		25,000	(8)		—		—		*							%						%
William A. Hodges		25,000	(8)		—		—		*							%						%
Jeffrey E. Kirt(9)		1,040,370	(8)		3,451,528		4,491,898		9.73	%						%						%
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)		2,096,235	(8)		9,163,688		11,259,923		24.40	%						%						%
Oak Hill Advisors, L.P.(12)		1,040,370	(8)		3,451,528		4,491,898		9.73	%						%						%
Ziff Brothers Investments(13)		1,040,370			3,426,528		4,466,898		9.68	%						%						%
Franklin Mutual Advisors, LLC(14)		1,040,620			3,350,387		4,391,007		9.51	%						%						%
Taconic Capital Advisors, L.P.(15)		1,040,370			2,844,525		3,884,895		8.42	%						%						%
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.

⁽⁴⁾  Includes 201,072 shares of restricted stock.

⁽⁵⁾  Includes 134,048 shares of restricted stock.

⁽⁶⁾  Includes 33,512 shares of restricted stock.

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⁽⁷⁾  Includes 11,259,923 shares owned by Crestview-NAFH, LLC. Mr. DeMartini disclaims beneficial ownership of the securities owned directly or indirectly by Crestview-NAFH, LLC, except to the extent of his pecuniary interest therein, if any.

⁽⁸⁾  Includes 25,000 shares of restricted stock.

⁽⁹⁾  Includes 4,491,898 shares owned by Oak Hill Advisors, L.P. and certain of its affiliated funds. Mr. Kirt disclaims beneficial ownership of the securities owned directly or indirectly by Oak Hill Advisors, L.P., 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⁾ Includes shares owned by Crestview-NAFH, LLC. The address of this stockholder is c/o Crestview Partners, 667 Madison Avenue, 10th Floor, New York, New York 10065.

⁽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⁾ Includes shares owned by Ziff Brothers Investments and certain of its affiliated funds. The address of each of these stockholders is c/o Ziff Brothers Investments, 350 Park Avenue, 11th Floor, New York, NY 10022.

⁽¹⁴⁾ Includes shares owned by Franklin Mutual Advisors, LLC and certain of its affiliated funds. The address of each of these stockholders is c/o Franklin Mutual Advisors, 101 JFK Parkway, Short Hills, New Jersey 07078.

⁽¹⁵⁾  Includes shares owned by Taconic Capital Advisors, L.P. and certain of its affiliated funds. 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 June 22, 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.

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 June 22, 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.

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.

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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.

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 the 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.

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 NAFH Bank and are expected to continue such relationships in the future. All loans or other extensions of credit made by NAFH 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 March 31, 2011, 20,888,549 shares of Class A common stock and 25,261,449 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

As of the date of this prospectus, there are             shares of Class A common stock outstanding and              shares of Class B non-voting common stock outstanding.

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, provided such conversion does not result in a violation of the applicable

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ownership limit. 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 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.

We anticipate that this offering will constitute a “widely dispersed public offering” and that any investors who acquire shares of Class B non-voting common stock in this offering will be entitled to convert such shares into shares of Class A common stock, subject to the applicable ownership limit.

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.

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.

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

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 our 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 our 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 our Class A common stock and, to the extent it exceeds the adjusted basis in the non-U.S. holder’s shares of our 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 our 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 our 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 our 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 the 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 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

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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 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 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 the offering the shares will not trade in the public market at or above the initial offering price.

In connection with the 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 the 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.

160

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, 2009, 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

162

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 the 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 Months Ended March 31, 2010 and 2011
Unaudited Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010		F-5
Unaudited Consolidated Statements of Operations for the Three Months Ended March  31, 2011 and 2010		F-6
Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2011 and 2010		F-7
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010		F-8
Notes to Unaudited Consolidated Financial Statements		F-9
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-36
Consolidated Balance Sheets as of December 31, 2010 and 2009		F-37
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-39
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-40
Notes to Consolidated Financial Statements		F-41
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-74
Statement of Assets Acquired and Liabilities Assumed of First National Bank of the South as of July 16, 2010		F-75
Notes to Statement of Assets Acquired and Liabilities Assumed		F-76
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-83
Statement of Assets Acquired and Liabilities Assumed of Metro Bank of Dade County as of July  16, 2010		F-84
Notes to Statement of Assets Acquired and Liabilities Assumed		F-85
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-93
Statement of Assets Acquired and Liabilities Assumed of Turnberry Bank as of July 16, 2010		F-94
Notes to Statement of Assets Acquired and Liabilities Assumed		F-95
TIB Financial Corp. Unaudited Consolidated Financial Statements for the Three Months Ended March 31, 2011 and 2010
Unaudited Consolidated Balance Sheet as of March 31, 2011 and December 31, 2010		F-102

F-1

	Page
Unaudited Consolidated Statement of Operations for the Three Months Ended March 31, 2011 and 2010		F-103
Unaudited Consolidated Statement of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2011 and 2010		F-104
Unaudited Consolidated Statements of Cash Flows the Three Months Ended March 31, 2011 and 2010		F-105
Notes to Unaudited Consolidated Financial Statements		F-106
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-124
Consolidated Balance Sheets for the Years Ended December  31, 2010 (Successor) and 2009 (Predecessor)		F-125
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-126
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-128
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-130
Notes to Consolidated Financial Statements		F-132
Capital Bank Corporation Unaudited Consolidated Financial Statements for the Three Months Ended March 31, 2011 and 2010
Unaudited Condensed Consolidated Balance Sheet as of March 31, 2011 and December 31, 2010		F-182
Unaudited Condensed Consolidated Statement of Operations for the Three Months Ended March  31, 2011 and 2010		F-183
Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2011 and 2010		F-184
Unaudited Condensed Consolidated Statement of Cash Flows for the Three Months Ended March  31, 2011 and 2010		F-186
Notes to Unaudited Consolidated Financial Statements		F-187
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 Firm		F-208
Consolidated Balance Sheet as of December 31, 2010 and 2009		F-210
Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and 2008		F-211
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Loss for the Years Ended December 31, 2010, 2009 and 2008		F-212
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008		F-213
Notes to Consolidated Financial Statements		F-214

F-2

	Page
Green Bankshares, Inc. Unaudited Consolidated Financial Statements for the Three Months Ended March 31, 2011 and 2010
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010		F-251
Unaudited Condensed Consolidated Statements of Income for the Three Months Ended March  31, 2011 and 2010		F-252
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2011		F-253
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March  31, 2011 and 2010		F-254
Notes to Unaudited Condensed Consolidated Financial Statements		F-255
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-276
Consolidated Balance Sheets as of December 31, 2010 and 2009		F-277
Consolidated Statements of Income for the Years Ended December 31, 2010, 2009 and 2008		F-278
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December  31, 2010, 2009 and 2008		F-279
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008		F-280
Notes to Consolidated Financial Statements		F-281

F-3

North American Financial Holdings, Inc.

Unaudited Consolidated Financial Statements for the Three Months Ended March 31, 2010 and 2011

Item 1. Financial Statements

NORTH AMERICAN FINANCIAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars and shares in thousands, except per share data)	(Unaudited)
	March 31, 2011			December 31, 2010
Assets
Cash and due from banks	$	719,804		$	886,925
Trading securities		602			—
Investment Securities held to maturity		250			250
Investment securities available for sale		764,550			479,466
Loans held for sale		1,424			—
Loans, net of deferred loan costs and fees		2,939,768			1,742,747
Less: Allowance for loan losses		2,287			753
Loans, net		2,937,481			1,741,994
Other real estate owned		84,533			70,817
Indemnification asset		77,597			91,467
Receivable from FDIC		45,095			46,585
Premises and equipment, net		71,165			44,078
Goodwill		67,610			36,616
Intangible assets, net		19,340			15,154
Deferred income tax asset		68,929			16,789
Accrued interest receivable and other assets		92,758			66,850
Total Assets	$	4,951,138		$	3,496,991
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest-bearing demand	$	463,206		$	295,713
Interest-bearing		3,075,516			1,964,384
Total deposits		3,538,722			2,260,097
Federal Home Loan Bank (FHLB) advances		280,151			243,067
Short-term borrowings		50,650			61,969
Long-term borrowings		97,358			22,887
Accrued interest payable and other liabilities		43,953			27,735
Total liabilities		4,010,834			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, 20,889 and 21,384 shares issued and outstanding, respectively		209			214
Common stock—Class B $0.01 par value: 200,000 shares authorized, 25,261 and 23,736 shares issued and outstanding, respectively		252			237
Additional paid in capital		878,485			865,673
Retained earnings		12,338			11,938
Accumulated other comprehensive loss		(97	)		(2,759	)
Noncontrolling interest		49,117			5,933
Total shareholders’ equity		940,304			881,236
Total Liabilities and Shareholders’ Equity	$	4,951,138		$	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 March 31, 2011			Three Months Ended March 31, 2010
Interest and dividend income
Loans, including fees	$	35,551		$	—
Investment securities:
Taxable interest income		3,693			—
Tax-exempt interest income		207			—
Dividends		13			—
Interest-bearing deposits in other banks		710			725
Federal Home Loan Bank stock		131			—
Total interest and dividend income		40,305			725
Interest expense
Deposits		5,926			—
Federal Home Loan Bank advances		623			—
Short-term borrowings		35			—
Long-term borrowings		882			—
Total interest expense		7,466			—
Net interest income		32,839			725
Provision for loan losses		1,545			—
Net interest income after provision for loan losses		31,294			725
Non-interest income
Service charges on deposit accounts		1,919			—
Fees on mortgage loans originated and sold		531			—
Investment advisory and trust fees		387			—
Other income		1,721			—
Investment securities losses, net		(57	)		—
Total non-interest income		4,501			—
Non-interest expense
Salaries and employee benefits		15,093			851
Net occupancy and equipment expense		5,338			15
Foreclosed asset related expense		1,178			—
Conversion expenses		3,737			—
Organizational expenses		—			2,100
Other expense		9,694			148
Total non-interest expense		35,040			3,114
Income (loss) before income taxes		755			(2,389	)
Income tax expense (benefit)		405			(1,008	)
Net income (loss) before attribution of noncontrolling interests		350			(1,381	)
Net loss attributable to noncontrolling interests		50			—
Net income (loss) attributable to North American Financial Holdings, Inc.	$	400		$	(1,381	)
Basic and diluted earnings (loss) per share	$	0.01		$	(0.04	)

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 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															400						(50	)		350
Other comprehensive income, net of tax
Net market valuation adjustment on securities available for sale																		2,611			269			2,880
Less: reclassification adjustment for gains included in net income																		(7	)		—			(7	)
Other comprehensive income, net of tax expense of $1,761																		2,604			269			2,873
Comprehensive income																								3,223
Conversion of shares		(1,525	)		(15	)		1,525		15														—
Restricted stock grants		1,030			10							(10	)											—
Stock based compensation												408												408
Origination of noncontrolling interest																					43,785			43,785
Rights offerings of subsidiaries												12,414						58			(820	)		11,652
Balance, March 31, 2011		20,889		$	209			25,261	$	252	$	878,485		$	12,338		$	(97	)	$	49,117		$	940,304
	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 Loss			Noncontrolling Interest			Total Shareholders’ Equity
Balance, January 1, 2010		19,181		$	192			8,726	$	87	$	526,133		$	(92	)	$	—		$	—			526,320
Net loss															(1,381	)								(1,381	)
Issuance of common stock		3,114			31			1,073		11		79,158												79,200
Balance, March 31, 2010		22,295		$	223			9,799	$	98	$	605,291		$	(1,473	)	$	—		$	—		$	604,139

F-7

NORTH AMERICAN FINANCIAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(Unaudited)

(Dollars in thousands)

	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
Cash flows from operating activities:
Net income (loss)	$	350		$	(1,381	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Accretion of acquired loans		(29,916	)		—
Depreciation and amortization		197			—
Provision for loan losses		1,545			—
Deferred income tax expense (income)		(734	)		(887	)
Investment securities net realized gains		(57	)		—
Net amortization of investment premium/discount		1,983			—
Stock-based compensation		545			—
Gain on sales of OREO		(105	)		—
OREO valuation adjustments		131			—
Other		(127	)		—
Mortgage loans originated for sale		(10,790	)		—
Proceeds from sales of mortgage loans originated for sale		18,739			—
Fees on mortgage loans sold		(353	)		—
Change in accrued interest receivable and other assets		16,373			50
Change in accrued interest payable and other liabilities		5,603			101
Net cash provided by (used in) operating activities		3,384			(2,117	)
Cash flows from investing activities:
Purchases of investment securities available for sale		(105,870	)		—
Sales of investment securities available for sale		6,635			—
Repayments of principal and maturities of investment securities available for sale		33,811			—
Cash acquired through acquisition of Capital Bank Corp.		27,955			—
Principal repayments on loans, net of loans originated or acquired		(44,632	)		—
Purchases of premises and equipment		(1,161	)		—
Proceeds from sales of loans		—			—
Proceeds from sale of OREO		14,358			—
Net cash used in investing activities		(68,904	)		—
Cash flows from financing activities:
Issuance of common stock		—			79,200
Net increase in demand, money market and savings accounts		111,337			—
Net decrease in time deposits		(184,178	)		—
Net decrease in federal funds purchased and securities sold under agreements to repurchase		(11,320	)		—
Net decrease short term FHLB advances		(10,000	)		—
Repayment of long term FHLB advances		(19,030	)		—
Net proceeds from common stock rights offering		11,590			—
Net cash (used in) provided by financing activities		(101,601	)		79,200
Net decrease in cash and cash equivalents		(167,121	)		77,083
Cash and cash equivalents at beginning of period		886,925			526,711
Cash and cash equivalents at end of period	$	719,804		$	603,794
Supplemental disclosures of cash paid:
Interest	$	9,103		$	—
Income taxes		5,200			—
Supplemental information:
Transfer of loans to OREO		12,842			—

See accompanying notes to consolidated financial statements

F-8

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 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, NAFH National Bank (“NAFH NB”), TIB Financial Corp. (“TIBB”; parent company of TIB Bank and Naples Capital Advisors, Inc.), and Capital Bank Corporation (parent company of Capital Bank) (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 March 31, NAFH had a total of eighty-one full service banking offices located in Florida, South Carolina and North 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 loan portfolio. 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;

• Home equity; and

• Other consumer

F-9

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

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 March 31, 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

• 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

F-10

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

• 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, NAFH NB 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 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 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 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

F-11

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

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.

Earnings (loss) per share have been computed based on the following for the periods ended:

	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010
Weighted average number of common shares outstanding:
Basic		45,120		31,117
Dilutive effect of options outstanding		—		—
Dilutive effect of restricted shares		130		—
Diluted		45,250		31,117

F-12

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

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 March 31, 2011		Three Months Ended March 31, 2011
Anti-dilutive stock options		397		—
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 April 2011, the Financial Accounting Standards Board (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 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

F-13

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

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—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-14

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 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		30,994
Other intangible assets		5,004
Deferred tax assets		55,391
Other assets		66,663
Total assets acquired		1,729,376
Fair value of liabilities assumed:
Deposits		1,351,467
Borrowings		123,837
Subordinated debt		19,392
Other liabilities		10,595
Total liabilities assumed		1,505,291
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.

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 March 31,
	2011		2010
Net interest income	$	36,798	$	13,275
Non-interest income	$	5,333	$	2,531
Net income (loss)	$	996	$	(6,715	)

F-15

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

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 March 31, 2011 and December 31, 2010 are presented below:

	March 31, 2011
Held to Maturity	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Foreign government	$	250	$	—	$	—	$	250
	$	250	$	—	$	—	$	250

	March 31, 2011
Available for Sale	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Government agencies and corporations	$	62,564	$	26	$	385	$	62,205
States and political subdivisions—tax exempt		26,234		966		116		27,084
States and political subdivisions—taxable		7,229		6		104		7,131
Marketable equity securities		1,833		37		9		1,861
Mortgage-backed securities—residential		662,494		2,545		2,955		662,084
Corporate bonds		3,220		174		—		3,394
Collateralized debt obligation		803		—		12		791
	$	764,377	$	3,754	$	3,581	$	764,550

	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

Proceeds from sales and calls of securities available for sale was $17,988 for the three months ended March 31, 2011. Gross gains of approximately $7 were realized on these sales and calls during the three months ended March 31, 2011.

F-16

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

The estimated fair value of investment securities available for sale at March 31, 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.

	March 31, 2011
Due in one year or less	$	2,285
Due after one year through five years		35,920
Due after five years through ten years		27,427
Due after ten years		34,973
Marketable equity securities		1,861
Mortgage-backed securities—residential		662,084
	$	764,550

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
March 31, 2011	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	15,868	$	385		—		—	$	15,868	$	385
States and political subdivisions—tax exempt		4,723		116				—		4,723		116
States and political subdivisions—taxable		5,744		104		—		—		5,744		104
Marketable equity securities		1,722		9		—		—		1,722		9
Mortgage-backed securities—residential		246,999		2,955		—		—		246,999		2,955
Collateralized debt obligation		791		12		—		—		791		12
Total temporarily impaired	$	275,847	$	3,581	$	—	$	—	$	275,847	$	3,581

	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

As of March 31, 2011, the Company’s security portfolio consisted of 197 securities, 71 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.

F-17

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

The mortgage-backed securities at March 31, 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 March 31, 2011 or December 31, 2010.

Note 4—Loans

Major categories of loans are as follows:

	March 31, 2011		December 31, 2010
Real estate mortgage loans:
Commercial	$	1,512,703	$	1,042,211
Residential		497,712		318,977
Construction and vacant land		404,755		130,019
Commercial and agricultural loans		279,232		103,524
Indirect auto loans		40,653		28,038
Home equity loans		183,590		104,955
Other consumer loans		19,479		14,807
Total loans		2,938,124		1,742,531
Net deferred loan costs		1,644		216
Loans, net of deferred loan costs	$	2,939,768	$	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 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),

F-18

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

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:

	Three Months Ended March 31,  2011
Balance, beginning of period	$	292,805
New loans purchased		163,892
Accretion of income		(29,916	)
Reclassifications from nonaccretable difference		—
Disposals		—
Balance, end of period	$	426,781

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 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.

F-19

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

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 March 31, 2011 and December 31, 2010:

March 31, 2011	PCI Loans		Non PCI Loans		Total Noncovered Loans
Real estate mortgage loans
Commercial	$	1,047,649	$	79,747	$	1,127,396
Residential		372,240		39,973		412,213
Construction and vacant land		305,904		13,540		319,444
Commercial and agricultural loans		194,997		53,817		248,814
Indirect auto loans		18,325		22,328		40,653
Home equity loans		25,347		87,936		113,283
Other consumer loans		7,924		11,555		19,479
Total loans		1,972,386		308,896		2,281,282
Net deferred loan costs		—		1,644		1,644
Loans, net of deferred loan costs	$	1,972,386	$	310,540	$	2,282,926
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

F-20

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

Covered Loans

The following is a summary of the major categories of covered loans outstanding as of March 31, 2011 and December 31, 2010:

March 31, 2011	PCI Loans		Non PCI Loans		Total Covered Loans
Real estate mortgage loans
Commercial	$	385,307	$	—	$	385,307
Residential		85,499		—		85,499
Construction and vacant land		85,311		—		85,311
Commercial and agricultural loans		28,136		2,282		30,418
Home equity loans		—		70,307		70,307
Total loans	$	584,253	$	72,589	$	656,842
December 31, 2010	PCI Loans		Non PCI Loans		Total Covered Loans
Real estate mortgage loans
Commercial	$	412,266	$	—	$	412,266
Residential		89,077		—		89,077
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

The following table presents the aging of the recorded investment in past due loans, based on contractual terms, as of March 31, 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
Commercial real estate:
Land, lot and construction	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate—non-owner occupied		—		—		—		—		—		—		—
Real estate—owner occupied		—		—		—		—		—		—		—
Consumer real estate:
Residential mortgage		—		—		—		—		—		—		—
Home equity lines		1,300		516		2,505		—		—		—		4,321
Commercial and industrial		20		—		90		—		—		—		110
Prime indirect auto loans		—		—		—		—		—		—		—
Sub-prime indirect auto loans		—		—		—		—		—		—		—
Other consumer loans		—		65		—		—		—		—		65
Total loans	$	1,320	$	581	$	2,595	$	—	$	—	$	—	$	4,496

F-21

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 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
Commercial real estate:
Land, lot and construction	$	455	$	14,822	$	54,920	$	61,243	$	—	$	—	$	131,440
Real estate—non-owner occupied		4,256		16,057		26,832		17,638		—		—		64,783
Real estate—owner occupied		5,681		8,439		9,526		31,730		—		—		55,376
Consumer real estate:
Residential mortgage		4,380		6,760		30,536		16,939		—		—		58,615
Home equity lines		1,244		529		1,267		1,239		—		—		4,279
Commercial and industrial		702		7,224		3,586		3,565		—		—		15,077
Prime indirect auto loans		—		118		—		60		—		—		178
Sub-prime indirect auto loans		—		260		—		56		—		—		316
Other consumer loans		—		178		—		236		—		—		414
Total loans	$	16,718	$	54,387	$	126,667	$	132,706	$	—	$	—	$	330,478

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 March 31, 2011.

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.

F-22

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

The following table summarizes loans, excluding purchased credit-impaired loans, monitored for credit quality based on internal ratings at March 31, 2011:

	Pass		Special Mention		Substandard		Doubtful		Total
Commercial real estate:
Land, lot and construction	$	13,483	$	74	$	45	$	—	$	13,602
Real estate- non-owner occupied		32,225		—		—		—		32,225
Real estate—owner occupied		41,647		—		2,115		—		43,762
Consumer real estate:
Residential mortgage		45,439		—		—		—		45,439
Home equity lines		152,047		1,589		4,593		—		158,229
Commercial and industrial		52,633		17		382		—		53,032
Prime indirect auto loans		22,281		—		—		—		22,281
Sub-prime indirect auto loans		47		—		—		—		47
Other consumer loans		12,343		20		505		—		12,868
Total loans	$	372,145	$	1,700	$	7,640	$	—	$	381,485

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 due to acquisitions		—
Accretion		318
Reimbursable losses claimed		(14,188	)
Balance, March 31, 2011	$	77,597

Note 6—Allowance for Loan Losses

Activity in the allowance for loan losses for the three months ended March 31, 2011 and 2010 follows:

	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
Balance, beginning of period	$	753		$	—
Provision for loan losses charged to expense		1,545			—
Loans charged off		(11	)		—
Recoveries of loans previously charged off		—			—
Balance, end of period	$	2,287		$	—

F-23

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

Activity in the allowance for loan losses for the three months ended March 31, 2011 is as follows:

	December 31, 2010		Provision		Net Charge-offs			March 31, 2011
Real estate mortgage loans:
Commercial	$	149	$	610	$	—		$	759
Residential		215		236		—			451
Construction and vacant land		25		190		—			215
Commercial and agricultural loans		133		417		—			550
Indirect auto loans		184		44		(11	)		217
Home equity loans		33		37		—			70
Other consumer loans		14		11		—			25
Total loans	$	753	$	1,545	$	(11	)	$	2,287

	Allowance for Loan Losses						Loans
March 31, 2011	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	$	—	$	759	$	—	$	—	$	79,747	$	1,432,956
Residential		—		451		—		—		39,973		457,739
Construction and vacant land		—		215		—		—		13,540		391,215
Commercial and agricultural		—		550		—		—		56,099		223,133
Indirect auto loans		—		217		—		—		22,328		18,325
Home equity loans		—		70		—		—		158,243		25,347
Other consumer loans		—		25		—		—		11,555		7,924
Total loans	$	—	$	2,287	$	—	$	—	$	381,485	$	2,556,639

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.

F-24

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

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 March 31, 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 March 31, 2011 and December 31, 2010 are presented in the following table.

	Well Capitalized Requirement		Adequately Capitalized Requirement			March 31, 2011 Actual			December 31, 2010 Actual
Tier 1 Capital (to Average Assets)
Consolidated		N/A		³ 4.0	%		19.2	%		24.3	%
TIBB		N/A		³ 4.0	%		9.0	%		8.2	%
Capital Bank Corp.		N/A		³ 4.0	%		10.0	%		N/A
TIB Bank		³ 5.0%		³ 4.0	%		8.4	%		8.1	%
NAFH NB Bank		³ 5.0%		³ 4.0	%		12.7	%		12.1	%
Capital Bank		³ 5.0%		³ 4.0	%		8.8	%		N/A
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		N/A		³ 4.0	%		30.8	%		41.8	%
TIBB		N/A		³ 4.0	%		14.2	%		13.4	%
Capital Bank Corp.		N/A		³ 4.0	%		13.2	%		N/A
TIB Bank		³ 6.0%		³ 4.0	%		13.2	%		13.1	%
NAFH NB Bank		³ 6.0%		³ 4.0	%		45.8	%		17.1	%
Capital Bank		³ 6.0%		³ 4.0	%		11.6	%		N/A
Total Capital (to Risk Weighted Assets)
Consolidated		N/A		³ 8.0	%		31.1	%		41.9	%
TIBB		N/A		³ 8.0	%		14.3	%		13.4	%
Capital Bank Corp.		N/A		³ 8.0	%		13.6	%		N/A
TIB Bank		³ 10.0%		³ 8.0	%		13.3	%		13.1	%
NAFH NB Bank		³ 10.0%		³ 8.0	%		46.2	%		17.1	%
Capital Bank		³ 10.0%		³ 8.0	%		12.0	%		N/A

Management believes, as of March 31, 2011, that the Company, TIBB, Capital Bank Corp.and the Banks 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.

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.

F-25

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

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 March 31, 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 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.

F-26

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

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 March 31, 2011 Using
	March 31, 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	$	602	$	602	$	—	$	—
Available for sale securities
U.S. Government agencies and corporations	$	62,205	$	—	$	62,205	$	—
States and political subdivisions—tax exempt		27,084		—		27,084		—
States and political subdivisions—taxable		7,131				7,131
Marketable equity securities		1,861		1,861		—		—
Mortgage-backed securities—residential		662,084		—		662,084		—
Corporate bonds		3,394		—		2,287		1,107
Collateralized debt obligations		791		—		—		791
Available for sale securities	$	764,550	$	1,861	$	760,791	$	1,898
			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-27

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2011 and held at March 31, 2011. No assets were measured at fair value using Level 3 inputs during the three months ended March 31, 2010.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended March 31, 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		—		(4	)
Transfer in to Level 3		—		—
Ending balance March 31,	$	1,107	$	791

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 March 31, 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	$	—	$	—	$	77,636
Other repossessed assets		—		108		—
	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		—

F-28

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

The carrying amounts and estimated fair values of financial instruments, at March 31, 2011 and December 31, 2010 are as follows:

	March 31, 2011				December 31, 2010
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	719,804	$	719,804	$	886,925	$	886,925
Investment securities		765,402		765,402		479,716		479,716
Loans, net		2,938,905		2,947,097		1,741,994		1,781,181
FDIC indemnification asset		77,597		77,597		91,467		91,467
Federal reserve, federal home loan bank and independent bankers’ bank stock		30,735		30,735		23,465		23,465
Accrued interest receivable		14,107		14,107		8,286		8,286
Financial liabilities:
Non-contractual deposits	$	1,507,529	$	1,507,529	$	906,742	$	906,742
Contractual deposits		2,031,193		2,034,276		1,353,510		1,355,099
Federal Home Loan Bank Advances		280,151		279,278		243,067		242,522
Short-term borrowings		50,650		50,649		61,969		61,969
Long term borrowings		55,899		55,899		—		—
Subordinated debentures		41,459		41,704		22,887		25,267
Accrued interest payable		9,055		9,055		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. Fair values for impaired loans are 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 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.

F-29

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

Note 9—Other Real Estate Owned

Activity in other real estate owned is as follows:

	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
Balance, beginning of period	$	70,817		$	—
Increase due to acquisitions		15,118			—
Real estate acquired		13,713			—
Property sold		(15,115	)		—
Balance, end of period	$	84,533		$	—

Note 10—Stock-Based Compensation

As of March 31, 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. As of December 31, 2010, no awards had been granted.

The following table summarizes the components and classification of stock-based compensation expense for the three months ended March 31, 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 March 31, 2011
Stock options	$	376
Restricted stock		169
Total stock-based compensation expense	$	545
Salaries and employee benefits	$	470
Other expense		75
Total stock-based compensation expense	$	545

The tax benefit related to stock-based compensation expense arising from restricted stock awards and non-qualified stock options was approximately $210 for the three months ended March 31, 2011.

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

F-30

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

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 three months ended March 31, 2011.

	Three Months Ended March 31, 2011
Dividend yield		0.00	%
Risk-free interest rate		2.55	%
Expected option life		5 years
Volatility		33	%
Weighted average grant-date fair value of options granted		$4.61

• 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 three months ended March 31, 2011, stock based compensation expense was recorded 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 March 31, 2010, unrecognized compensation expense associated with stock options was $10,029 which is expected to be recognized over a weighted average period of approximately 2 years.

F-31

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

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, March 31, 2011		2,236	$	20.00

The weighted average remaining term for outstanding stock options was approximately 9 years at March 31, 2011. The aggregate intrinsic value at March 31, 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 March 31, 2011 or December 31, 2010.

Options outstanding at March 31, 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	8.73 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 quarter 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.

F-32

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

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 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 three months ended March 31, 2011.

	Three Months Ended March 31, 2011
Starting share price (based upon most recent trade)		$17.00
Risk-free interest rate		Forward Treasury Curve
Market risk premium		0.00%
Volatility (annual/monthly)		33% / 9.4%
Annual forfeiture estimate		5.00%
Weighted average grant-date fair value of restricted stock awards granted		$10.56

• 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 three months ended March 31, 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		10.56
Vested		—		—
Expired or forfeited		—		—
Balance, March 31, 2011		1,030	$	10.56

As of March 31, 2011, unrecognized compensation expense associated with restricted stock awards was $11,522, which is expected to be recognized over a weighted average period of approximately 4 years.

Acquired Institutions’ Equity Incentive Plans

As of March 31, 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

F-33

North American Financial Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2011 and 2010

(dollars in thousands)

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 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 March 31, 2011, shares available for grant under the Capital Plan were 605.

As of March 31, 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 March 31, 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.

Note 11—Subsequent Events

Effective April 29, 2011, the Company merged its subsidiary TIB Bank, (the “Merger”) with and into NAFH National Bank (“NAFH Bank”), a national banking association.

On May 5, 2011, the Company entered into an Investment Agreement with GreenBankshares, Inc. (“GreenBank”) pursuant to which NAFH has agreed to acquire approximately 120,000 shares of the Company’s common stock at a per share purchase price of $1.81, for a total investment of approximately $217,000. The transaction, which is subject to shareholder and regulatory approval, as well as the satisfaction of other customary closing conditions, is expected to be consummated in the third quarter of 2011. Subsequent to the announcement of the GreenBank investment, a class action lawsuit was filed against the Company, GreenBank and its directors by one of GreenBank’s shareholders. The complaint alleges that the individual defendants breached their fiduciary duties by accepting a sale price for the shares to be sold to NAFH that was unfair to GreenBank’s shareholders. The complaint also alleges that GreenBank and NAFH aided and abetted these breaches of fiduciary duty. It seeks injunctive relief and/or rescission of the proposed investment by NAFH and fees and expenses in an unspecified amount. The Company and the individual defendants collectively intend to vigorously defend themselves against these class action allegations.

F-34

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-37

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-38

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-39

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-40

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-41

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-42

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-43

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-44

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-45

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-46

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-47

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-48

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-49

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-50

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-51

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-52

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-53

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:

	NAFH NB			TIBB			Total
Cash flows expected to be collected at acquisition	$	737,605		$	1,250,636		$	1,988,241
Accretable yield		(46,570	)		(276,715	)		(323,285	)
Fair value of acquired loans at acquisition	$	691,035		$	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-54

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-55

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-56

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-57

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-58

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-59

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-60

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-61

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-62

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-63

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-64

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-65

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-66

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-67

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-68

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-69

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-70

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-71

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-72

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-75

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-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

(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-77

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-78

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-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)

• 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-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)

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
NAFH Bank
	$    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-81

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-84

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-85

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-86

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-87

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-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)

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-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)

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-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)

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-91

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-94

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-95

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-96

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-97

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-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)

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-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)

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-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)

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-101

TIB FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars and shares in thousands, except per share data)	(Unaudited)
	March 31, 2011			December 31, 2010
Assets
Cash and due from banks	$	124,072		$	153,794
Investment securities available for sale		411,755			418,092
Loans, net of deferred loan costs and fees		1,030,377			1,004,630
Less: Allowance for loan losses		877			402
Loans, net		1,029,500			1,004,228
Premises and equipment, net		42,831			43,153
Goodwill		29,999			29,999
Intangible assets, net		11,043			11,406
Other real estate owned		19,504			25,673
Deferred income tax asset		19,005			19,973
Accrued interest receivable and other assets		41,633			50,548
Total Assets	$	1,729,342		$	1,756,866
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest-bearing demand	$	224,614		$	198,092
Interest-bearing		1,115,600			1,168,933
Total deposits		1,340,214			1,367,025
Federal Home Loan Bank (FHLB) advances		120,189			131,116
Short-term borrowings		46,892			47,158
Long-term borrowings		22,958			22,887
Accrued interest payable and other liabilities		12,108			11,930
Total liabilities		1,542,361			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		185,039			177,316
Retained earnings		1,628			560
Accumulated other comprehensive loss		(921	)		(2,308	)
Total shareholders’ equity		186,981			176,750
Total Liabilities and Shareholders’ Equity	$	1,729,342		$	1,756,866

See accompanying notes to consolidated financial statements

F-102

TIB FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars and shares in thousands, except per share amounts)

	Successor Company		Predecessor Company
	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010
Interest and dividend income
Loans, including fees	$	13,398	$	15,999
Investment securities:
Taxable		2,336		2,144
Tax-exempt		15		67
Interest-bearing deposits in other banks		70		74
Federal Home Loan Bank stock		25		3
Total interest and dividend income		15,844		18,287
Interest expense
Deposits		2,454		4,902
Federal Home Loan Bank advances		237		1,214
Short-term borrowings		15		23
Long-term borrowings		456		654
Total interest expense		3,162		6,793
Net interest income		12,682		11,494
Provision for loan losses		485		4,925
Net interest income after provision for loan losses		12,197		6,569
Non-interest income
Service charges on deposit accounts		813		915
Fees on mortgage loans originated and sold		354		283
Investment advisory and trust fees		387		307
Loss on sale of indirect auto loans		—		(346	)
Other income		1,205		613
Investment securities gains (losses), net		12		1,642
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		2,771		3,414
Non-interest expense
Salaries and employee benefits		6,501		6,836
Net occupancy and equipment expense		2,048		2,284
Foreclosed asset related expense		522		1,100
Other expense		4,254		4,814
Total non-interest expense		13,325		15,034
Income (loss) before income taxes		1,643		(5,051	)
Income tax expense		575		—
Net income (loss)	$	1,068	$	(5,051	)
Preferred dividends earned by preferred shareholders and discount accretion		—		660
Net loss allocated to common shareholders	$	1,068	$	(5,711	)
Basic income (loss) per common share	$	0.09	$	(38.36	)
Diluted income (loss) per common share	$	0.07	$	(38.36	)

See accompanying notes to consolidated financial statements

F-103

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 (Loss)		Total Shareholders’ Equity
Balance, January 1, 2011		11,817	$	1,182	$	177,316	$	560	$	(2,308)	$	176,750
Comprehensive income:
Net income								1,068				1,068
Net market valuation adjustment on securities available for sale										1,399
Less: reclassification adjustment for gains										(12)
Other comprehensive income, net of tax expense of $837												1,387
Comprehensive income												2,455
Common stock issued in Rights Offering		533		53		7,723						7,776
Balance, March 31, 2011		12,350	$	1,235	$	185,039	$	1,628	$	(921)	$	186,981

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												(5,051	)								(5,051	)
Net market valuation adjustment on securities available for sale															1,811
Less: reclassification adjustment for gains															(1,642	)
Other comprehensive income, net of tax expense of $321																					169
Comprehensive loss																					(4,882	)
Preferred stock discount accretion				189								(189	)
Stock-based compensation and related tax effect										150											150
Balance, March 31, 2010		37	$	33,919		149	$	15	$	76,304	$	(55,234	)	$	(3,649	)	$	(569	)	$	50,786

F-104

TIB FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(Unaudited)

(Dollars in thousands)

	Successor Company			Predecessor Company
	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
Cash flows from operating activities:
Net income (loss)	$	1,068		$	(5,051	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Accretion of acquired loans		(12,541	)		—
Depreciation and amortization		190			1,123
Provision for loan losses		485			4,925
Deferred income tax expense		575			—
Investment securities net realized gains		(12	)		(1,642	)
Net amortization of investment premium/discount		1,579			761
Stock-based compensation		—			150
(Gain)/Loss on sales of OREO		—			125
OREO valuation adjustments		—			512
Loss on the sale of indirect auto loans		—			346
Other		(610	)		328
Mortgage loans originated for sale		(11,936	)		(16,304	)
Proceeds from sales of mortgage loans originated for sale		18,739			17,710
Fees on mortgage loans sold		(354	)		(283	)
Change in accrued interest receivable and other assets		2,019			1,819
Change in accrued interest payable and other liabilities		187			1,405
Net cash (used in) provided by operating activities		(611	)		5,924
Cash flows from investing activities:
Purchases of investment securities available for sale		(15,474	)		(158,600	)
Sales of investment securities available for sale		2,319			69,956
Repayments of principal and maturities of investment securities available for sale		20,149			34,335
Principal repayments on loans, net of loans originated or acquired		(13,894	)		20,487
Purchases of premises and equipment		(369	)		(518	)
Proceeds from sales of loans		—			20,569
Proceeds from sale of OREO		7,459			1,229
Net cash provided by (used in) investing activities		190			(12,542	)
Cash flows from financing activities:
Net increase (decrease) in demand, money market and savings accounts		82,975			(36,701	)
Net increase (decrease) in time deposits		(109,563	)		65,799
Net change in brokered time deposits		(223	)		(29,763	)
Net decrease in federal funds purchased and securities sold under agreements to repurchase		(266	)		(10,782	)
Repayment of long term FHLB advances		(10,000	)		—
Net proceeds from common stock rights offering		7,776			—
Net cash (used in) financing activities		(29,301	)		(11,447	)
Net decrease in cash and cash equivalents		(29,722	)		(18,065	)
Cash and cash equivalents at beginning of period		153,794			167,402
Cash and cash equivalents at end of period	$	124,072		$	149,337
Supplemental disclosures of cash paid:
Interest	$	3,897		$	5,830
Supplemental information:
Transfer of loans to OREO	$	1,290		$	21,975

See accompanying notes to consolidated financial statements

F-105

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(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. conducted its business primarily through its wholly-owned subsidiaries, TIB Bank (the “Bank”) and Naples Capital Advisors, Inc. As described in Note 8, on April 29, 2011, the Bank merged with and into NAFH National Bank, a subsidiary of our majority shareholder in an all-stock transaction. Unless otherwise specified, this report describes TIB Financial Corp. and its subsidiaries (collectively, the “Company”) as it existed prior to the merger of TIB Bank and NAFH National Bank.

Prior to the merger of the Bank with NAFH National Bank, the Company had a total of 27 full service banking offices. All significant inter-company accounts and transactions have been eliminated in consolidation.

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.

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.

North American Financial Holdings, Inc. Investment

On September 30, 2010, (the “Transaction Date”) the Company completed the issuance and sale to North American Financial Holdings, Inc. (“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

F-106

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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 rules of the SEC Staff Accounting Bulletin Topic 5J, New Basis of Accounting Required in Certain Circumstances (“SEC SAB T. 5J”) 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 March 31, 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 exchange for approximately $7,776 upon completion of the Rights Offering on January 18, 2011. Subsequent to the Rights Offering, NAFH owns 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.

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 loan portfolio. 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

F-107

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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 furthers 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;

• Home equity; and

• 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. Based upon the Company’s evaluation process, management believes that the look-back period is generally eight quarters.

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 March 31, 2011, a large 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

F-108

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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

• 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 Investment, 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.

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 cash flows expected to be collected (other than due to decreases in interest rate indices), the Company charges the provision for credit losses, resulting in an increase to the allowance for loan losses. If the Company has probable and significant increases in cash flows expected to be collected, the Company will first reverse any previously established allowance for loan

F-109

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

losses and then increase interest income as a prospective yield adjustment over the remaining life of the pool of loans. The impact of changes in variable interest rates are 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.

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 on the following for the periods ended:

	Successor Company		Predecessor Company
	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010
Weighted average number of common shares outstanding:
Basic		12,243		148
Dilutive effect of options outstanding		—		—
Dilutive effect of restricted shares		—		—
Dilutive effect of warrants outstanding		2,720		—
Diluted		14,963		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
	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010
Anti dilutive stock options		7		8
Anti dilutive restricted stock awards		—		—
Anti dilutive warrants		13		24

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 and customer relationship intangibles arising from acquisitions and are initially measured at fair value. The intangibles are being amortized using the straight-line method over estimated lives ranging from 5 to 15 years. Long-lived intangible assets with definite lives are reviewed for impairment

F-110

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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.

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 April 2011, the Financial Accounting Standards Board (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 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.

F-111

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Note 2—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 available for sale at March 31, 2011 and December 31, 2010 are presented below:

	March 31, 2011
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Government agencies and corporations	$	40,638	$	9	$	318	$	40,329
States and political subdivisions—tax exempt		2,794		2		14		2,782
Marketable equity securities		102		37		—		139
Mortgage-backed securities—residential		366,781		1,141		2,495		365,427
Corporate bonds		2,113		174		—		2,287
Collateralized debt obligation		803		—		12		791
	$	413,231	$	1,363	$	2,839	$	411,755

	December 31, 2010
	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

Proceeds from sales and calls of securities available for sale was $2,594 for the three months ended March 31, 2011. Gross gains of approximately $12 were realized on these sales and calls during the three months ended March 31, 2011.

The estimated fair value of investment securities available for sale at March 31, 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.

	March 31, 2011
Due in one year or less	$	276
Due after one year through five years		18,132
Due after five years through ten years		17,753
Due after ten years		10,028
Marketable equity securities		139
Mortgage-backed securities - residential		365,427
	$	411,755

F-112

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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
March 31, 2011	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	6,949	$	318	$	—	$	—	$	6,949	$	318
States and political subdivisions—tax exempt		1,969		14				—		1,969		14
States and political subdivisions-taxable		—		—		—		—		—		—
Marketable equity securities		—		—		—		—		—		—
Mortgage-backed securities—residential		188,962		2,495		—		—		188,962		2,495
Corporate bonds		—		—		—		—		—		—
Collateralized debt obligation		791		12		—		—		791		12
Total temporarily impaired	$	198,671	$	2,839	$	—	$	—	$	198,671	$	2,839

	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	$	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

As of March 31, 2011, the Company’s security portfolio consisted of 61 securities, 30 of which were in an unrealized loss position. As of December 31, 2010, the Company’s security portfolio consisted of 62 securities, 37 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 March 31, 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 likely 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 March 31, 2011 or December 31, 2010.

F-113

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Note 3—Loans

Major classifications of loans are as follows:

	March 31, 2011		December 31, 2010
Real estate mortgage loans:
Commercial	$	616,730	$	612,455
Residential		232,347		225,850
Construction and vacant land		40,503		38,956
Commercial and agricultural loans		60,219		60,642
Indirect auto loans		40,653		28,038
Home equity loans		30,541		29,658
Other consumer loans		8,471		8,730
Total loans		1,029,464		1,004,329
Net deferred loan costs		913		301
Loans, net of deferred loan costs	$	1,030,377	$	1,004,630

Accretable yield, or income expected to be collected, related to purchased credit-impaired loans is as follows:

	Three Months Ended March 31, 2011
Balance, beginning of period	$	263,381
New loans purchased		—
Accretion of income		(12,541	)
Reclassifications from nonaccretable difference		—
Disposals		—
Balance, end of period	$	250,840

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.

F-114

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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 following table presents the aging of the recorded investment in past due loans, based on contractual terms, as of March 31, 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
Real estate mortgage loans:
Owner occupied commercial	$	—	$	—	$	—	$	—
Office building		—		—		—		—
Hotel/motel		—		—		—		—
Guest houses		—		—		—		—
Retail		—		—		—		—
Multi-family		—		—		—		—
Other commercial		—		—		—		—
Primary residential		—		—		—		—
Secondary residential		—		—		—		—
Investment residential		—		—		—		—
Farmland		—		—		—		—
Land, lot and construction		—		—		—		—
Acquired commercial and agricultural		—		—		—		—
Prime indirect auto loans		—		—		—		—
Sub-prime indirect auto loans		—		—		—		—
Acquired home equity loans		—		—		—		—
Acquired other consumer loans		65		—		—		65
Total loans	$	65	$	—	$	—	$	65

Purchased credit impaired loans	30-89 Days Past Due		Greater than 90 Days Past Due and Still Accruing/Accreting		Nonaccrual		Total
Real estate mortgage loans:
Owner occupied commercial	$	3,503	$	23,613	$	—	$	27,116
Office building		2,669		1,587		—		4,256
Hotel/motel		5,126		3,547		—		8,673
Guest houses		—		—		—		—
Retail		—		—		—		—
Multi-family		—		—		—		—
Other commercial		558		9,672		—		10,230
Primary residential		907		7,904		—		8,811
Secondary residential		1,020		256		—		1,276
Investment residential		—		739		—		739
Farmland		393		1,099		—		1,492
Land, lot and construction		693		8,270		—		8,963
Commercial and agricultural		153		424		—		577
Prime indirect auto loans		118		60		—		178
Sub-prime indirect auto loans		260		56		—		316
Home equity loans		277		873		—		1,150
Other consumer loans		132		84		—		216
Total loans	$	15,809	$	58,184	$	—	$	73,993

F-115

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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 March 31, 2011.

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 March 31, 2011:

	Pass		Special Mention		Substandard		Doubtful		Total
Real estate mortgage loans:
Owner occupied commercial	$	6,166	$	—	$	—	$	—	$	6,166
Office building		—		—		—		—		—
Hotel/motel		—		—		—		—		—
Guest houses		1,020		—		—		—		1,020
Retail		—		—		—		—		—
Multi-family		—		—		—		—		—
Other commercial		6,692		—		—		—		6,692
Primary residential		16,341		—		—		—		16,341
Secondary residential		12,066		—		—		—		12,066
Investment residential		186		—		—		—		186
Farmland		736		—		—		—		736
Land, lot and construction		3,678		—		—		—		3,678
Commercial and agricultural		7,007		—		—		—		7,007
Prime indirect auto loans		22,281		—		—		—		22,281
Sub-prime indirect auto loans		47		—		—		—		47
Home equity loans		10,462		—		—		—		10,462
Other consumer loans		5,090		—		80		—		5,170
Total loans	$	91,772	$	—	$	80	$	—	$	91,852

F-116

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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 orgination dates.

Note 4—Allowance for Loan Losses

Activity in the allowance for loan losses for the three months ended March 31, 2011 and 2010 follows:

	Successor Company			Predecessor Company
	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
Balance, beginning of period	$	402		$	29,083
Provision for loan losses charged to expense		485			4,925
Loans charged off		(10	)		(6,353	)
Recoveries of loans previously charged off		—			174
Balance, end of period	$	877		$	27,829

Roll forward of allowance for loan losses for the three months ended March 31, 2011:

	December 31, 2010		Provision		Net Charge-offs			March 31, 2011
Real estate mortgage loans:
Commercial	$	7	$	151	$	—		$	158
Residential		164		177		—			341
Construction and vacant land		—		61		—			61
Commercial and agricultural loans		24		31		—			55
Indirect auto loans		184		43		(10	)		217
Home equity loans		14		16		—			30
Other consumer loans		9		6		—			15
Total loans	$	402	$	485	$	(10	)	$	877

	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	$	—	$	158	$	—	$	—	$	14,451	$	602,279
Residential		—		341		—		—		28,882		203,465
Construction and vacant land		—		61		—		—		3,678		36,825
Commercial and agricultural		—		55		—		—		7,449		52,770
Indirect auto loans		—		217		—		—		22,328		18,325
Home equity loans		—		30		—		—		10,462		20,079
Other consumer loans		—		15		—		—		4,602		3,869
Total loans	$	—	$	877	$	—	$	—	$	91,852	$	937,612

F-117

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Note 5—Capital Adequacy

The Company (on a consolidated basis) and the Bank 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 Bank 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 Bank must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based ratios. At March 31, 2011 the Company and the Bank maintained capital ratios exceeding the requirement to be considered adequately capitalized. These minimum amounts and ratios along with the actual amounts and ratios for the Company and the Bank as of March 31, 2011 and December 31, 2010 are presented in the following table.

	Well Capitalized Requirement			Adequately Capitalized Requirement			March 31, 2011 Actual			December 31, 2010 Actual
Tier 1 Capital (to Average Assets)
Consolidated		N/A		³	4.0	%		9.0	%		8.2	%
TIB Bank	³	5.0	%	³	4.0	%		8.4	%		8.1	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		N/A		³	4.0	%		14.2	%		13.3	%
TIB Bank	³	6.0	%	³	4.0	%		13.2	%		13.0	%
Total Capital (to Risk Weighted Assets)
Consolidated		N/A		³	8.0	%		14.3	%		13.4	%
TIB Bank	³	6.0	%	³	8.0	%		13.3	%		13.1	%

Management believes, as of March 31, 2011, that the Company and the Bank meet all capital requirements to which they are subject. Tier 1 Capital for the Company includes the trust preferred securities that were issued in September 2000, July 2001 and June 2006 to the extent allowable.

If a bank is classified as adequately capitalized, the bank is subject to certain restrictions. One of the restrictions is that the bank may not accept, renew or roll over any brokered deposits (including CDARs deposits) without being granted a waiver of the prohibition by the FDIC. As of March 31, 2011, we had $12,612 of brokered deposits consisting of $2,095 of reciprocal CDARs deposits and $10,517 of traditional brokered and one-way CDARs deposits representing approximately 0.9% of our total deposits. $1,852 of CDARs deposits and $10,517 of traditional brokered deposits mature within the next twelve months. Additional restrictions include limitations on deposit pricing, the preclusion from paying “golden parachute” severance payments and the requirement to notify the bank regulatory agencies of certain significant events.

On July 2, 2009, the Bank entered into a Memorandum of Understanding, which is an informal agreement, with bank regulatory agencies that it would move in good faith to increase its Tier 1 leverage capital ratio to not less than 8% and its total risk-based capital ratio to not less than 12% by December 31, 2009 and maintain these higher ratios for as long as this agreement was in effect. At December 31, 2009, these elevated capital ratios were not met. On July 2, 2010, the Bank entered into a Consent Order, which is a formal agreement, with the bank

F-118

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

regulatory agencies under which, among other things, the Bank agreed to maintain a Tier 1 capital ratio of at least 8% of total assets and a total risk based capital ratio of at least 12% within 90 days. At March 31, 2011 and December 31, 2010, TIB Bank achieved Tier 1 capital ratios of 8.4% and 8.1%, respectively, and total risk-based capital ratios of 13.3% and 13.1%, respectively, and exceeded all regulatory requirements. The Consent Order also governs certain aspects of the Bank’s operations including a requirement that it reduce the balance of assets classified substandard and doubtful by at least 70% over a two-year period, and not undertake asset growth of 5% or more per year without prior approval from the regulatory agencies. The Consent Order superseded the Memorandum of Understanding. As discussed in more detail in Note 8 to the unaudited consolidated financial statements, the Consent Order terminated on April 29, 2011 when TIB Bank was merged with and into NAFH National Bank. On September 22, 2010, the Federal Reserve Bank of Atlanta (FRB) and the Company entered into a written agreement (the “Written Agreement”) where the Company agreed, among other things, that it will not make any payments on the outstanding trust preferred securities or declare or pay any dividends without the prior written approval of the FRB.

On January 18, 2011, the Company concluded a rights offering wherein legacy shareholders of rights to purchase up to 1,489 shares of common stock, at a price of $15.00 per share, acquired 533 shares of newly issued common stock. The rights offering resulted in net proceeds of $7,776. The record date for the rights offering was July 12, 2010.

Note 6—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 Securities Available for Sale

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 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 March 31, 2011, the Company owned a collateralized debt security where the underlying collateral is comprised primarily of trust preferred securities of banks and insurance companies. The inputs used in determining the estimated fair value of this security are Level 3 inputs. In determining its estimated fair value,

F-119

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

management utilizes a discounted cash flow modeling valuation approach. Discount rates utilized in the modeling of this security 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. Cash flows utilized in the modeling of this security were based upon actual default history of the underlying issuers and issuer specific assumptions of estimated future defaults of the underlying issuers.

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 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 at March 31, 2011 Using
	March 31, 2011		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	$	40,329	$	—	$	40,329	$	—
States and political subdivisions—tax exempt		2,782		—		2,782		—
Marketable equity securities		139		139		—		—
Mortgage-backed securities—residential		365,427		—		365,427		—
Corporate bonds		2,287		—		2,287		—
Collateralized debt obligations		791		—		—		791
Available for sale securities	$	411,755	$	139	$	410,825	$	791

	Fair Value Measurements at December 31, 2010 Using
	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:
U.S. Government agencies and corporations	$	40,699	$	—	$	40,699	$	—
States and political subdivisions—tax exempt		3,059		—		3,059		—
States and political subdivisions—taxable		2,157		—		2,157		—
Marketable equity securities		74		74		—		—
Mortgage-backed securities—residential		369,203		—		369,203		—
Corporate bonds		2,105		—		2,105		—
Collateralized debt obligations		795		—		—		795
Available for sale securities	$	418,092	$	74	$	417,223	$	795

F-120

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

The tables below present a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three ended March 31, 2011 and 2010 and held at March 31, 2011 and 2010, respectively.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Collateralized Debt Obligations
Successor Company	2011
Beginning balance, January 1,	$	795
Included in earnings—other than temporary impairment		—
Included in other comprehensive income		(4	)
Transfer in to Level 3		—
Ending balance March 31,	$	791

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Collateralized Debt Obligations
Predecessor Company	2010
Beginning balance, January 1,	$	759
Included in earnings—other than temporary impairment		—
Included in other comprehensive income		10
Transfer in to Level 3		—
Ending balance March 31,	$	769

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 March 31, 2011 Using
	March 31, 2011		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	$	16,885	$	—	$	—	$	16,885
Other repossessed assets		108		—		108		—

	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:
Other real estate owned	$	25,673	$	—	$	—	$	25,673
Other repossessed assets		104		—		104		—

F-121

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

The carrying amounts and estimated fair values of financial instruments, at March 31, 2011 and December 31, 2010 are as follows:

	March 31, 2011				December 31, 2010
Successor Company	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	124,072	$	124,072	$	153,794	$	153,794
Investment securities available for sale		411,755		411,755		418,092		418,092
Loans, net		1,029,500		992,031		1,004,228		995,744
Federal Home Loan Bank and Independent Bankers’ Bank stock		9,621		NM		9,621		NM
Accrued interest receivable		5,160		5,160		4,917		4,917
Financial liabilities:
Non-contractual deposits	$	730,995	$	730,995	$	648,019	$	648,019
Contractual deposits		609,219		609,975		719,006		719,328
Federal Home Loan Bank Advances		120,189		119,898		131,116		130,906
Short-term borrowings		46,892		46,890		47,158		47,156
Subordinated debentures		22,958		23,203		22,887		25,267
Accrued interest payable		6,525		6,525		7,260		7,260

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, non contractual which consists of demand deposits and deposits that reprice frequently and fully. The methods for determining the fair values for securities were described previously. For loans, contractual deposits, which consist of deposits with infrequent repricing or repricing limits and debt, fair value is based on discounted cash flows using current market rates. It was not practicable to determine the fair value of FHLB and IBB stock due to restrictions placed on their transferability. The fair value of off balance sheet items is not considered material.

Note 7—Other Real Estate Owned

Activity in other real estate owned is as follows:

	Successor Company			Predecessor Company
	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
Balance, beginning of period	$	25,673		$	21,352
Real estate acquired		1,290			21,975
Changes in valuation reserve		—			(637	)
Property sold		(7,459	)		(1,741	)
Other		—			129
Balance, end of period	$	19,504		$	41,078

F-122

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Note 8—Subsequent Event

Effective April 29, 2011, the Bank, merged (the “Merger”) with and into NAFH National Bank (“NAFH Bank”), a national banking association and wholly owned subsidiary of NAFH, with NAFH Bank as the surviving entity. NAFH is the owner of approximately 97% of the Company’s common stock. In addition, five of the Company’s seven directors, and the Company’s Chief Executive Officer, Chief Financial Officer and Chief Risk Officer are affiliated with NAFH.

NAFH Bank was formed on July 16, 2010 in connection with the purchase and assumption of the operations of three banks—Metro Bank of Dade County (Miami, Florida), Turnberry Bank (Aventura, Florida) and First National Bank of the South (Spartanburg, South Carolina)—from the Federal Deposit Insurance Corporation (the “FDIC”). On July 16, 2010, NAFH Bank acquired assets of approximately $1.4 billion and assumed deposits of approximately $1.2 billion in the transactions with the FDIC. As of March 31, 2010, NAFH Bank had total assets and total deposits of approximately $1.2 billion and $849 million, respectively. Prior to the Merger, NAFH Bank operated 23 branches, with 10 branches in South Florida and 13 branches in South Carolina. NAFH Bank is a party to loss sharing agreements with the FDIC covering the large majority of the loans it acquired from the FDIC.

The Merger occurred pursuant to the terms of an Agreement of Merger entered into by and between the Bank and NAFH Bank, dated as of April 27, 2011 (the “Merger Agreement”). In the Merger, each share of Bank common stock was converted into the right to receive shares of NAFH Bank common stock. As a result of the Merger, the Company now owns approximately 53% of NAFH Bank, with NAFH owning the remaining 47%.

F-123

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

TIB Financial Corp.

Naples, Florida

We have audited the accompanying consolidated balance sheets of TIB Financial Corp. as of December 31, 2010 (Successor) and 2009 (Predecessor), and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the three-month period ended December 31, 2010 (Successor), the nine-month period ended September 30, 2010 (Predecessor) and the years ended December 31, 2009 and 2008 (Predecessor). The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TIB Financial Corp. as of December 31, 2010 (Successor) and 2009 (Predecessor), and the results of its operations and its cash flows for the three-month period ended December 31, 2010 (Successor), the nine-month period ended September 30, 2010 (Predecessor) and the years ended December 31, 2009 and 2008 (Predecessor), in conformity with U.S. generally accepted accounting principles.

/s/Crowe Horwath LLP

Crowe Horwath LLP

Fort Lauderdale, Florida

March 31, 2011

F-124

TIB Financial Corp. and Subsidiaries

Consolidated Balance Sheets

As of December 31,

(Dollars and shares in thousands, except per share data)	Successor Company			Predecessor Company
	2010			2009
Assets
Cash and due from banks	$	153,794		$	167,402
Investment securities available for sale		418,092			250,339
Loans, net of deferred loan costs and fees		1,004,630			1,197,516
Less: Allowance for loan losses		402			29,083
Loans, net		1,004,228			1,168,433
Premises and equipment, net		43,153			40,822
Goodwill		29,999			622
Intangible assets, net		11,406			6,667
Other real estate owned		25,673			21,352
Deferred income tax asset		19,973			—
Accrued interest receivable and other assets		50,548			49,770
Total assets	$	1,756,866		$	1,705,407
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest-bearing demand	$	198,092		$	171,821
Interest-bearing		1,168,933			1,197,563
Total deposits		1,367,025			1,369,384
Federal Home Loan Bank (FHLB) advances		131,116			125,000
Short-term borrowings		47,158			80,475
Long-term borrowings		22,887			63,000
Accrued interest payable and other liabilities		11,930			12,030
Total liabilities		1,580,116			1,649,889
Commitments and Contingencies (Notes 1, 6 and 17)
Shareholders’ Equity
Preferred stock—$.10 par value: 5,000 shares authorized, 0 and 37 shares issued and outstanding, liquidation preference of $0 and $37,697, respectively		—			33,730
Common stock—$.10 par value: 750,000 and 100,000 shares authorized, 11,817 and 150 shares issued, 11,817 and 149 shares outstanding, respectively		1,182			15
Additional paid in capital		177,316			76,154
Retained earnings (accumulated deficit)		560			(49,994	)
Accumulated other comprehensive loss		(2,308	)		(3,818	)
Treasury stock		—			(569	)
Total shareholders’ equity		176,750			55,518
Total Liabilities and Shareholders’ Equity	$	1,756,866		$	1,705,407

See accompanying notes to consolidated financial statements

F-125

TIB Financial Corp. and Subsidiaries

Consolidated Statements of Operations

	Successor Company		Predecessor Company
(Dollars and shares in thousands, except per share data)	Three Months Ended December 31, 2010		Nine Months Ended September 30, 2010			Year Ended December 31, 2009			Year Ended December 31, 2008
Interest and dividend income
Loans, including fees	$	13,698	$	45,471		$	68,925		$	77,875
Investment securities:
U.S. Government agencies and corporations		1,802		6,347			11,395			7,610
States and political subdivisions, tax-exempt		14		137			299			316
States and political subdivisions, taxable		36		106			143			150
Other investments		17		26			212			385
Interest-bearing deposits in other banks		103		204			124			104
Federal Home Loan Bank stock		11		26			24			350
Federal funds sold and securities purchased under agreements to resell		—		—			5			1,374
Total interest and dividend income		15,681		52,317			81,127			88,164
Interest expense
Interest-bearing demand and money market		548		1,994			4,052			6,581
Savings		128		418			2,142			669
Time deposits of $100 or more		931		5,419			8,587			10,296
Other time deposits		935		5,972			12,865			15,050
Long-term debt—subordinated debentures		458		1,119			1,578			2,267
Federal Home Loan Bank advances		233		3,590			5,199			6,058
Short-term borrowings		15		69			104			1,392
Long-term borrowings		1		854			1,209			1,191
Total interest expense		3,249		19,435			35,736			43,504
Net interest income		12,432		32,882			45,391			44,660
Provision for loan losses		402		29,697			42,256			28,239
Net interest income after provision for loan losses		12,030		3,185			3,135			16,421
Non-interest income
Service charges on deposit accounts		864		2,585			4,165			2,938
Fees on mortgage loans originated and sold		449		1,219			1,143			775
Investment advisory and trust fees		354		948			997			555
Loss on sale of indirect auto loans		—		(344	)		—			—
Other income		1,043		2,283			3,510			1,865
Investment securities gains, net		—		2,635			5,058			1,077
Other-than-temporary impairment losses on investments prior to April 1, 2009 adoption of ASC 320-10-65-1		—		—			(23	)		(6,426	)
Other-than-temporary impairment losses on investments subsequent to April 1, 2009
Gross impairment losses		—		—			(740	)		N/A
Less: Impairments recognized in other comprehensive income		—		—			—			N/A
Net impairment losses recognized in earnings subsequent to April 1, 2009		—		—			(740	)		N/A
Total non-interest income		2,710		9,326			14,110			784

See accompanying notes to consolidated financial statements

F-126

TIB Financial Corp. and Subsidiaries

Consolidated Statements of Operations

(Continued)

Successor Company			Predecessor Company
(Dollars and shares in thousands, except per share data)	Three Months Ended December 31, 2010		Nine Months Ended September 30, 2010			Year Ended December 31, 2009			Year Ended December 31, 2008
Non-interest expense
Salaries and employee benefits		6,632		19,859			28,594			24,534
Net occupancy and equipment expense		2,051		6,948			9,442			8,539
Goodwill impairment		—		—			5,887			—
Foreclosed asset related expense		536		21,687			2,847			794
Other expense		4,704		16,822			18,572			17,121
Total non-interest expense		13,923		65,316			65,342			50,988
Income (loss) before income taxes		817		(52,805	)		(48,097	)		(33,783	)
Income tax expense (benefit)		257		—			13,451			(12,853	)
Net income (loss)	$	560	$	(52,805	)	$	(61,548	)	$	(20,930	)
Preferred dividends earned by preferred shareholders and discount accretion		—		2,009			2,662			165
Gain on retirement of Series A preferred allocated to common shareholders		—		(24,276	)
Net income (loss) allocated to common shareholders	$	560	$	(30,538	)	$	(64,210	)	$	(21,095	)
Basic income (loss) per common share	$	0.05	$	(205.64	)	$	(433.27	)	$	(145.02	)
Diluted income (loss) per common share	$	0.03	$	(205.64	)	$	(433.27	)	$	(145.02	)

See accompanying notes to consolidated financial statements

F-127

TIB Financial Corp. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(Dollars and shares in thousands except per share data)

Predecessor Company	Preferred Shares Series A		Preferred Stock Series A		Common Shares		Common Stock		Additional Paid in Capital			Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders’ Equity
Balance, January 1, 2008		—	$	—		136	$	14	$	57,404		$	39,151		$	240		$	(569	)	$	96,240
Cumulative-effect adjustment for split-dollar life insurance postretirement benefit													(141	)								(141	)
Comprehensive loss:
Net loss													(20,930	)								(20,930	)
Other comprehensive loss, net of tax:
Net market valuation adjustment on securities available for sale																(4,195	)
Add: reclassification adjustment for losses net of tax benefit of 2,013																3,336
Other comprehensive loss, net of tax benefit of $523																						(859	)
Comprehensive loss																					$	(21,789	)
Private placement of common shares						13		1		9,935												9,936
Exercise of stock options						—		0		98												98
Preferred stock issued with common stock warrants		37	$	32,889						4,103												36,992
Preferred stock discount accretion				31		—							(31	)								—
Stock-based compensation and related tax effect										655												655
Common stock dividends declared										2,435			(2,437	)								(2	)
Cash dividends declared, $5.89 per common share													(875	)								(875	)
Balance, December 31, 2008		37	$	32,920		149	$	15	$	74,630		$	14,737		$	(619	)	$	(569	)	$	121,114
Comprehensive loss:
Net loss																(61,548	)					(61,548	)
Other comprehensive loss:
Net market valuation adjustment on securities available for sale																			1,096
Less: reclassification adjustment for gains																			(4,295	)
Other comprehensive loss																						(3,199	)
Comprehensive loss																					$	(64,747	)
Issuance costs associated with preferred stock issued										(48	)											(48	)
Preferred stock discount accretion				810									(810	)								—
Stock-based compensation and related tax effect										484												484
Common stock dividends declared										1,088			(1,088	)								—
Cash dividends declared, preferred stock													(1,285	)								(1,285	)
Balance, December 31, 2009		37	$	33,730		149	$	15	$	76,154		$	(49,994	)	$	(3,818	)	$	(569	)	$	55,518

F-128

TIB Financial Corp. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(Dollars and shares in thousands except per share data)

Predecessor Company
	Preferred Shares Series A		Preferred Stock Series A		Common Shares		Common Stock		Additional Paid in Capital		Retained Deficit			Accumulated Other Comprehensive Income (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												(52,805	)								(52,805	)
Other comprehensive income:
Net market valuation adjustment on securities available for sale															5,896
Add: reclassification adjustment for gains															(2,635	)
Other comprehensive loss, net of tax benefit of $523																					3,261
Comprehensive income																				$	(49,544	)
Preferred stock discount accretion				572								(572	)								—
Stock-based compensation and related tax effect										785											785
Balance, September 30, 2010		37	$	34,302		149	$	15	$	76,939	$	(103,371	)	$	(557	)	$	(569	)	$	6,759

Successor Company
	Preferred Shares Series B			Preferred Stock Series B			Common Shares		Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock		Total Shareholders’ Equity
Balance, September 30, 2010		70		$	70,000			7,149	$	715	$	107,783	$	—		$	—		$	—	$	178,498
Comprehensive loss:
Net income														560								560
Other comprehensive loss:
Net market valuation adjustment on securities available for sale														(2,308	)							(2,308	)
Comprehensive loss																				—	$	(1,748	)
Conversion of Preferred Stock, Series B		(70	)		(70,000	)		4,667		467		69,533										—
Reverse stock split fractional shares								1		0		0										0
Balance, December 31, 2010		—		$	—			11,817	$	1,182	$	177,316	$	560		$	(2,308	)	$	—	$	176,750

See accompanying notes to consolidated financial statements

F-129

TIB Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars and shares in thousands except per share data)

	Successor Company			Predecessor Company
	Three Months Ended December 31, 2010			Nine Months Ended September 30, 2010			Year Ended December 31, 2009			Year Ended December 31, 2008
Cash flows from operating activities:
Net income (loss)	$	560		$	(52,805	)	$	(61,548	)	$	(20,930	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Accretion of acquired loans		(13,334	)		—			—			—
Depreciation and amortization		138			3,572			4,516			4,008
Provision for loan losses		402			29,697			42,256			28,239
Deferred income tax benefit (loss)		681			—			10,998			(4,848	)
Investment securities net realized gains		—			(2,635	)		(5,058	)		(1,077	)
Net amortization of investment premium/discount		1,731			2,330			2,031			(31	)
Write-down of investment securities		—			—			763			6,426
Goodwill impairment		—			—			5,887			—
Stock based compensation		—			785			690			737
(Gain) loss on sale of OREO		—			55			168			(2	)
OREO Valuation Adjustments		—			19,116			1,812			—
Loss on sale of indirect auto loans		—			344			—			—
Other		(357	)		193			140			(247	)
Mortgage loans originated for sale		(22,194	)		(56,265	)		(60,439	)		(42,518	)
Proceeds from sales of mortgage loans		18,942			55,383			57,778			46,836
Fees on mortgage loans sold		(449	)		(1,218	)		(1,105	)		(767	)
Change in accrued interest receivable and other asset		(1,134	)		4,681			1,894			(5,750	)
Change in accrued interest payable and other liabilities		(10,022	)		6,576			(4,118	)		(869	)
Net cash provided by (used in) operating activities		(25,036	)		9,809			(3,335	)		9,207
Cash flows from investing activities:
Purchases of investment securities available for sale		(164,028	)		(335,038	)		(728,578	)		(160,943	)
Sales of investment securities available for sale		—			188,601			525,359			51,135
Repayments of principal and maturities of investment securities available for sale		49,824			90,955			209,566			37,696
Acquisition of Naples Capital Advisors business		—			(296	)		(148	)		(1,378	)
Net cash received in acquisition of operations-Riverside Bank of the Gulf Coast		—			—			271,397			—
Net (purchase) sale of FHLB stock		365			749			1,277			(2,843	)
Principal repayments on loans, net of loans originated or acquired		24,855			27,168			(30,111	)		(117,411	)
Purchases of premises and equipment		(319	)		(12,629	)		(2,760	)		(1,041	)
Proceeds from sales of loans		—			26,902			3,500			—
Proceeds from sales of OREO		5,932			6,794			4,122			837
Proceeds from disposal of premises, equipment and intangible assets		—			41			51			39
Net cash provided by (used in) investing activities		(83,371	)		(6,753	)		253,675			(193,909	)
Cash flows from financing activities:
Net increase (decrease) in demand, money market and savings accounts		50,260			(107,167	)		82,350			(90,211	)
Net increase (decrease) in time deposits		(10,739	)		97,546			(61,122	)		98,890
Net change in brokered time deposits		(314	)		(37,365	)		(106,577	)		77,031
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase		3,329			(36,647	)		8,116			(6,499	)
Net change short term FHLB advances		—			—			(70,000	)		70,000
Increase in long term FHLB advances		—			—			—			92,900
Repayment of long term FHLB advances		—			—			(7,900	)		(100,000	)
Net change in long term repurchase agreements		(10,000	)		(20,000	)		—			—
Net proceeds from North American Financial Holdings, Inc. Investment		—			162,840			—			—

F-130

TIB Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars and shares in thousands except per share data)

(Continued)

	Successor Company			Predecessor Company
	Three Months Ended December 31, 2010			Nine Months Ended September 30, 2010		Year Ended December 31, 2009			Year Ended December 31, 2008
Income tax effect related to stock-based compensation		—			—		(206	)		(82	)
Net proceeds from issuance costs of preferred stock and common warrants		—			—		(48	)		36,992
Net proceeds from issuance of common shares		—			—		—			10,033
Cash dividends paid to preferred shareholders		—			—		(1,285	)		(1,677	)
Net cash provided by (used in) financing activities		32,536			59,207		(156,672	)		187,377
Net increase(decrease) in cash and cash equivalents		(75,871	)		62,263		93,668			2,675
Cash and cash equivalents at beginning of period		229,665			167,402		73,734			71,059
Cash and cash equivalents at end of period	$	153,794		$	229,665	$	167,402		$	73,734
Supplemental disclosures of cash paid:
Interest	$	4,578		$	16,303	$	38,291		$	44,504
Income taxes		—			—		—			125
Supplemental disclosures of non-cash transactions:
Financing of sale of premises and equipment to third parties	$	—		$	—	$	—		$	60
Fair value of noncash assets acquired		—			—		49,193			1,416
Fair value of liabilities assumed		—			—		320,594			40
Transfer of loans to OREO		1,992			35,007		27,547			6,961
Transfer of OREO to Premises and Equipment		—			—		2,941			2,391
Exchange of Preferred Series A for common shares issued in NAFH Investment		—			12,160		—			—

See accompanying notes to consolidated financial statements

F-131

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Note 1—Summary of Significant Accounting Policies

Principles of Consolidation and Nature of Operations

TIB Financial Corp. is a bank holding company headquartered in Naples, Florida, whose business is conducted primarily through our wholly-owned subsidiaries, TIB Bank (the “Bank) and Naples Capital Advisors, Inc. Together with its subsidiaries, TIB Financial Corp. (collectively the “Company”) has a total of twenty-seven full service banking offices. On February 13, 2009, TIB Bank acquired the deposits (excluding brokered deposits), branch office operations and certain assets from the FDIC as receiver of the former Riverside Bank of the Gulf Coast (“Riverside”). On September 25, 2009, The Bank of Venice, acquired by the Company in April 2007, was merged into TIB Bank. The consolidated financial statements include the accounts of TIB Financial Corp. (Parent Company) and its wholly-owned subsidiaries, TIB Bank and subsidiaries, and Naples Capital Advisors, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation. Additionally, TIBFL Statutory Trust I, TIBFL Statutory Trust II and TIBFL Statutory Trust III were formed in conjunction with the issuance of trust preferred securities as further discussed in Note 11. 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 subordinate debentures are presented as a liability.

TIB Bank is the Company’s primary operating subsidiary. The Bank provides banking services from its twenty-seven branch locations in Monroe, Miami-Dade, Collier, Lee, and Sarasota counties, Florida. The Bank offers 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 Bank 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 indirect auto loans.

Share and per share amounts have been adjusted to account for the effects of six one percent stock dividends declared by the Board of Directors during 2008 and 2009 which were distributed July 17, 2008, October 10, 2008, January 10, 2009, April 10, 2009, July 10, 2009 and October 10, 2009 to all TIB Financial Corp. common shareholders of record as of July 7, 2008, September 30, 2008, December 31, 2008, March 31, 2009, June 30, 2009 and September 30, 2009, respectively and the effects of the 1 for 100 reverse stock split effective after the close of business 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.

North American Financial Holdings, Inc. Investment

On September 30, 2010, (the “Transaction Date”) the Company completed the issuance and sale to North American Financial Holdings, Inc. (“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

F-132

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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 rules of the SEC Staff Accounting Bulletin Topic 5J, New Basis of Accounting Required in Certain Circumstances (“SEC SAB T. 5J”) the application of “push down” accounting is 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 September 30, 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. Approximately 533 shares of the Company’s common stock were issued in exchange for approximately $7,776 upon completion of the Rights Offering on January 18, 2011.

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. A material estimate that is particularly susceptible to significant change in the near term is the allowance for loan losses. Another material estimate is the fair value and impairment of financial instruments. Changes in assumptions or in market conditions could significantly affect the fair value estimates.

F-133

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, 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. As of September 30, 2010, resulting from the application of acquisition accounting and related fair value adjustments, unrealized gains and losses on investment securities were eliminated as the recorded costs of these investments were adjusted to their fair values. Other securities such as Federal Home Loan Bank stock are carried at cost and are included in other assets on the balance sheets.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded 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. Future declines in the fair value of these or other securities may result in additional impairment charges which may be material to the financial condition and results of operations of the Company.

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. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI under FASB Accounting Standards Codification (“ASC”) 320-10-35. However, certain purchased beneficial interests, including non-agency mortgage-backed securities, asset-backed securities, and collateralized debt obligations, that had credit ratings at the time of purchase of below AAA are evaluated using the model outlined in ASC 325-40-35.

In determining OTTI under the ASC 320-10-35 model, 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.

The second segment of the portfolio uses the OTTI guidance provided by ASC 325-10-35 that is specific to purchased beneficial interests that are rated below “AAA”. Under this model, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

F-134

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

When OTTI occurs under either model, the amount of the impairment recognized in earnings depends on whether we intend 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 we intend to sell 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, 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 we do not intend to sell the security and it is not more likely than not that we 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.

Loans Held for Sale

The majority of residential fixed rate mortgage loans originated by TIB Bank are sold servicing released to third parties immediately with 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 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. TIB Bank has 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.

Loans Held for Investment

Loans held for investment are reported at the principal amounts outstanding, net of unamortized purchase discount or premium, nonrefundable loan fees and related direct loan origination costs. Unearned income and deferred net fees, costs, purchase premiums or discounts related to loans held for investment are recognized in interest income on an effective yield basis over the contractual loan term.

Nonaccrual loans are those for which management has discontinued accrual of interest because there exists significant uncertainty as to the full and timely collection of either principal or interest or, for commercial and agricultural, construction and vacant land, farmland and commercial mortgage loans, such loans have become contractually past due 90 days with respect to principal or interest. Home equity loans and residential real estate loans are placed on nonaccrual when these loans are delinquent 90 days or more, or in foreclosure. Indirect auto loans and other consumer loans are placed on nonaccrual when these loans are delinquent 90 days or more. These loans are charged off or written down to their net realizable value when delinquency reaches 120 days. For commercial and agricultural, construction and vacant land, farmland and commercial mortgage loans, interest accruals are also continued for loans that are both well-secured and in the process of collection. For this purpose, loans are considered well-secured if they are collateralized by property having a net realizable value in excess of the amount of principal and accrued interest outstanding or are guaranteed by a financially responsible and willing party. Loans are considered “in the process of collection” if collection is proceeding in due course either through legal action or other actions that are reasonably expected to result in the prompt repayment of the debt or in its restoration to current status. For all loans, past due status is determined based on the contractual terms of the loan and the actual number of days since the due date of the earliest unpaid payment.

F-135

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

When a loan is placed on nonaccrual status, all previously accrued but uncollected interest is reversed against current period operating results. When full collection of the outstanding principal balance is in doubt, subsequent payments received are first applied to unpaid principal and then to uncollected interest. A loan may be returned to accrual status at such time as the loan is brought fully current as to both principal and interest, and, in management’s judgment, such loan is considered to be fully collectible on a timely basis. However, the Company’s policy also allows management to continue the recognition of interest income on certain commercial and agricultural, construction and vacant land, farmland and commercial mortgage loans placed on nonaccrual status. This portion of the nonaccrual portfolio is referred to as “Cash Basis Nonaccrual” loans. This policy only applies to loans that are well-secured and in management’s judgment are considered to be fully collectible but the timely collection of payments is in doubt. Although the accrual of interest is suspended, interest income is recognized as it is received.

A troubled debt restructuring is a restructuring of a loan in which a concession is granted to a borrower experiencing financial difficulty. A loan is accounted for as a troubled debt restructured loan (“TDR”) if the Company, for reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise grant. A TDR typically involves a modification of terms such as a reduction of the interest rate below the current market rate for a loan with similar risk characteristics or the waiving of certain financial loan covenants without corresponding offsetting compensation or additional support. The Company measures the impairment loss of a TDR using the methodology for individually impaired loans.

Purchased Credit-Impaired Loans

Loans acquired in a transfer, including business combinations and transactions similar to the Investment, 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.

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 cash flows expected to be collected (other than due to decreases in interest rate indices), the Company charges the provision for credit losses, resulting in an increase to the allowance for loan losses. If the Company has probable and significant increases in cash flows expected to be collected, 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. The impact of changes in variable interest rates are 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.

F-136

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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 loan portfolio. 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 furthers 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 real estate mortgage—owner occupied, office building, hotel or motel, guest houses, retail, multi-family, and other;

• Residential mortgage—primary residence, second residence and investment;

• Land, lot and construction;

• Consumer;

• Indirect auto—prime and sub-prime; and

• Home equity

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. Based upon the Company’s evaluation process, management believes that the look-back period is generally eight quarters.

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 December 31, 2010, substantially all 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.

F-137

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

The Company individually evaluates for impairment larger nonaccruing commercial and agricultural, construction and vacant land, farmland and commercial mortgage loans. Residential mortgage and consumer loans are not individually evaluated for impairment unless they 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

• 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 and expected future charge-offs, 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, farmland 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.

Premises and Equipment

Land is carried at cost. Premises and equipment are reported at cost less accumulated depreciation. For financial reporting purposes, building and related components are depreciated using the straight-line method with useful lives ranging from 3 to 40 years. Furniture, fixtures and equipment are depreciated using straight-line method with useful lives ranging from 1 to 40 years. 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.

Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure or repossession are generally held for sale and are initially recorded at fair value less cost to sell when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Costs incurred after acquisition are generally expensed.

F-138

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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 and customer relationship intangibles arising from acquisitions and are initially measured at fair value. The intangibles are being amortized using the straight-line method over estimated lives ranging from 5 to 15 years.

Long-lived Assets

Long-lived assets, including premises and equipment, core deposit 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 recorded 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.

Company Owned Life Insurance

The Company has purchased life insurance polices on certain key executives. 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 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.

The predecessor company will file a consolidated Federal and Florida income tax return for the period ended September 30, 2010. The successor company will be included in NAFH’s consolidated Federal income tax return for the short period ended December 31, 2010 and will file a separate Florida income tax return for the short period ended December 31, 2010.

Stock Splits and Stock Dividends

Stock splits and stock dividends in excess of 20% are reported by transferring the par value of the stock issued from retained earnings to common stock. Stock dividends for 20% or less are reported by transferring the fair value, as of the ex-dividend date, of the stock issued from retained earnings to common stock and additional paid-in capital.

F-139

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Effective December 15, 2010, the Company completed a reverse stock split of the Company’s issued and outstanding common stock at a ratio of 1:100. The number of authorized shares of common stock was correspondingly adjusted from 5,000,000,000 shares to 50,000,000 shares. 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. Fractional shares resulting from the reverse stock split were rounded up to the nearest whole share.

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
	Three Months Ended December 31, 2010		Nine Months Ended September 30, 2010		Year Ended December 31, 2009		Year Ended December 31, 2008
Weighted average number of common shares outstanding:
Basic		11,817		149		148		145
Dilutive effect of options outstanding		—		—		—		—
Dilutive effect of restricted shares		—		—		—		—
Dilutive effect of warrants outstanding		6,503		—		—		—
Diluted		18,320		149		148		145

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
	Three Months Ended December 31, 2010		Nine Months Ended September 30, 2010		Year Ended December 31, 2009		Year Ended December 31, 2008
Anti-dilutive stock options		8		8		7		7
Anti-dilutive restricted stock awards		—		0		1		1
Anti-dilutive warrants		13		24		24		11

Stock-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for

F-140

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

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 generally accounted for as collateralized financing transactions 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.

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.

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 19. 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.

Recent Accounting Pronouncements

In January 2011, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2011-1, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20, to amend FASB Accounting Standards Codification (“ASC”) Topic 320, Receivables. The amendments in this update temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU 2010-20 for public entities. The delay is intended to allow the FASB time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated.

F-141

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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. Management does not believe that adoption of this update will have a material impact on the Company’s financial position or results of operations.

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 financial position or results of operations.

In April 2010, the FASB issued ASU 2010-18, Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset, to amend ASC Topic 320, Receivables. The amendments in this update provide that for acquired troubled loans which meet the criteria to be accounted for within a pool, modifications to one or more of these loans does not result in the removal of the modified loan from the pool even if the modification would otherwise be considered a troubled debt restructuring. The pool of assets in which the loan is included will continue to be considered for impairment. The amendments do not apply to loans not meeting the criteria to be accounted for within a pool. These amendments were effective for modifications of loans accounted for within pools occurring in the first interim or annual period ending on or after July 15, 2010. Adoption of this update did not have a material impact on the Company’s financial position or results of operations.

In February 2010, the FASB issued ASU 2010-09, Amendments to Certain Recognition and Disclosure Requirements, to amend ASC Topic 855, Subsequent Events. The amendments in this update removed the requirement to disclose the date through which subsequent events have been evaluated and became effective immediately upon issuance. Adoption of this update did not have a material impact on the Company’s financial position or results of operations.

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation.

Note 2—Business Combinations

NAFH Investment

On September 30, 2010, the Company issued and sold to NAFH 7,000 shares of Common Stock, 70 shares of Series B Preferred Stock and a warrant to purchase up to 11,667 shares of Common Stock of the Company for aggregate consideration of $175,000. The consideration was comprised of approximately $162,840 in cash and

F-142

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

approximately $12,160 in the form of contribution to the Company of all 37 shares of preferred stock issued to the United States Department of the 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.

Immediately following the Investment, NAFH controlled 98.7% of the voting securities of the Company (which has been subsequently reduced to approximately 94% as a result of the Rights Offering) and followed the acquisition method of accounting and applied “acquisition accounting.” 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. As part of the valuation, intangible assets were identified and a fair value was determined as required by the accounting guidance for business combinations. Accounting guidance also requires the application of “push down accounting,” whereby the adjustments of assets and liabilities to fair value and the resultant goodwill are shown in the financial statements of the acquiree.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The methodology used to obtain the fair values to apply acquisition accounting is described in Note 19, “Fair Value Measurements of Financial Instruments” of these Consolidated Financial Statements. The following table summarizes the Investment Transaction:

	Originally Reported September 30, 2010		Measurement Period Adjustments			September 30, 2010
Fair value of assets acquired:
Cash and cash equivalents	$	229,665	$	—		$	229,665
Securities available for sale		309,386		(66	)		309,320
Loans		1,000,544		17,298			1,017,842
Goodwill and intangible assets, net		81,440		(39,671	)		41,769
Other assets		119,856		18,731			138,587
Total assets acquired	$	1,740,891		(3,708	)	$	1,737,183
Fair value of liabilities assumed:
Deposits	$	1,331,149		(3,486	)	$	1,327,663
Long-term debt and other borrowings		210,438		(1,655	)		208,783
Other liabilities		22,239		—			22,239
Total liabilities assumed	$	1,563,826		(5,141	)	$	1,558,685
Net assets		177,065		1,433			178,498
Less: Non-controlling interest at fair value		5,955		—			5,955
	$	171,110		1,433		$	172,543
Underwriting, due diligence and legal costs		3,890		(1,433	)		2,457
Purchase consideration	$	175,000	$	—		$	175,000

The above estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the Transaction Date to make preliminary estimates of the fair value of assets acquired and liabilities assumed. While the Company believes that information provides a reasonable basis for estimating the fair values, it expects to obtain additional information and evidence during the measurement period (not to exceed one year from the Transaction Date) that will likely result in changes to the estimated fair value amounts. Thus, the provisional measurements of fair value reflected are subject to change and such changes could be significant.

F-143

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the Transaction Date. Based on the applicable accounting literature on business combinations, subsequent adjustments, if any, will be retrospectively recorded in future filings.

A summary and description of the assets, liabilities and non-controlling interests fair valued in conjunction with applying the acquisition method of accounting is as follows:

Cash and cash equivalents

The cash and cash equivalents of $229,665 held at the Transaction Date approximated the fair value on the Transaction Date and did not require a fair value adjustment.

Investment securities

Investment securities are reported at fair value and were $309,320 on the Transaction Date. To account for the NAFH Investment, the unamortized premium and discounts were recognized as acquisition accounting adjustments and the unrealized gain or loss on investment securities became the new premium or discount for each security held by the Company.

The fair value of the investment securities is primarily based on values obtained from third parties which are based on recent activity for the same or similar securities. Before the Transaction Date, the investment securities portfolio had a book value of $310,316 and a fair value of $309,320. The difference between the fair value and the current par value was recorded as the new premium or discount on a security by security basis.

Loans

All loans in the loan portfolio at the Transaction Date were evaluated and a fair value of $1,017,842 was assigned in accordance with the accounting guidance for receivables. All loans were considered to be purchase credit impaired loans or “PCI loans” with the exception of revolving lines of credit, loans collateralized by cash deposits and other types of loans with no real credit risk. The revolving lines of credit were also evaluated but are not considered PCI loans. A summary of the valuation for the PCI loans is in Note 5, “Loans” of these Consolidated Financial Statements.

Goodwill and intangible assets

As disclosed above, the excess of purchase consideration over the net assets being reported at fair value is the goodwill. The goodwill represents the value of the Company’s total franchise. This acquisition was nontaxable and, as a result, there is no tax basis in the goodwill. Accordingly, none of the goodwill associated with the acquisition is deductible for tax purposes. The intangible assets identified as part of the valuation of the NAFH Investment were Core Deposit Intangibles (“CDI”), Customer Relationship Intangibles (“CRI”) and Trade Names. All of the identified intangible assets are amortized as a non-interest expense over their estimated lives, except the TIB Bank and Naples Capital Advisors trade names.

Core Deposit Intangible

The CDI valuation is based on the Bank’s transaction related deposit accounts, interest rates on the deposits compared to the market rate on the Transaction Date and estimated life of those deposits. The value of non-interest bearing deposits comprises the largest portion of the CDI. The estimated value of the CDI is the present value of the difference between a market participant’s cost of obtaining alternative funds and the cost to maintain the acquired deposit base. The present value is calculated over the estimated life of the deposit base.

F-144

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

The type of deposit accounts evaluated for the CDI were demand deposit accounts, money market accounts and savings accounts.

Customer Relationship Intangible

The CRI was based on the assets under management by Naples Capital Advisors, Inc. on the Transaction Date. CRI is created when a customer relationship exists between an entity and its customer if the entity has information about the customer and has regular contact with the customer, and the customer has the ability to make direct contact with the entity. Customer relationships meet the contractual-legal criterion if an entity has a practice of establishing contracts with its customers, regardless of whether a contract exists at the acquisition date. Customer relationships also may arise through means other than contracts, such as through regular contact by sales or service representatives.

The value of the CRI is based on the present value of future cash flows arising from the management of investment accounts of customers generated from Naples Capital Advisors, Inc. based on the assets under management at September 30, 2010. The valuation of this intangible asset involves three steps: determining the useful life of the intangible asset, determining the resulting cash flows of the intangible and determining the discount rate.

The assets under management as of the Transaction Date were approximately $184,489.

Trade Name Intangible

Trademarks, service marks and other registered marks (collectively referred to as the “Trade Name”) can have great significance to customers. The function of a mark is to indicate to the consumer the sources from which goods and services originate. The trade names considered to have value are TIB Bank and Naples Capital Advisors.

The trade name value was based on the estimated income from each trade name used by the Company. The trade name for TIB Bank and Naples Capital Advisors has an indefinite life because there are not legal, regulatory, contractual, competitive, economic, or other factors that limit the useful life of an intangible asset to the reporting entity. The useful life of the asset shall be considered to be indefinite. The term indefinite does not mean the same as infinite or indeterminate. The useful life of an intangible asset is indefinite if that life extends beyond the foreseeable horizon—that is, there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the reporting entity.

Other Assets

A majority of the other assets held by the Company did not have a fair value adjustment as part of the purchase accounting since their carrying value approximated fair value such as accrued interest receivable. It was not practicable to determine the fair value of FHLB and IBB stock due to restrictions placed on their transferability. 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 $19,262. 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 the fair value adjustments discussed elsewhere in this section, along with Federal and state net operating losses that the Company deemed realizable as of the acquisition date.

Deposits

Term deposits were not included as part of the CDI valuation. Instead, a separate valuation of term deposit liabilities was conducted due to the contractual time frame associated with these liabilities. The term deposits which were evaluated for acquisition accounting consisted of certificates of deposit, brokered deposits and

F-145

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Certificate of Deposit Account Registry Services (“CDARS”) CDs. The fair value of these deposits was determined by first stratifying the deposit pool by monthly maturity and calculating the interest rate for each maturity period. Then cash flows were projected by period and discounted to present value using current market interest rates. Based on the characteristics of the certificates, either a retail rate or a brokered certificate of deposit rate was used.

Certificates of deposit liabilities had a fair value of $730,034 as of September 30, 2010, compared to a carrying value of $724,899 for an amortizable premium of $5,135. Brokered Deposit liabilities had a fair value of $11,054 as of September 30, 2010 compared to a carrying value of $10,836 for an amortizable premium of $217. CDARs liabilities had a fair value of $9,453 as of September 30, 2010, compared to a carrying value of $9,363 million for an amortizable premium of $90. The Company will amortize these premiums into income as a reduction of interest expense on a level-yield basis over the weighted average term.

Long-term debt and other borrowings

Included in long-term debt and other borrowings in the summary table above are FHLB advances, securities sold under agreements to repurchase and trust preferred debt securities. These were fair valued 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 Company will amortize the premium and accrete the discount into income on a level-yield basis over the contractual term as an adjustment to interest expense.

FHLB advances had a fair value of $132,077 as of September 30, 2010, compared to a carrying value of $125,000 for an amortizable premium of $7,077.

Securities sold under agreements to repurchase on a long-term basis had a fair value of $10,063 as of September 30, 2010, compared to a carrying value of $10,000 for an amortizable premium of $63. The carrying values of Commercial customer repurchase agreements of $43,244 and Treasury tax and loan deposits of $584 approximated their fair values due to their short-term nature.

The trust preferred securities had a fair value of $22,815 as of September 30, 2010 compared to a book value of $33,000 for a net accretable discount of $10,185. The premium will be amortized and the discount will be accreted into income as a reduction of interest expense and an increase to interest expense on a level yield bases over the contractual terms, respectively.

Lease Liability

The Company operates approximately 6 properties under long term operating leases. The classification of the Company’s leases as operating, as opposed to capital, was not changed in applying the acquisition method of accounting.

When reviewing the leases, the contractual lease payments and terms were compared to the current market conditions for a similar location and building leased. The Company’s leases were considered to be unfavorable relative to the market terms of leases at September 30, 2010 to the extent that the existing lease terms were higher than the current market terms, and a liability of $251 was recognized as part of the acquisition accounting.

Non-Controlling Interest

In determining the estimated fair value of the non-controlling interest, the Company utilized the market valuation of its common stock as part of the purchase accounting as of September 30, 2010.

F-146

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Transaction Expenses

As required by the Investment Agreement, the Company reimbursed certain transaction-related third party due diligence, valuation and legal costs of approximately $2,457 which were recorded as a reduction of the $175,000 of proceeds received from the issuance of preferred and common shares.

There were no indemnification assets identified in this business combination, nor were there any contingent consideration assets or liabilities to be recognized.

Note 3—Cash and Due From Banks

Cash on hand or on deposit with the Federal Reserve Bank of $2,393 and $3,682 was required to meet regulatory reserve and clearing requirements at December 31, 2010 and 2009, respectively. Balances on deposit at the Federal Reserve Bank did not earn interest prior to October 19, 2008; subsequently they became interest bearing. The total on deposit was approximately $130,946 and $147,709 at December 31, 2010 and 2009, respectively.

The Bank maintains an interest bearing account at the Federal Home Loan Bank of Atlanta. The total on deposit was approximately $638 and $52 at December 31, 2010 and 2009, respectively.

Note 4—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 available for sale at December 31, 2010 and December 31, 2009 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 subdivision—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		0		2,105
Collateralized debt obligations		807		—		12		795
	$	421,792	$	964	$	4,664	$	418,092

December 31, 2010 (Predecessor Company)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Government agencies and corporations	$	29,232	$	24	$	84	$	29,172
States and political subdivisions—tax exempt		7,754		307		—		8,061
States and political subdivision—taxable		2,313		—		101		2,212
Marketable equity securities		12		—		4		8
Mortgage-backed securities—residential		207,344		2,083		1,312		208,115
Corporate bonds		2,878		—		866		2,012
Collateralized debt obligations		4,996		—		4,237		759
	$	254,529	$	2,414	$	6,604	$	250,339

F-147

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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
December 31, 2010 (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 obligations		795		12		—		—		795		12
Total temporarily impaired	$	232,941	$	4,664	$	—	$	—	$	232,941	$	4,664

	Less than 12 Months				12 Months or Longer				Total
December 31, 2010 (Predecessor Company)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	5,034	$	84	$	—	$	—	$	5,034	$	84
States and political subdivisions—tax exempt		—		—		275		—		275		—
States and political subdivisions—taxable		—		—		2,212		101		2,212		101
Marketable equity securities		8		4		—		—		8		4
Mortgage-backed securities—residential		98,746		1,206		10,542		106		109,288		1,312
Corporate bonds		—		—		2,012		866		2,012		866
Collateralized debt obligations		—		—		759		4,237		759		4,237
Total temporarily impaired	$	103,788	$	1,294	$	15,800	$	5,310	$	119,588	$	6,640

As of December 31, 2010, the Company’s security portfolio consisted of 62 securities, 37 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 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 likely 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.

F-148

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

The table below presents a rollforward of the credit losses recognized in earnings for the period from April 1, 2009 (the effective date of ASC 325-40 which requires the recognition of unrealized credit losses determined as a result of other than temporary impairment charges through the income statement and the unrealized losses related to all other factors through accumulated other comprehensive income) through December 31, 2010:

	Successor Company		Predecessor Company
	Three Months Ended December 31, 2010		Nine Months Ended September 30, 2010		Year Ended December 31, 2009
Balance, beginning of period	$	—	$	9,996	$	9,256
Additions/Subtractions
Credit losses recognized during the period		—		—		740
Balance, end of period	$	—	$	9,996	$	9,996

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.

Successor Company	December 31, 2010
Due in one year or less	$	276
Due after one year through five years		18,409
Due after five years through ten years		17,874
Due after ten years		12,256
Marketable equity securities		74
Mortgage-backed securities		369,203
	$	418,092

At December 31, 2010, securities with a fair value of approximately $38,363 are subject to call during 2011.

Sales of available for sale securities were as follows:

	Successor Company		Predecessor Company
	Three Months Ended December 31, 2010		Nine Months Ended September 30, 2010		Year Ended December 31, 2009		Year Ended December 31, 2008
Proceeds	$	—	$	188,601	$	525,359	$	51,135
Gross gains		—		2,635		5,003		1,217
Gross losses		—		0		6		140

For the nine months ended September 30, 2010 and year ended 2009, no associated tax expense was recorded due to the net loss for the periods and a full valuation allowance against deferred income taxes that was recorded which is discussed in greater detail in Note 12. The tax expense related to net realized gains was $405 during 2008.

F-149

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Maturities, principal repayments, and calls of investment securities available for sale were as follows: $49,824 for the three months ended December 31, 2010 (Successor Company); $90,955 for the nine months ended September 30, 2010 (Predecessor Company); and $209,566, and $37,696 for the years ended 2009 and 2008 (Predecessor Company), respectively. Net gains realized from calls and mandatory redemptions of securities during the three months ended December 31, 2010 (Successor Company) was $0, for the nine months ended September 30, 2010 and years ended 2009 and 2008 (Predecessor Company) were $0, $61, and $72, respectively.

Investment securities having carrying values of approximately $110,408 and $207,353 at December 31, 2010 and 2009, respectively, were pledged to secure public funds on deposit, securities sold under agreements to repurchase, and for other purposes as required by law.

Note 5—Loans

Major classifications of loans are as follows:

	Successor Company		Predecessor Company
December 31,	2010		2009
Real estate mortgage loans:
Commercial	$	600,372	$	680,409
Residential		225,850		236,945
Farmland		12,083		13,866
Construction and vacant land		38,956		97,424
Commercial and agricultural loans		60,642		69,246
Indirect auto loans		28,038		50,137
Home equity loans		29,658		37,947
Other consumer loans		8,730		10,190
Total loans		1,004,329		1,196,164
Net deferred loan costs		301		1,352
Loans, net of deferred loan costs	$	1,004,630	$	1,197,516

Activity in the allowance for loan losses is as follows:

	Successor Company		Predecessor Company
	Three Months Ended December 31, 2010		Nine Months Ended September 30, 2010			Year Ended December 31, 2009			Year Ended December 31, 2008
Balance, beginning of period	$	—	$	29,083		$	23,783		$	14,973
Provision for loan losses charged to expense		402		29,697			42,256			28,239
Loans charged off		—		(27,432	)		(37,266	)		(19,509	)
Recoveries of loans previously charged off		—		1,058			310			80
Balance, end of period predecessor company	$	—	$	32,406		$	29,083		$	23,783
Acquisition accounting adjustment		—		(32,046	)		—			—
Balance, end of period successor company	$	402	$	—		$	—		$	—

F-150

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Successor Company

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 including interest of PCI loans acquired during the three months ended December 31, 2010	$	1,335,327
Nonaccretable difference		(84,691	)
Cash flows expected to be collected at acquisition		1,250,636
Accretable yield		(276,715	)
Fair value of acquired loans at acquisition	$	973,921

Accretable yield, or income expected to be collected, related to purchased credit-impaired loans is as follows:

	Three Months Ended December 31, 2010
Balance, beginning of period	$	276,715
New loans purchased		—
Accretion of income		(13,334	)
Reclassifications from nonaccretable difference		—
Disposals		—
Balance, end of period	$	263,381

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-151

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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	$	—	$	7	$	—	$	—	$	552	$	599,820
Residential		—		164		—		—		11,868		213,983
Farmland		—		—		—		—		—		12,083
Construction and vacant land		—		—		—		—		—		38,956
Commercial and agricultural		—		24		—		—		4,901		55,740
Indirect auto loans		—		184		—		—		6,295		21,744
Home equity loans		—		14		—		—		25,305		4,353
Other consumer loans		—		9		—		—		5,546		3,183
Total loans	$	—	$	402	$	—	$	—	$	54,467	$	949,862

(1) Loans collectively evaluated for impairment include $24,395 of acquired home equity loans, $3,269 of commercial and agricultural loans and $4,935 of other consumer loans which are presented net of unamortized purchase discounts of $(897), (61), 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 purchase credit-impaired loans as a result of the NAFH Investment. No allowance for loan losses was recorded for those purchased credit-impaired loans disclosed above during the three months ended December 31, 2010.

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
Real estate mortgage loans:
Owner occupied commercial	$	—	$	—	$	—	$	—
Office building		—		—		—		—
Hotel/motel		—		—		—		—
Guest houses		—		—		—		—
Retail		—		—		—		—
Multi-family		—		—		—		—
Other commercial		—		—		—		—
Primary residential		—		—		—		—
Secondary residential		—		—		—		—
Investment residential		—		—		—		—
Farmland		—		—		—		—
Land, lot and construction		—		—		—		—
Acquired commercial and agricultural		121		—		—		121
Prime indirect auto loans		—		—		—		—
Sub-prime indirect auto loans		—		—		—		—
Acquired home equity loans		405		636		—		1,041
Acquired other consumer loans		15		—		—		15
Total loans	$	541	$	636	$	—	$	1,177

F-152

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Predecessor Company

Purchased credit impaired loans	30-89 Days Past Due		Greater than 90 Days Past Due and Still Accruing/Accreting		Nonaccrual		Total
Real estate mortgage loans:
Owner occupied commercial	$	3,027	$	31,043	$	—	$	—
Office building		—		2,184		—		—
Hotel/motel		4,794		3,812		—		—
Guest houses		3,873		—		—		—
Retail		—		1,989		—		—
Multi-family		—		—		—		—
Other commercial		992		6,953		—		—
Primary residential		—		—		—		—
Secondary residential		235		507		—		—
Investment residential		—		1,146		—		—
Farmland		—		942		—		—
Land, lot and construction		1,777		6,433		—		—
Commercial and agricultural		1,175		402		—		—
Prime indirect auto loans		229		100		—		—
Sub-prime indirect auto loans		745		146		—		—
Home equity loans		—		—		—		—
Other consumer loans		22		44		—		—
Total loans	$	16,869	$	55,701	$	—	$	—

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.

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.

F-153

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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:
Owner occupied commercial	$	351	$	—	$	—	$	—	$	351
Office building		31		—		—		—		31
Hotel/motel		—		—		—		—		—
Guest houses		—		—		—		—		—
Retail		—		—		—		—		—
Multi-family		—		—		—		—		—
Other commercial		170		—		—		—		170
Primary residential		4,441		—		—		—		4,441
Secondary residential		3,056		—		—		—		3,056
Investment residential		4,371		—		—		—		4,371
Farmland		—		—		—		—		—
Land, lot and construction		—		—		—		—		—
Commercial and agricultural		4,901		—		—		—		4,901
Prime indirect auto loans		6,213		—		—		—		6,213
Sub-prime indirect auto loans		82		—		—		—		82
Home equity loans		24,090		78		1,137		—		25,305
Other consumer loans		5,459		—		87		—		5,546
Total loans	$	53,165	$	78	$	1,224	$	—	$	54,467

Impaired loans as of December 31, 2009 were as follows:

	Predecessor Company
	2009
Year end loans with no specifically allocated allowance for loan losses	$	60,629
Year end loans with allocated allowance for loan losses		87,823
Total	$	148,452
Amount of the allowance for loan losses allocated to impaired loans	$	9,040

Non-performing loans include nonaccrual loans and accruing loans contractually past due 90 days or more. Nonaccrual loans are comprised principally of loans 90 days past due as well as certain loans, which are current but where serious doubt exists as to the ability of the borrower to comply with the repayment terms. Generally, interest previously accrued and not yet paid on nonaccrual loans is reversed during the period in which the loan is placed in a nonaccrual status. Non-performing loans are as follows:

	Predecessor Company
	2009
Nonaccrual loans	$	72,833
Loans past due over 90 days still on accrual or accreting		—

F-154

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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.

Note 6—Premises and Equipment

A summary of the cost and accumulated depreciation of premises and equipment follows:

	Successor Company			Predecessor Company
December 31,	2010			2009			Estimated Useful Life
Land	$	13,891		$	12,955
Buildings and leasehold improvements		25,133			29,376			3 to 40 years
Furniture, fixtures and equipment		4,597			16,044			1 to 40 years
Construction in progress		259			1,824
		43,880			60,199
Less accumulated depreciation		(727	)		(19,377	)
Premises and equipment, net	$	43,153		$	40,822

Depreciation expense for the Successor Company in the three months ended December 31, 2010 was $727, and depreciation expense for the Predecessor Company in the nine months ended September 30, 2010 and for the years ended December 31, 2009 and 2008, was $2,363, $3,085, and $3,355, respectively.

The Bank is obligated under operating leases for office and banking premises which expire in periods varying from one to twenty years. Future minimum lease payments, before considering renewal options that generally are present, are as follows at December 31, 2010:

Years Ending December 31,	Successor Company
2011	$	792
2012		460
2013		260
2014		257
2015		260
Thereafter		1,544
	$	3,573

Rental expense for the Successor Company in the three months ended December 31, 2010 was $250, and rental expense for the Predecessor Company in the nine months ended September 30, 2010 and for the years ended December 31, 2009 and 2008, was $821, $1,615, and $1,422, respectively.

F-155

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Note 7—Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the Successor Company three months ended December 31, 2010, and for the Predecessor Company nine months ended September 30, 2010 and years ended December 31, 2009 and 2008 are as follows:

	Successor Company		Predecessor Company
	Three Months Ended December 31, 2010		Nine Months Ended September 30, 2010			Year Ended December 31, 2009			Year Ended December 31, 2008
Balance at beginning of period	$	29,999	$	622		$	5,160		$	4,686
Goodwill associated with the acquisition of Naples Capital Advisors, Inc.		—		296			148			474
Goodwill associated with the acquisition of Riverside Bank of the Gulf Coast		—		—			1,201			—
Goodwill impairment		—		—			(5,887	)		—
Balance at end of period	$	29,999		918			622			5,160
Less: Elimination of Predecessor Company goodwill				(918	)
Successor company balance before application of acquisition method of accounting			$	—

Successor Company

NAFH acquired the voting securities of the Company immediately following its Investment and followed the acquisition method of accounting and applied “acquisition accounting”. 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 is the goodwill. This acquisition was nontaxable and, as a result, there is no tax basis in the goodwill. Accordingly, none of the goodwill associated with the acquisition is deductible for tax purposes.

Predecessor Company

The Company performed a review of goodwill for potential impairment as of December 31, 2009. Based on this review, which included valuing the Company considering a variety of methodologies including using the Company’s stock price as of year end 2009, transaction multiples of recent comparable transactions and the expected present value of future cash flows, it was determined that impairment existed as of December 31, 2009. Accordingly, the Company wrote off $5,887 of goodwill relating primarily to the acquisitions of The Bank of Venice and Riverside.

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. We determine the fair value of the reporting unit and compare it to its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, we are required to perform a second step to the impairment test.

Our annual impairment analysis as of December 31, 2009, indicated that the Step 2 analysis was necessary. Step 2 of the goodwill impairment test is performed to measure the impairment loss. Step 2 requires that the

F-156

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

implied fair value of the reporting unit goodwill be compared to the carrying amount of that goodwill. As the carrying amount of the reporting unit goodwill exceeded the implied fair value of that goodwill, an impairment loss was required to be recognized in an amount equal to that excess.

Intangible assets consist of the following:

	Successor Company						Predecessor Company
	December 31, 2010						December 31, 2009
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Core deposit intangible	$	7,500	$	187	$	7,313	$	8,733	$	2,826	$	5,907
Customer relationship intangible		3,500		88		3,412		1,095		382		713
Trade Name and Other		770		89		681		57		10		47
Total	$	11,770	$	364	$	11,406	$	9,885	$	3,218	$	6,667

As disclosed above, the intangible assets identified as part of the valuation of the NAFH Investment were Core Deposit Intangibles, Customer Relationship Intangibles and Trade Names. All of the identified intangible assets are amortized as a non-interest expense over their estimated lives, except the TIB Bank and Naples Capital Advisors Trade Names.

Aggregate intangible asset amortization expense was $364 for the three months ended December 31, 2010 (Successor Company) and $1,168, $1,431, and $653 for the nine months ended September 30, 2010, and year ended 2009, and 2008 (Predecessor Company), respectively.

Estimated amortization expense for each of the next five years is as follows:

Years Ending December 31,	Successor Company
2011	$	1,455
2012		1,366
2013		1,100
2014		1,100
2015		1,100

F-157

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Note 8—Other Real Estate Owned

Activity in other real estate owned is as follows:

	Successor Company			Predecessor Company
	Three Months Ended December 31, 2010			Nine Months Ended September 30, 2010			Year Ended December 31, 2009
Balance beginning of period	$	29,531		$	21,352		$	4,323
Real estate acquired		1,992			35,007			27,547
Changes in valuation reserve		—			(19,171	)		(1,980	)
Property sold		(5,932	)		(6,794	)		(5,934	)
Transfer to facilities used in operations		—			—			(2,941	)
Other		82			137			337
Predecessor Company Balance, end of period				$	30,531		$	21,352
Successor Company acquisition accounting adjustment					(1,000	)
Balance end of period	$	25,673		$	29,531

Note 9—Time Deposits

Time deposits of $100 or more were $359,869 and $288,021 at December 31, 2010 (Successor Company) and 2009 (Predecessor Company), respectively.

At December 31, 2010, the scheduled maturities of time deposits are as follows:

Years Ending December 31,	Successor Company
2011	$	510,862
2012		140,347
2013		44,069
2014		2,502
2015		21,226
	$	719,006

Note 10—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, the Bank had an unsecured overnight federal funds purchased with a maximum accommodation of $30,000 from a correspondent bank. Additionally, the Bank has agreements with various financial institutions under which securities can be sold under agreements to repurchase. TIB Bank also has securities sold under agreements to repurchase with commercial account holders whereby TIB Bank sweeps the customer’s accounts on a daily basis and pays interest on these amounts. These agreements are collateralized by investment securities chosen by TIB Bank.

F-158

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

The 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, collateral availability under our agreement with the Federal Reserve Bank of Atlanta (“FRB”) provided for up to approximately $39,653 of borrowing availability from the FRB discount window.

The Bank invests in Federal Home Loan Bank stock for the purpose of establishing credit lines with the Federal Home Loan Bank. The credit availability to the Bank is based on a percentage of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. In February 2011, the Federal Home Loan Bank notified the Bank that the credit availability has been re-established with no restriction to term of the borrowing. At December 31, 2010 (Successor Company), in addition to $25,150 in letters of credit used in lieu of pledging securities to the State of Florida, there was $125,000 in advances outstanding with a carrying value of $131,116. At December 31, 2009 (Predecessor Company), the amount of outstanding advances was $125,000. Advances outstanding at December 31, 2010 consist of:

Successor Company
Carrying Amount		Contractual Outstanding Amount		Issuance Date		Maturity Date		Repricing Frequency		Contractual Rate at December 31, 2010
$	53,502	$	50,000		April 2008		April 2013(a)		Fixed		3.80	%
	51,790		50,000		December 2006		December 2011(a)		Fixed		4.18	%
	10,586		10,000		September 2007		September 2012(a)		Fixed		4.05	%
	10,009		10,000		March 2010		March 2011		Fixed		0.61	%
	5,229		5,000		March 2007		March 2012(a)		Fixed		4.29	%
$	131,116	$	125,000

(a) These advances have quarterly conversion dates beginning six months to one year from date of issuance. 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.

The Bank’s collateral with the FHLB consists of a blanket floating lien pledge of the Bank’s residential 1-4 family mortgage and commercial real estate secured loans. The amount of eligible collateral at December 31, 2010 was $187,722.

F-159

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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:

	Successor Company			Predecessor Company
	Three Months Ended December 31, 2010			Nine Months Ended September 30, 2010			Year Ended December 31, 2009
Federal funds purchased:
Balance:
Average daily outstanding	$	—		$	—		$	68
Year-end outstanding		—			—			—
Maximum month-end outstanding		—			—			—
Rate:
Weighted average		N/A			N/A			0.7	%
Weighted average interest rate		N/A			N/A			N/A
Securities sold under agreements to repurchase:
Balance:
Average daily outstanding	$	42,834		$	64,706		$	71,073
Year-end outstanding		45,430			43,245			78,893
Maximum month-end outstanding		45,430			73,476			83,610
Rate:
Weighted average		0.1	%		0.1	%		0.1	%
Weighted average interest rate		0.1	%		0.1	%		0.1	%
Treasury, tax and loan note option:
Balance:
Average daily outstanding	$	928		$	1,184		$	1,001
Year-end outstanding		1,728			584			1,582
Maximum month-end outstanding		1,728			1,749			1,760
Rate:
Weighted average		0.0	%		0.0	%		0.0	%
Weighted average interest rate		0.0	%		0.0	%		0.0	%
Advances from the Federal Home Loan Bank-Short Term:
Balance:
Average daily outstanding	$	—		$	—		$	14,842
Year-end outstanding		—			—			—
Maximum month-end outstanding		—			—			76,650
Rate:
Weighted average		—			—			0.8	%
Weighted average interest rate		N/A			N/A			N/A
Advances from the Federal Home Loan Bank-Long Term:
Balance:
Average daily outstanding	$	131,740		$	125,000		$	125,599
Year-end outstanding		131,116			125,000			125,000
Maximum month-end outstanding		131,757			125,000			126,250
Rate:
Weighted average		0.7	%		3.8	%		4.0	%
Weighted average interest rate		0.7	%		3.8	%		3.9	%

F-160

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Note 11—Long-Term Borrowings

Securities Sold Under Agreements to Repurchase

During 2007, the Company entered into agreements with another financial institution for the sale of certain securities to be repurchased at a future date. The interest rates on these repurchase agreements are fixed for the remaining term of the agreement. The agreement in the amount of $20,000 and an interest rate of 4.18% matured in September 2010 and the agreement in the amount of $10,000 with an interest rate of 3.46% matured in December 2010. No amounts were outstanding at December 31, 2010.

Subordinated Debentures

TIBFL Statutory Trust I, TIBFL Statutory Trust II and TIBFL Statutory Trust III were formed in conjunction with the issuance of trust preferred securities as further discussed below. 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 subordinate debentures are presented as a liability.

On September 7, 2000, the Company participated in a pooled offering of trust preferred securities. The Company formed TIBFL Statutory Trust I (the “Trust”) a wholly-owned statutory trust subsidiary for the purpose of issuing the trust preferred securities. The Trust used the proceeds from the issuance of $8,000 in trust preferred securities to acquire junior subordinated deferrable interest debentures of the Company. The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend at a fixed rate equal to the 10.6% 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 the Company or the Trust, at their respective option after ten years, and at varying premiums and sooner in specific events, subject to prior approval by the Federal Reserve Board, if then required. At December 31, 2010, the carrying value was $8,865.

On July 31, 2001, the Company participated in a pooled offering of trust preferred securities. The Company formed TIBFL Statutory Trust II (the “Trust II”) a wholly-owned statutory trust subsidiary for the purpose of issuing the trust preferred securities. The Trust II used the proceeds from the issuance of $5,000 in trust preferred securities to acquire junior subordinated deferrable interest debentures of the Company. The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the debt securities (three month LIBOR plus 358 basis points). The initial rate in effect at the time of issuance was 7.29% and is subject to change quarterly. The rate in effect at December 31, 2010 was 3.87%. The debt securities and the trust preferred securities each have 30-year lives. The trust preferred securities and the debt securities are callable by the Company or the Trust, at their respective option after five years, and at varying premiums and sooner in specific events, subject to prior approval by the Federal Reserve Board, if then required. At December 31, 2010, the carrying value was $3,674.

On June 23, 2006, the Company issued $20,000 of additional trust preferred securities through a private placement. The Company formed TIBFL Statutory Trust III (the “Trust III”), a wholly-owned statutory trust subsidiary for the purpose of issuing the trust preferred securities. The Trust III used the proceeds from the issuance of $20,000 in trust preferred securities to acquire junior subordinated deferrable interest debentures of the Company. The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the debt securities (three month LIBOR plus 155 basis points). The rate in effect at December 31, 2010 was 1.84%. The debt securities and the trust preferred securities each have 30-year lives. The trust preferred securities and the debt securities are callable by the Company or the Trust, at their respective option at par after five years, and sooner, at a 5% premium, if specific events occur, subject to prior approval by the Federal Reserve Board, if then required. At December 31, 2010, the carrying value was $10,348.

F-161

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

The Company received a request from the Federal Reserve Bank of Atlanta (FRB) for the Company’s Board of Directors to adopt a resolution that it will not make any payments or distributions on the outstanding trust preferred securities without the prior written approval of the Reserve Bank. The Board adopted this resolution on October 5, 2009. On September 22, 2010 the FRB and the Company entered into a written agreement where the Company agrees, among other things, that it will not make any payments on the outstanding trust preferred securities or declare or pay any dividends without the prior written approval of the FRB. The Company has notified the trustees of its $20,000 trust preferred securities due July 7, 2036 and its $5,000 trust preferred securities due July 31, 2031 of its election to defer interest payments on the trust preferred securities beginning with the payments due in October 2009. The Company also notified the trustees of its $8,000 trust preferred securities due September 7, 2030 of its election to defer interest payments on the trust preferred securities beginning with the payments due in March 2010. Deferral of the trust preferred securities is allowed for up to 60 months without being considered an event of default.

The Company has treated the trust preferred securities as Tier 1 capital up to the maximum amount allowed, and the remainder as Tier 2 capital for federal regulatory purposes (see Note 15).

At December 31, 2010, the maturities of long-term borrowings were as follows:

Successor Company	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

Note 12—Income Taxes

Income tax expense (benefit) from continuing operations was as follows:

	Successor Company			Predecessor Company
	Three Months Ended December 31, 2010			Nine Months Ended September 30, 2010			Year Ended December 31, 2009			Year Ended December 31, 2008
Current income tax benefit:
Federal	$	(287	)	$	—		$	(188	)	$	(7,515	)
State		(53	)		—			(32	)		(572	)
		(340	)		—			(220	)		(8,087	)
Deferred tax provision:
Federal		504			(16,877	)		(14,292	)		(3,395	)
State		93			(2,893	)		(2,429	)		(1,371	)
		597			(19,770	)		(16,721	)		(4,766	)
Valuation allowance		—			19,770			30,392			—
Total	$	257		$	—		$	13,451		$	(12,853	)

F-162

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

A reconciliation of income tax computed at applicable Federal statutory income tax rates to total income taxes reported is as follows:

	Successor Company			Predecessor Company
	Three Months Ended December 31, 2010			Nine Months Ended September 30, 2010			Year Ended December 31, 2009			Year Ended December 31, 2008
Pretax income from continuing operations	$	817		$	(52,805	)	$	(48,097	)	$	(33,783	)
Income taxes computed at Federal statutory tax rate		278			(17,954	)		(16,353	)		(11,486	)
Effect of:
Tax-exempt income, net		(55	)		(238	)		(685	)		(253	)
State income taxes, net		26			(1,909	)		(1,624	)		(1,282	)
Non-deductible goodwill		—			—			1,557			—
Stock based compensation expense, net		—			205			96			90
Other, net		8			126			68			78
Change in valuation allowance					19,770			30,392			—
Total income tax expense (benefit)	$	257		$	—		$	13,451		$	(12,853	)

The details of the net deferred tax asset as of December 31, 2010 and 2009 are as follows:

	Successor Company			Predecessor Company
	2010			2009
Allowance for loan losses	$	130		$	10,983
Purchase accounting adjustment		13,752			—
Recognized impairment losses on available for sale securities		—			560
Net operating loss and AMT carryforward		5,167			18,315
Recognized impairment of other real estate owned		1,632			299
Acquisition related intangibles		—			1,043
Deferred compensation		—			906
Net unrealized losses on securities available for sale		1,392			1,577
Other		89			706
Total gross deferred tax assets		22,162			34,389
Accumulated depreciation		—			(1,187	)
Deferred loan costs		(452	)		(905	)
Acquisition related intangibles		(1,676	)		(639	)
Other		(61	)		(63	)
Total gross deferred tax liabilities		(2,189	)		(2,794	)
Net temporary differences		19,973			31,595
Valuation allowance		—			(31,595	)
Net deferred tax asset	$	19,973		$	—

F-163

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Successor Company

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, 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 as temporary differences would become recognizable for tax purposes after consideration of the limitation on the utilization of net operating losses and net unrealized built-in losses (NUBIL).

As a result of the Investment made by NAFH on September 30, 2010, the Company had undergone a “change in ownership” as that term is defined in the Internal Revenue Code. This change in ownership resulted in a significant limitation of the amount of net operating losses and net NUBIL that can be utilized by the Company. NUBIL represents the excess of the tax basis of the Company’s assets over their fair market value. As a consequence, no deferred taxes have been recognized for NUBILs that are estimated not to be realizable as a result of the limitation on the utilization of NUBILs.

At December 31, 2010, the Company had recognizable Federal and state net operating loss carryforwards of $13,737 which expire in 2030 if unused. Due to the change in ownership that occurred from NAFH’s Investment with the Company, the utilization of net operating losses generated prior to October 1, 2010 will be subject to an annual limitation estimated to be $723. As a result of this annual limitation, the Company estimates that only $13,918 of the total Federal and state net operating loss carryfowards will be utilizable. As a consequence, no deferred taxes have been recognized for net operating losses that are not expected to be utilized due to the change in ownership limitation.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the State of Florida. The Company is no longer subject to examination by taxing authorities for years before 2006.

There were no unrecognized tax benefits at December 31, 2010 and the Company does not expect the total of unrecognized tax benefits to significantly increase in the next twelve months.

Predecessor Company

In assessing the need for a valuation allowance at December 31, 2009, management considered various factors including the significant cumulative losses incurred by the Company over the previous three years coupled with the expectation that the future realization of deferred taxes would be limited as a result of a planned capital offering. These factors represent the most significant negative evidence that management considered in concluding that a full valuation allowance was necessary at December 31, 2009. As of December 31, 2008, 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, concluded that no valuation allowance was necessary at such time.

Note 13—Employee Benefit Plans

The Company 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

F-164

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Successor Company contributed $83 for the three months ended December 31, 2010 to the plan and the Predecessor Company contributed $256, $334 and $327 to the plan for the nine months ended September 30, 2010 and years ended December 31, 2009 and December 31, 2008, respectively. As of December 31, 2010, the Plan contained approximately 4 shares of the Company’s common stock.

In 2001, TIB Bank entered into salary continuation agreements with three of its executive officers. Two additional TIB Bank executive officers entered into salary continuation agreements in 2003, another in 2004 and two additional TIB Bank executives entered into salary continuation agreements in 2008. In 2007, an additional two pre-existing salary continuation agreements with The Bank of Venice’s executive officers were assumed as part of the acquisition. The plans are nonqualified deferred compensation arrangements that are designed to provide supplemental retirement income benefits to participants. The Predecessor Company expensed $236, $227, and $351 for the accrual of future salary continuation benefits in the nine months ended September 30, 2010, and year ended December 31, 2009 and 2008, respectively. The Bank has purchased single premium life insurance policies on several of these individuals. Cash value income (net of related insurance premium expense) totaled $197, $328, and $236 in the nine months ended 2010, and year ended December 31, 2009 and 2008 (Predecessor Company), respectively and $66 for the three months ended December 31, 2010 (Successor Company). In addition, a $1,186 gain was recognized on the policy of a deceased former employee by the Predecessor Company in 2009. Other assets included $6,610 and $6,347 in surrender value and other liabilities included salary continuation benefits payable of $0 and $1,070 at December 31, 2010 (Successor Company) and 2009 (Predecessor Company), respectively. Three of these executive officers terminated employment in 2008 and two terminated employment in 2009. In 2009 a total of $2,229 of salary continuation benefits were paid to terminated executives by the Predecessor Company in accordance with their agreements. 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 resulting in a total payout of $1,305 by the Successor Company.

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. TIB Bank expensed $29, $42, and $214 for the accrual of current and future retirement benefits for the nine months ended September 30, 2010, and year ended December 31, 2009 and 2008 (Predecessor Company), respectively, which included $0, $0, and $112 in the nine months ended 2010, and year ended December 31, 2009 and 2008 related to the annual director retainer fees and monthly meeting fees that certain directors elected to defer. The Successor Company expensed $9 in the three months ended December 31, 2010 for the accrual of the retirement benefits. TIB Bank has purchased single premium split dollar life insurance policies on these individuals. Cash value income (net of related insurance premium expense) totaled $38 for the three months ended December 31, 2010 (Successor Company) and $120, $170, and $162 in the nine months ended September 30, 2010, and year ended December 31, 2009 and 2008 (Predecessor Company), respectively. In addition, a $134 gain was recognized on the policy of a deceased former director by the Predecessor Company in the nine months ended September 30, 2010. Other assets included $4,336 and $4,621 in surrender value in other assets and other liabilities included retirement benefits payable of $430 and $653 at December 31, 2010 (Successor Company) and 2009 (Predecessor Company), respectively. In connection with changes made to bring the plan agreements into compliance with section 409A of the Internal Revenue Code the four current directors participating in the plan each elected to receive a lump sum distribution from the Predecessor Company in 2009 of the amount vested, accrued and earned through December 31, 2008. 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 Successor Company.

F-165

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Note 14—Related Party Transactions

The Bank had loans outstanding to certain of the Company’s executive officers, directors, and their related business interests as follows:

Successor Company
Beginning balance, September 30, 2010	$	180
New loans		12
Repayments		(10	)
Ending Balance, December 31, 2010	$	182
Successor Company
Beginning balance, January 1, 2010	$	266
New loans		98
Repayments		(56	)
Ending Balance, September 30, 2010	$	308

Unfunded loan commitments to Successor Company individuals and their related business interests totaled $12 at December 31, 2010. Deposits from these individuals and their related interests were $2,727.

Note 15—Regulatory Capital Requirements

The Company (on a consolidated basis) and the Bank 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 Bank 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.

Capital Adequacy and Ratios

To be considered well capitalized and adequately capitalized (as defined) under the regulatory framework for prompt corrective action, the Bank must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based ratios. At December 31, 2010 the Company and the Bank maintained capital ratios exceeding the requirement to be considered adequately capitalized. These minimum amounts and ratios along with the actual amounts and ratios for the Company and the Bank at of December 31, 2010 and 2009 are presented in the following tables.

December 31, 2010 (Successor Company)	Well Capitalized Requirement					Adequately Capitalized Requirement					Actual
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier 1 Capital (to Average Assets)
Consolidated		N/A		N/A		$	³67,746	³	4.0	%	$	139,152		8.2	%
TIB Bank	$	³  84,269	³	5.0	%		³67,415	³	4.0	%		135,783		8.1	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		N/A		N/A		$	³41,733	³	4.0	%	$	139,152		13.3	%
TIB Bank	$	³  62,599	³	6.0	%		³41,733	³	4.0	%		135,783		13.0	%
Total Capital (to Risk Weighted Assets)
Consolidated		N/A		N/A		$	³83,465	³	8.0	%	$	139,583		13.4	%
TIB Bank	$	³104,332	³	10.0	%		³83,465	³	8.0	%		136,214		13.1	%

F-166

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

December 31, 2009 (Predecessor Company)	Well Capitalized Requirement					Adequately Capitalized Requirement					Actual
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier 1 Capital (to Average Assets)
Consolidated		N/A		N/A		$	³68,316	³	4.0	%	$	69,450		4.1	%
TIB Bank	$	³  85,321	³	5.0	%		³68,256	³	4.0	%		82,696		4.8	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		N/A		N/A		$	³48,347	³	4.0	%	$	69,450		5.7	%
TIB Bank	$	³  72,504	³	6.0	%		³48,347	³	4.0	%		82,696		6.8	%
Total Capital (to Risk Weighted Assets)
Consolidated		N/A		N/A		$	³96,964	³	8.0	%	$	98,362		8.1	%
TIB Bank	$	³120,840	³	10.0	%		³46,672	³	8.0	%		97,975		8.1	%

Management believes, as of December 31, 2010, that the Company and the Bank meet all capital requirements to which they are subject. Tier 1 Capital for the Company includes the trust preferred securities that were issued in September 2000, July 2001 and June 2006 to the extent allowable.

If a bank is classified as adequately capitalized, the bank is subject to certain restrictions. One of the restrictions is that the bank may not accept, renew or roll over any brokered deposits (including CDARs deposits) without being granted a waiver of the prohibition by the FDIC. As of December 31, 2010, we had $18,457 of brokered deposits consisting of $7,656 of reciprocal CDARs deposits and $10,801 of traditional brokered and one-way CDARs deposits representing approximately 1.4% of our total deposits. $5,613 of CDARs deposits and $10,032 of traditional brokered deposits mature within the next twelve months. An inability to roll over or raise funds through CDARs deposits or brokered deposits could have a material adverse impact on our liquidity. Additional restrictions include limitations on deposit pricing, the preclusion from paying “golden parachute” severance payments and the requirement to notify the bank regulatory agencies of certain significant events.

Subsidiary Dividend Limitations

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. Based on the losses incurred for the prior two years, declaration of dividends by TIB Bank to the Company, during 2010, would have required regulatory approval.

On July 2, 2009, the Bank entered into a Memorandum of Understanding, which is an informal agreement, with bank regulatory agencies that it would move in good faith to increase its Tier 1 leverage capital ratio to not less than 8% and its total risk-based capital ratio to not less than 12% by December 31, 2009 and maintain these higher ratios for as long as this agreement is in effect. At December 31, 2009, these elevated capital ratios were not met. On July 2, 2010, the Bank entered into a Consent Order, which is a formal agreement, with the bank regulatory agencies under which, among other things, the Bank has agreed to maintain a Tier 1 capital ratio of at least 8% of total assets and a total risk based capital ratio of at least 12% within 90 days. At December 31, 2010 the Bank achieved a Tier 1 capital ratio of 8.1% and a total risk-based capital ratio of 13.1% which meet the ratios required in the Consent Order. The Consent Order also governs certain aspects of the Bank’s operations including a requirement that it reduce the balance of assets classified substandard and doubtful by at least 70% over a two-year period, and not undertake asset growth of 5% or more per year without prior approval from the regulatory agencies. The Consent Order supersedes the Memorandum of Understanding. On September 22, 2010 the Federal Reserve Bank of Atlanta (FRB) and the Company entered into a written agreement (the “Written Agreement”) where the Company agrees, among other things, that it will not make any payments on the outstanding trust preferred securities or declare or pay any dividends without the prior written approval of the FRB.

F-167

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Note 16—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, restricted shares, stock appreciation rights, performance shares or performance units. This is its 2004 Equity Incentive Plan (the “2004 Plan”), which was approved by the Company’s shareholders at the May 25, 2004 annual meeting. Pursuant to the merger agreement, upon the April 30, 2007 closing of its acquisition of The Bank of Venice, the Company granted 1 stock option in exchange for the options outstanding for the purchase of shares of common stock of The Bank of Venice at such date. The options were fully vested at the grant date and ranged in price from $863.92 to $992.68 per share as determined by the conversion ratio specified in the merger agreement. Previously, the Company 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. Subject to the provisions of the 2004 Plan, the maximum number of shares of common stock of the Company that may be optioned or awarded through the 2014 expiration of the plan is 8 shares, no more than 3 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.

The following table summarizes the components and classification of stock-based compensation expense for the three months ended December 31, 2010 (Successor Company), and for the nine months ended September 31, 2010 and the years ended December 31, 2009 and 2008 (Predecessor Company).

	Successor Company		Predecessor Company
	Three Months Ended December 31, 2010		Nine Months Ended September 30, 2010		Year Ended December 31, 2009		Year Ended December 31, 2008
Stock options	$	—	$	625	$	296	$	280
Restricted stock		—		344		394		457
Total stock-based compensation expense	$	—	$	969	$	690	$	737
Salaries and employee benefits	$	—	$	768	$	381	$	436
Other expense		—		201		309		301
Total stock-based compensation expense	$	—	$	969	$	690	$	737

The tax benefit related to stock-based compensation expense arising from restricted stock awards and non-qualified stock options were approximately $177 for the year ended December 31, 2008. No tax benefit was recorded for the nine months ended September 30, 2010 and year ended December 31, 2009 due to the recognition of a full valuation allowance against deferred income tax assets as discussed in greater detail in Note 12 above.

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

F-168

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

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 for the years ended December 31,

	Predecessor Company
	2009			2008
Dividend yield		0.00	%		2.31	%
Risk-free interest rate		3.06	%		2.99	%
Expected option life		6.5 years			6.4 years
Volatility		80	%		26	%
Weighted average grant-date fair value of options granted	$	116.34		$	172.04

• The dividend yield was estimated using historical dividends paid and market value information for the Company’s stock. 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 historical volatility for periods approximating the expected option life. An increase in the volatility will increase stock compensation expense.

No stock options were granted for the Successor Company three months ended December 31, 2010 or the Predecessor Company nine months ended September 30, 2010.

ASC 718 requires the recognition of stock-based compensation for the number of awards that are ultimately expected to vest. During 2008, 2009 and 2010, stock based compensation expense was recorded 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 December 31, 2010, there was no unrecognized compensation expense associated with stock options and restricted stock due to the accelerated vesting of all stock options and restricted stock and the recognition of associated compensation expense upon the closing of the investment by NAFH on September 30, 2010.

Stock Options

Under the 2004 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 vest over varying service periods which range from vesting immediately to up to nine years.

F-169

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

A summary of the stock option activity in the plans is as follows:

Predecessor Company

	Shares	Weighted Average Exercise Price
Balance, January 1, 2008	7	$	895.12
Granted	1		743.37
Exercised	(0)		626.56
Expired or forfeited	(1)		787.97
Balance, December 31, 2008	7	$	894.82
Granted	2		162.18
Exercised	—		—
Expired or forfeited	(1)		947.37
Balance, December 31, 2009	8	$	680.42
Granted	—		—
Exercised	—		—
Expired or forfeited	(0)		666.32
Balance, September 30, 2010	8	$	681.31

Successor Company

	Shares	Weighted Average Exercise Price
Balance, September 30, 2008	8	$	681.31
Granted	—		—
Exercised	—		—
Expired or forfeited	(1)		497.55
Balance, December 31, 2010	7	$	688.80

Options exercisable at:	Successor Company			Predecessor Company
	December 31, 2010			September 30, 2010			December 31, 2009
	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
	7	$	688.80	8	$	681.31	4	$	887.52

The weighted average remaining terms for outstanding stock options and for exercisable stock options were 4.9 years and 4.9 years at December 31, 2010, respectively. The aggregate intrinsic value at December 31, 2010 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.

F-170

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Options outstanding at December 31, 2010 were as follows:

Successor Company	Outstanding Options						Options Exercisable
Range of Exercise Prices	Number		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number		Weighted Average Exercise Price
$   158.42 – $   584.28		3		5.76	$	296.96		3	$	296.96
584.29 –   1,072.46		3		4.52		836.15		3		836.15
1,072.47 –   1,489.52		1		3.77		1,293.98		1		1,293.98
$   158.42 – $1,489.52		7		4.91	$	688.80		7	$	688.80

Successor Company

Proceeds received from the exercise of stock options were $0 during the three months ended December 31, 2010. The intrinsic value related to the exercise of stock options was $0 during the three months ended December 31, 2010. No tax benefit was recorded for the three months ended December 31, 2010 as there were no exercises of non-qualified stock options or disqualifying dispositions.

Predecessor Company

Proceeds received from the exercise of stock options were $0, $0 and $98 during the nine months ended September 30, 2010 and the years ended December 31, 2009 and 2008, respectively. The intrinsic value related to the exercise of stock options was $0, $0 and $13, the nine months ended September 30, 2010 and the years ended December 31, 2009 and 2008, respectively. The intrinsic value related to exercises of non-qualified stock options and disqualifying dispositions of incentive stock options resulted in the realization of tax benefits of $51 during the year ended December 31, 2008. No tax benefit was recorded for the nine months ended September 30, 2010 and the year ended December 31, 2009 as there were no exercises of non-qualified stock options or disqualifying dispositions.

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 generally on a straight-line basis and ranges from one to five years. The value of the restricted stock, estimated to be equal to the closing market price on the date of grant, is being amortized on a straight-line basis over the respective service periods. The fair market value of restricted stock awards that vested was $27, $101 and $185 during the nine months ended September 30, 2010, the years ended December 31, 2009 and 2008, respectively. Tax benefits related to the vesting of restricted shares of $33 was realized during the year ended December 31, 2008. No tax benefit was recorded for the year ended December 31, 2009 due to the recognition of a full valuation allowance against deferred income tax assets as discussed in greater detail in Note 12 above.

F-171

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

A summary of the restricted stock activity in the plan is as follows:

Predecessor Company

	Shares			Weighted Average Grant-Date Fair Value
Balance, January 1, 2008		1		$	1,358.01
Granted		0			690.24
Vested		(0	)		1,364.61
Expired or forfeited		(0	)		1,391.88
Balance, December 31, 2008		1		$	1,084.83
Granted		—			—
Vested		(0	)		1,140.67
Expired or forfeited		(0	)		725.88
Balance, December 31, 2009		1		$	1,089.43
Granted		—			—
Vested		(1	)		1,089.43
Expired or forfeited		—			—
Balance, September 30, 2010		—		$	—

Successor Company

	Shares	Weighted Average Grant-Date Fair Value
Balance, January 1, 2008	—	$	—
Granted	—		—
Vested	—		—
Expired or forfeited	—		—
Balance, December 31, 2010	—	$	—

Note 17—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:

	Successor Company				Predecessor Company
	2010				2009
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	7,149	$	4,549	$	13,496	$	1,350
Unfunded commitments under lines of credit		4,150		44,857		3,890		52,887

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.

F-172

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

As of December 31, 2010 (Successor Company) and 2009 (Predecessor Company), letters of credit totaled $1,638 and $1,896, respectively.

Note 18—Supplemental Financial Data

Components of other expense in excess of 1 percent of total interest and non-interest income are as follows:

	Successor Company			Predecessor Company
	Three Months Ended December 31, 2010			Nine Months Ended September 30, 2010		Year Ended December 31, 2009			Year Ended December 31, 2008
Foreclosed asset related expense	$	536		$	21,687	$	3,149		$	1,694
Goodwill impairment		—			—		5,887			—
FDIC & state assessments		1,184			3,515		3,962			1,153
Legal and professional fees		856			2,866		3,270			2,558
Computer services		849			2,022		2,708			2,093
Capital raise expense		—			2,067		—			—
Amortization of intangibles		364			1,168		1,431			653
Postage, courier and armored car		260			8,223		1,084			887
Insurance non-building		447			1,171		870			287
Marketing and community relations		258			860		1,128			1,246
Collection expense		(7	)		40		353			1,341
Operational charge-offs		48			69		155			1,528
Net (gain) loss on disposition of repossessed assets		39			9		(244	)		1,387

Note 19—Fair Values of Financial Instruments

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 securities available for sale

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 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) for collateralized debt obligations, custom discounted cash flow modeling (Level 3 inputs).

As of December 31, 2010, the Company owned three collateralized debt obligations where the underlying collateral is comprised primarily of corporate debt obligations of homebuilders, REITs, real estate companies and

F-173

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

commercial mortgage backed securities. The company also owned a collateralized debt security where the underlying collateral is comprised primarily of trust preferred securities of banks and insurance companies. 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. Cash flows utilized in the modeling of these securities were based upon actual default history of the underlying issuers and issuer specific assumptions of estimated future defaults of the underlying issuers.

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:

December 31, 2010 (Successor Company)			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	$	40,699	$	—	$	40,699	$	—
States and political subdivisions—tax exempt		3,059		—		3,059		—
States and political subdivisions—taxable		2,157		—		2,157		—
Marketable equity securities		74		—		74		—
Mortgage-backed securities—residential		369,203		—		369,203		—
Corporate bonds		2,105		—		2,105		—
Collateralized debt obligations		795		—		—		795
Available for sale securities	$	418,092	$	—	$	417,297	$	795

F-174

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

December 31, 2010 (Predecessor Company)			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	$	29,172	$	—	$	29,172	$	—
States and political subdivisions—tax exempt		8,061		—		8,061		—
States and political subdivisions—taxable		2,212		—		2,212		—
Marketable equity securities		8		—		8		—
Mortgage-backed securities—residential		208,115		—		208,115		—
Corporate bonds		2,012		—		2,012		—
Collateralized debt obligations		759		—		—		759
Available for sale securities	$	250,339	$	—	$	249,580	$	759

The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended December 31, 2010 (Successor Company), for the nine months ended September 30, 2010 and year ended December 31, 2009 (Predecessor Company) and still held at the end of each respective period.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Collateralized Debt Obligations
	Successor Company			Predecessor Company
	Three Months Ended December 31, 2010			Nine Months Ended September 30, 2010		Year Ended December 31, 2009
Balance, beginning of period	$	808		$	759	$	4,275
Included in earnings—other than temporary impairment		—			—		(763	)
Included in other comprehensive income		(13	)		49		(2,753	)
Transfer in to Level 3		—			—		—
Balance, end of period	$	795		$	808	$	759

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

Successor Company			Fair Value Measurements 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:
Other real estate owned	$	25,673	$	—	$	—	$	25,673
Other repossessed assets		104		—		104		—

F-175

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Predecessor Company			Fair Value Measurements Using
December 31, 2009			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans with specific allocations of the allowance for loan losses	$	52,122	$	—	$	—	$	52,122
Other real estate owned		21,352		—		—		21,352
Other repossessed assets		326		—		326		—

During the nine months ended September 30, 2010 prior to the application of adjustments related to the application of the acquisition method of accounting, $18,581 of the allowance for loan losses was specifically allocated to collateral dependent impaired loans. The amounts of the specific allocations for impairment were considered in the overall determination of the provision for loan losses. As a result of sales of foreclosed properties, receipt of updated appraisals, reduced listing prices or entering into contracts to sell these properties, valuation adjustments of $19,171 were recognized in our statement of operations during the nine months ended September 30, 2010. Other repossessed assets are primarily comprised of repossessed automobiles and are measured at fair value as of the date of repossession. As a result of the disposition of repossessed vehicles, losses of $39 and $9 were recognized in our statements of operations during the Successor Company three months ended December 31, 2010 and the Predecessor Company nine months ended September 30, 2010, respectively. For the Predecessor Company, collateral dependent impaired loans, which are measured for impairment using the fair value of the collateral, had a carrying amount of $60,413, with a valuation allowance of $8,291 as of December 31, 2009. During the year ended December 31, 2009, $26,085 of the allowance for loan losses was specifically allocated to collateral dependent impaired loans. The amounts of the specific allocations for impairment are considered in the overall determination of the reserve and provision for loan losses. Other real estate owned which is measured at the lesser of fair value less costs to sell or our recorded investment in the foreclosed loan had a carrying amount of $22,147, less a valuation allowance of $795 as of December 31, 2009. As a result of sales of foreclosed properties, receipt of updated appraisals, reduced listing prices or entering into contracts to sell these properties, write downs of fair value of $1,980 were recognized in our statements of operations during the year ended December 31, 2009. Other repossessed assets are primarily comprised of repossessed automobiles and are measured at fair value as of the date of repossession. As a result of the disposition of repossessed vehicles, gains of $244 were recognized in our statements of operations during the year ended December 31, 2009.

F-176

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Carrying amount and estimated fair values of financial instruments were as follows at December 31:

	Successor Company				Predecessor Company
	2010				2009
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	153,794	$	153,794	$	167,402	$	167,402
Investment securities available for sale		418,092		418,092		250,339		250,339
Loans, net		1,004,228		995,744		1,168,433		1,101,080
Federal Home Loan Bank and Independent Bankers’ Bank stock		9,621		N/A		10,735		N/A
Accrued interest receivable		4,917		4,917		5,790		5,790
Financial liabilities:
Non-contractual deposits		648,019		648,019		704,604		704,604
Contractual deposits		719,006		719,328		664,780		669,073
Federal Home Loan Bank Advances		131,116		130,906		125,000		131,924
Short-term borrowings		47,158		47,156		80,475		80,472
Long-term repurchase agreements		—		—		30,000		30,737
Subordinated debentures		22,887		25,267		33,000		11,482
Accrued interest payable		7,260		7,260		5,457		5,457

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, non-contractual demand deposits and certain short-term borrowings. As it is not practicable to determine the fair value of 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. 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.

F-177

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Note 20—Condensed Financial Information of TIB Financial Corp.

Condensed Balance Sheets

(Parent Only)

	Successor Company		Predecessor Company
December 31,	2010		2009
Assets:
Cash on deposit with subsidiary	$	3,506	$	874
Investment in bank subsidiaries		198,403		86,960
Investment in other subsidiaries		3,726		2,017
Other assets		410		844
Total Assets	$	206,045	$	90,695
Liabilities and Shareholders’ Equity:
Interest payable	$	2,102	$	564
Notes payable		23,909		34,022
Other liabilities		3,284		591
Shareholders’ equity		176,750		55,518
Total Liabilities and Shareholders’ Equity	$	206,045	$	90,695

F-178

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Condensed Statements of Income

(Parent Only)

	Successor Company			Predecessor Company
	Three Months Ended December 31, 2010			Nine Months Ended September 30, 2010			Year Ended December 31, 2009			Year ended December 31, 2008
Operating income:
Interest Income	$	12		$	3		$	97		$	83
Dividends from other subsidiaries		—			—			31			70
Total operating income		12			3			128			153
Operating expense:
Interest expense		470			1,153			1,626			2,336
Other expense		202			1,720			1,660			1,908
Total operating expense		672			2,873			3,286			4,244
Loss before income tax benefit and equity in undistributed earnings of subsidiaries		(660	)		(2,870	)		(3,158	)		(4,091	)
Income tax benefit		244			—			540			1,537
Loss before equity in undistributed earnings of subsidiaries		(416	)		(2,870	)		(2,618	)		(2,554	)
Equity in income (losses) of subsidiaries		976			(49,935	)		(58,930	)		(18,376	)
Net income (loss)	$	560		$	(52,805	)	$	(61,548	)	$	(20,930	)

F-179

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Condensed Statements of Cash Flows

(Parent Only)

	Successor Company			Predecessor Company
	Three Months Ended December 31, 2010			Nine Months Ended September 30, 2010			Year Ended December 31, 2009			Year Ended December 31, 2010
Cash flows from operating activities:
Net income (loss)	$	560		$	(52,805	)	$	(61,548	)	$	(20,930	)
Equity in (income) losses of subsidiaries		(976	)		49,935			58,930			18,376
Stock—based compensation expense		—			178			287			274
Increase (decrease) in net income tax obligation		(238	)		184			997			(1,047	)
(Increase) decrease in other assets		415			(58	)		128			7,190
Increase (decrease) in other liabilities		(3,746	)		1,146			307			2
Net cash provided by (used in) operating activities		(3,985	)		(1,420	)		(899	)		3,865
Cash flows from investing activities:
Investment in bank subsidiaries		(5,114	)		(150,000	)		(20,500	)		(25,750	)
Investment in other subsidiaries		—			(296	)		(148	)		(1,378	)
Net cash used in investing activities		(5,114	)		(150,296	)		(20,648	)		(27,128	)
Cash flows from financing activities:
Net proceeds from issuance of common shares		—			—			(48	)		10,033
Income tax effect of stock based compensation		—			(184	)		(206	)		(82	)
Proceeds from issuance of preferred stock and common warrants		—			—			—			36,992
Proceeds from subsidiaries for equity awards		—			791			401			464
Net proceeds from North American Financial Holdings, Inc. investment		—			162,840			—			—
Cash dividends paid		—			—			(1,285	)		(1,677	)
Net cash provided by (used in) financing activities		—			163,447			(1,138	)		45,730
Net increase (decrease) in cash		(9,099	)		11,731			(22,685	)		22,467
Cash, beginning of period		12,605			874			23,559			1,092
Cash, end of period	$	3,506		$	12,605		$	874		$	23,559

F-180

TIB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars and shares in thousands except per share data)

Note 21—Quarterly Financial Data (Unaudited)

The following is a summary of unaudited quarterly results for 2010 and 2009:

	Successor Company		Predecessor Company									Predecessor Company
	2010		2010									2009
	Fourth		Third			Second			First			Fourth			Third			Second			First
Condensed income statements:
Interest income	$	15,681	$	17,042		$	16,988		$	18,287		$	19,120		$	20,327		$	20,858		$	20,822
Net interest income		12,432		10,786			10,602			11,494			11,177			11,763			11,694			10,757
Provision for loan losses		402		17,072			7,700			4,925			16,428			14,756			5,763			5,309
Investment securities gain		—		—			993			1,642			2,477			1,127			95			596
Income (Loss) from continuing operations		560		(33,655	)		(14,099	)		(5,051	)		(45,106	)		(8,097	)		(4,887	)		(3,458	)
Income earned by preferred shareholders		—		680			669			660			654			650			650			708
Gain on Retirement of Series A preferred allocated to common shareholders		—		(24,276	)		—			—			—			—			—			—
Net income (loss) allocated to common shareholders		560		(10,059	)		(14,768	)		(5,711	)		(45,760	)		(8,747	)		(5,537	)		(4,166	)
Basic earnings (loss) per common share	$	0.05	$	(67.56	)	$	(99.19	)	$	(38.36	)	$	(307.36	)	$	(58.99	)	$	(37.75	)	$	(28.71	)
Diluted earnings (loss) per common share	$	0.03	$	(67.56	)	$	(99.19	)	$	(38.36	)	$	(307.36	)	$	(58.99	)	$	(37.75	)	$	(28.71	)

The Successor Company reported net income of $560 for the three months ended December 31, 2010. Increases in net interest income are primarily due to the impact of the purchase accounting adjustments which revalued market deposits and borrowings to yield market interest rates as of September 30, 2010. The provision for loan losses of $402 recorded reflects the allowance for loan losses established for loans originated subsequent to September 30, 2010. No net charge-offs or losses on the disposition of other real estate owned were recorded as credit losses experienced were incorporated in the net discounts recorded on loans and other real estate acquired as of September 30, 2010.

The net loss for the fourth quarter of 2009 (Predecessor Company) was primarily due to the provision for income taxes of $24,032 resulting from the recognition of a full valuation allowance against deferred income tax assets of $30,392, the provision for loan losses of $16,428 and a goodwill impairment charge of $5,887.

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CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	Successor Company			Predecessor Company
	Mar. 31, 2011			Dec. 31, 2010
(Dollars in thousands)
Assets
Cash and cash equivalents:
Cash and due from banks	$	16,870		$	13,646
Interest-bearing deposits with banks		99,780			53,099
Total cash and cash equivalents		116,650			66,745
Investment securities:
Investment securities—available for sale, at fair value		296,632			214,991
Other investments		8,270			8,301
Total investment securities		304,902			223,292
Mortgage loans held for sale		1,424			6,993
Loans:
Loans—net of unearned income and deferred fees		1,125,260			1,254,479
Allowance for loan losses		(167	)		(36,061	)
Net loans		1,125,093			1,218,418
Other real estate		14,535			18,334
Premises and equipment, net		27,098			25,034
Goodwill		30,994			—
Other intangible assets, net		4,813			1,774
Deferred tax asset		54,529			—
Other assets		24,618			24,957
Total assets	$	1,704,656		$	1,585,547
Liabilities
Deposits:
Demand, noninterest checking	$	119,742		$	116,113
NOW accounts		189,340			185,782
Money market accounts		146,543			137,422
Savings accounts		31,794			30,639
Time deposits		862,242			873,330
Total deposits		1,349,661			1,343,286
Borrowings		93,513			121,000
Subordinated debt		19,431			34,323
Other liabilities		13,291			10,250
Total liabilities		1,475,896			1,508,859
Shareholders’ Equity
Preferred stock, $1,000 par value; 100,000 shares authorized; 41,279 shares issued and outstanding (liquidation preference of $41,279) at December 31, 2010		—			40,418
Common stock, no par value; 300,000,000 shares authorized; 85,489,260 and 12,877,846 shares issued and outstanding		227,961			145,594
Accumulated deficit		(574	)		(108,027	)
Accumulated other comprehensive income (loss)		1,373			(1,297	)
Total shareholders’ equity		228,760			76,688
Total liabilities and shareholders’ equity	$	1,704,656		$	1,585,547

F-182

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Successor Company			Predecessor Company
	Jan. 29, 2011 to Mar. 31, 2011			Jan. 1, 2011 to Jan. 28, 2011			Three Months Ended Mar. 31, 2010
(Dollars in thousands except per share data)
Interest income:
Loans and loan fees	$	11,056		$	5,479		$	17,411
Investment securities:
Taxable interest income		990			391			2,026
Tax-exempt interest income		159			74			601
Dividends		29			—			18
Federal funds and other interest income		47			11			10
Total interest income		12,281			5,955			20,066
Interest expense:
Deposits		1,774			1,551			6,151
Borrowings and repurchase agreements		486			445			1,365
Total interest expense		2,260			1,996			7,516
Net interest income		10,021			3,959			12,550
Provision for loan losses		167			40			11,734
Net interest income after provision for loan losses		9,854			3,919			816
Noninterest income:
Service charges and other fees		548			291			868
Bank card services		300			174			415
Mortgage origination and other loan fees		263			210			327
Brokerage fees		96			78			187
Bank-owned life insurance		20			10			239
Net gain on sale of investment securities		—			—			263
Other		25			69			232
Total noninterest income		1,252			832			2,531
Noninterest expense:
Salaries and employee benefits		3,957			1,977			5,400
Occupancy		1,140			548			1,502
Furniture and equipment		544			275			745
Data processing and telecommunications		276			180			517
Advertising and public relations		181			131			430
Office expenses		229			93			332
Professional fees		335			190			475
Business development and travel		246			87			267
Amortization of other intangible assets		191			62			235
ORE losses and miscellaneous loan costs		523			176			1,317
Directors’ fees		40			68			298
FDIC deposit insurance		563			266			665
Contract termination fees		3,581			—			—
Other		423			102			407
Total noninterest expense		12,229			4,155			12,590
Net income (loss) before income taxes		(1,123	)		596			(9,243	)
Income tax expense (benefit)		(549	)		—			(3,909	)
Net income (loss)		(574	)		596			(5,334	)
Dividends and accretion on preferred stock		—			861			589
Net income (loss) attributable to common shareholders	$	(574	)	$	(265	)	$	(5,923	)
Net loss per common share—basic	$	(0.01	)	$	(0.02	)	$	(0.49	)
Net loss per common share—diluted	$	(0.01	)	$	(0.02	)	$	(0.49	)

F-183

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

	Preferred Stock				Common Stock				Other Comprehensive Income (Loss)			Accumulated Deficit			Total
Predecessor Company	Shares		Amount		Shares		Amount
(Dollars in thousands)
Balance at January 1, 2010		41,279	$	40,127		11,348,117	$	139,909	$	3,955		$	(44,206	)	$	139,785
Comprehensive loss:
Net loss													(5,334	)		(5,334	)
Net unrealized loss on securities, net of tax benefit of $234										(372	)					(372	)
Amortization of prior service cost on SERP										2						2
Total comprehensive loss																(5,704	)
Accretion of preferred stock discount				73									(73	)		—
Issuance of common stock						1,468,770		5,065								5,065
Stock option expense								12								12
Directors’ deferred compensation						64,467		150								150
Dividends on preferred stock													(516	)		(516	)
Balance at March 31, 2010		41,279	$	40,200		12,881,354	$	145,136	$	3,585		$	(50,129	)	$	138,792
Balance at January 1, 2011		41,279	$	40,418		12,877,846	$	145,594	$	(1,297	)	$	(108,027	)	$	76,688
Comprehensive income:
Net income													596			596
Net unrealized loss on securities, net of tax benefit of $204										(324	)					(324	)
Amortization of prior service cost on SERP										1						1
Total comprehensive income																273
Accretion of preferred stock discount				24									(24	)		—
Stock option expense								5								5
Directors’ deferred compensation								35								35
Dividends on preferred stock													(172	)		(172	)
Balance at January 28, 2011		41,279	$	40,442		12,877,846	$	145,634	$	(1,620	)	$	(107,627	)	$	76,829

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	Preferred Stock				Common Stock						Other Comprehensive Income (Loss)		Accumulated Deficit			Total
Successor Company	Shares		Amount		Shares			Amount
(Dollars in thousands)
Balance at January 28, 2011		—	$	—		83,877,846		$	224,085		$	—	$	—		$	224,085
Comprehensive income:
Net loss														(574	)		(574	)
Net unrealized gain on securities, net of tax of $862												1,373					1,373
Total comprehensive income																	799
Issuance of common stock, net of offering costs of $300						1,613,165			3,814								3,814
Stock option expense									69								69
Restricted stock						(1,751	)		(7	)							(7	)
Balance at March 31, 2011		—	$	—		85,489,260		$	227,961		$	1,373	$	(574	)	$	228,760

F-185

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Successor Company			Predecessor Company
	Jan. 29, 2011 to Mar.  31, 2011			Jan. 1, 2011 to Jan.  28, 2011			Three Months Ended Mar. 31, 2010
(Dollars in thousands)
Cash flows from operating activities:
Net income (loss)	$	(574	)	$	596		$	(5,334	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Accretion of purchased credit-impaired loans		(10,265	)		—			—
Amortization /accretion of fair value premium/discount on acquired time deposits, borrowings and subordinated debt, net		(1,441	)		—			—
Provision for loan losses		167			40			11,734
Amortization of other intangible assets		191			62			236
Depreciation		490			203			635
Stock-based compensation		137			42			192
Gain on sale of securities, net		—			—			(263	)
Amortization of premium on securities, net		238			171			34
Loss (gain) on disposal of premises, equipment and ORE		(102	)		(9	)		225
ORE valuation adjustments		131			—			646
Bank-owned life insurance income		(20	)		(10	)		(251	)
Deferred income tax expense		—			—			640
Net change in:
Mortgage loans held for sale		1,145			4,424			—
Accrued interest receivable and other assets		(554	)		(1,309	)		(6,128	)
Accrued interest payable and other liabilities		2,696			(3,939	)		(559	)
Net cash provided by (used in) operating activities		(7,761	)		271			1,807
Cash flows from investing activities:
Principal repayments on loans, net of loans originated or acquired		19,380			14,547			(3,743	)
Purchases of premises and equipment		(241	)		(416	)		(1,469	)
Proceeds from sales of premises, equipment and ORE		1,485			201			3,541
Purchases of FHLB stock		—			—			(2,025	)
Purchases of securities—available for sale		(88,209	)		(6,840	)		(18,013	)
Proceeds from sales of securities—available for sale		—			—			17,305
Proceeds from principal repayments/calls/maturities of securities—available for sale		10,577			3,936			14,803
Proceeds from principal repayments/calls/maturities of securities—held to maturity		—			—			330
Net cash provided by (used in) investing activities		(57,008	)		11,428			10,729
Cash flows from financing activities:
Increase (decrease) in deposits, net		(650	)		(4,960	)		2,574
Decrease in repurchase agreements, net		—			—			(3,316	)
Proceeds from borrowings		—			—			141,000
Principal repayments of borrowings		(30,000	)		(5,000	)		(136,000	)
Proceeds from issuance of subordinated debentures		—			—			3,393
Repurchase of preferred stock		—			(41,279	)		—
Proceeds from North American Financial Holdings, Inc. Investment		—			181,050
Proceeds from issuance of common stock, net of offering costs		3,814			—			5,065
Dividends paid		—			—			(1,424	)
Net cash provided by (used in) financing activities		(26,836	)		129,811			11,292
Net change in cash and cash equivalents	$	(91,605	)	$	141,510		$	23,828
Cash and cash equivalents at beginning of period		208,255			66,745			29,513
Cash and cash equivalents at end of period	$	116,650		$	208,255		$	53,341
Supplemental Disclosure of Cash Flow Information
Noncash investing activities:
Transfers of loans and premises to ORE	$	1,646		$	248		$	9,305
Transfers of ORE to loans		857			146			—
Cash paid for:
Income taxes	$	—		$	—		$	—
Interest		4,088			1,531			7,368

Supplemental cash flow information related to the NAFH Investment is disclosed in Note 2 (NAFH Acquisition).

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-186

Capital Bank Corporation—Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Organization and Nature of Operations

Capital Bank Corporation (the “Company”) is a bank holding company incorporated under the laws of North Carolina on August 10, 1998. The Company’s primary wholly-owned subsidiary is Capital Bank (the “Bank”), a state-chartered banking corporation that was incorporated under the laws of North Carolina on May 30, 1997 and commenced operations on June 20, 1997. In addition, the Company has interest in three trusts, Capital Bank Statutory Trust I, II, and III (hereinafter collectively referred to as the “Trusts”).

On January 28, 2011, the Company completed the issuance and sale of 71,000,000 shares of its common stock to North American Financial Holdings, Inc. (“NAFH”) for $181,050,000 in cash (the “NAFH Investment”). As a result of the NAFH Investment and the Company’s rights offering on March 11, 2011 (the “Rights Offering”), NAFH currently owns approximately 83% of the Company’s common stock. Upon closing of the NAFH Investment, R. Eugene Taylor, NAFH’s Chief Executive Officer, Christopher G. Marshall, NAFH’s Chief Financial Officer, and R. Bruce Singletary, NAFH’s Chief Risk Officer, were named as the Company’s CEO, CFO and CRO, respectively, and as members of the Company’s Board of Directors. In addition, the Company’s Board of Directors was reconstituted with a combination of two existing members (Oscar A. Keller III and Charles F. Atkins), Messrs. Taylor, Marshall and Singletary, and two additional NAFH-designated members (Peter N. Foss and William A. Hodges).

Basis of Presentation and Use of Estimates

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and the Bank. The Trusts have not been consolidated with the financial statements of the Company. The interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). They do not include all of the information and footnotes required by such accounting principles for complete financial statements, and therefore should be read in conjunction with the audited consolidated financial statements and accompanying footnotes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included, and all significant intercompany transactions have been eliminated in consolidation. Certain amounts reported in prior periods have been reclassified to conform to the current presentation. Such reclassifications have no effect on total assets, net income or shareholders’ equity as previously reported. The results of operations for the period of January 29, 2011 to March 31, 2011 (Successor Company) and the period of January 1, 2011 to January 28, 2011 (Predecessor Company) are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2011. The condensed consolidated balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A description of the accounting policies followed by the Company are as set forth in Note 1 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Due to the NAFH Investment, the Company has added an accounting policy related to purchased credit-impaired loans, which is described as follows:

Purchased Credit-Impaired Loans

Loans acquired in a transfer, including business combinations and transactions similar to the NAFH Investment, where there is evidence of credit deterioration since origination and it is probable at the date of

F-187

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.

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 cash flows expected to be collected (other than due to decreases in interest rate indices), the Company charges the provision for credit losses, resulting in an increase to the allowance for loan losses. If the Company has probable and significant increases in cash flows expected to be collected, 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. 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.

Recent Accounting Pronouncements

In April 2011, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2011-2, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, to amend FASB Accounting Standards Codification (“ASC”) Topic 320, Receivables. The amendments in this update clarify the guidance on a creditor’s evaluation of whether it has granted a concession and whether a borrower is experiencing financial difficulties. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. This update also indicates that companies should disclose the information regarding troubled debt restructurings required by paragraphs 310-10-50-33 through 50-34, which was deferred by ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20, for interim and annual periods beginning on or after June 15, 2011. Management does not believe that adoption of this update will have a material impact on the Company’s financial position or results of operations.

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 financial position or results of operations.

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 were effective for interim and annual periods

F-188

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 financial position or results of operations.

2. NAFH Acquisition

As discussed in Note 1 (Basis of Presentation and Significant Accounting Policies), on January 28, 2011, the Company completed the issuance and sale of 71,000,000 shares of its common stock to NAFH for $181,050,000 in cash. As a result of this NAFH Investment and the Rights Offering on March 11, 2011, NAFH currently owns approximately 83% of the Company’s common stock. In connection with the NAFH Investment, each Company 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 the Bank’s existing loan portfolio.

Also in connection with the NAFH Investment, the Company’s Series A Preferred Stock and warrant to purchase shares of common stock issued by the Company 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, the Company 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 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 $2.55 per share, subject to certain limitations. The Company issued 1,613,165 shares of common stock in exchange for $4,113,571 upon completion of the Rights Offering on March 11, 2011. Direct offering costs of $300,000 were recorded as a reduction to the proceeds of the Rights Offering.

Also in connection with the closing of the NAFH Investment, the Company 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 the Company’s outstanding voting securities or total voting power. On January 28, 2011, the Company 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 Company 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 $1,119,000. 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 $3,156,000.

In Staff Accounting Bulletin Topic No. 5.J, Push Down Basis of Accounting Required in Certain Limited Circumstances, the Securities and Exchange Commission (“SEC”) staff indicated that it believes push-down accounting is required in purchase transactions that result in an entity becoming substantially wholly owned. In determining whether a company has become substantially wholly owned, the SEC staff has stated that push-down accounting would be required if 95% or more of the company has been acquired, permitted if 80% to 95% has been acquired, and prohibited if less than 80% of the company is acquired. The Company determined push-down accounting to be appropriate for this transaction, 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.

F-189

The following table summarizes the NAFH Investment and the Company’s opening balance sheet:

	As of Jan. 28, 2011
(Dollars in thousands)
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		30,994
Other intangible assets		5,004
Deferred tax asset		55,391
Other assets		66,663
Total assets acquired		1,729,376
Fair value of liabilities assumed:
Deposits		1,351,467
Borrowings		123,837
Subordinated debt		19,392
Other liabilities		10,595
Total liabilities assumed		1,505,291
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 to make preliminary estimates of the fair value. While the Company believes that information provides a reasonable basis for estimating the fair values, it expects to obtain additional information and evidence during the measurement period (not to exceed one year from the acquisition date) that may result in changes to the estimated fair value amounts. Thus, the provisional measurements of fair value reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date. Subsequent adjustments, if any, will be retrospectively reflected in future filings.

A summary and description of the assets, liabilities and non-controlling interests fair valued in conjunction with applying the acquisition method of accounting is as follows:

Cash and Cash Equivalents

The cash and cash equivalents, which include proceeds from the NAFH Investment, held at acquisition date approximated fair value on that date and did not require a fair value adjustment.

Investment Securities

Investment securities are reported at fair value at acquisition date. To account for the NAFH Investment, the difference between the fair value and par value became the new premium or discount for each security held by the Company. The fair value of investment securities is primarily based on values obtained from third parties pricing models which are based on recent trading activity for the same or similar securities. Two equity securities were valued at their respective stock market prices, and two corporate bonds were valued using an internal valuation model. Immediately before the acquisition, the investment portfolio had an amortized cost of $228,106,000 and was in a net unrealized loss position of $2,770,000.

F-190

Loans

All loans in the loan portfolio were adjusted to estimated fair value at the NAFH Investment date. Upon analyzing estimated credit losses as well as evaluating differences between contractual interest rates and market interest rates at acquisition, the Company recorded a loan fair value discount of $104,380,000. All acquired loans were considered to be PCI loans with the exception of certain consumer revolving lines of credit. Subsequent to the NAFH Investment, PCI loans will be accounted for as described in Note 1 (Basis of Presentation and Significant Accounting Policies) and in Note 6 (Loans).

Goodwill and Other Intangible Assets

Goodwill represents the excess of purchase price over the fair value of acquired net assets. This acquisition was nontaxable and, as a result, there is no tax basis in the goodwill. Accordingly, none of the goodwill associated with the acquisition is deductible for tax purposes. Other intangible assets identified as part of the valuation of the NAFH Investment were Core Deposit Intangibles (“CDI”) and the Trade Name Intangible. All of the identified intangible assets are amortized as noninterest expense over their estimated useful lives.

Core Deposit Intangible

The estimated value of the CDI at acquisition date was $4,400,000. This amount represents the present value of the difference between a market participant’s cost of obtaining alternative funds and 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 an eight year period. Deposit accounts evaluated for the CDI were demand deposit accounts, money market accounts and savings accounts.

Trade Name Intangible

Trademarks, service marks and other registered marks (collectively referred to as the “Trade Name”) can have great significance to customers. The function of a mark is to indicate to the consumer the sources from which goods and services originate. The Trade Name considered to have value is Capital Bank. The Trade Name value of $604,000 at acquisition date was based on the present value of the Company’s projected income multiplied by an assumed royalty rate. This intangible will be amortized on a straight-line basis over a three year period.

Other Assets

A majority of other assets held by the Company did not have a fair value adjustment as part of acquisition accounting since their carrying value approximated fair value. 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 $55,391,000. 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.

Deposits

Time deposits were not included in the CDI valuation. Instead, a separate valuation of term deposit liabilities was conducted due to the contractual time frame associated with these liabilities. Term deposits evaluated for acquisition accounting consisted of certificates of deposit (“CDs”), brokered deposits and CDs through the Certificate of Deposit Account Registry Services (“CDARS”). The fair value of these deposits was

determined by first stratifying the deposit pool by maturity and calculating the interest rate for each maturity period. Then cash flows were projected by period and discounted to present value using current market interest rates.

F-191

The outstanding balance of CDs at acquisition date was $730,481,000, and the estimated fair value premium totaled $12,433,000. The outstanding balance of brokered deposits was $100,479,000, and the estimated fair value premium totaled $616,000. The outstanding balance of CDARS was $27,020,000, and the estimated fair value premium totaled $111,000. The Company will amortize these premiums into income as a reduction of interest expense on a level-yield basis over the weighted average term.

Borrowings

Included in borrowings are FHLB advances and structured repurchase agreements. Fair values for these borrowings 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 outstanding balance of FHLB advances and structured repurchase agreements at acquisition date was $66,000,000 and $50,000,000, respectively, and the estimated fair value premiums on each totaled $1,799,000 and $6,038,000, respectively. The Company will amortize the premium into income as a reduction of interest expense on a level-yield basis over the contractual term of each debt instrument.

Subordinated Debt

Included in subordinated debt are variable rate trust preferred securities issued by the Company and fixed rate subordinated debt issued as part of a private placement offering early in 2010. Fair values for the trust preferred securities and subordinated debt were estimated by developing cash flow estimates for each of these debt instruments based on scheduled principal and interest payments and current 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. The outstanding balance of trust preferred securities and subordinated debt at acquisition date was $30,930,000 and $3,393,000, respectively, and the estimated fair value (discount)/premium on each totaled ($15,143,000) and $211,000, respectively. The Company will accrete the discount as an increase to interest expense and will amortize the premium as a decrease to interest expense on a level-yield basis over the contractual term of each debt instrument.

Contingent Value Rights

In connection with the NAFH Investment, each existing shareholder as of January 27, 2011 received one contingent value right 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 the Bank’s existing loan portfolio. The Company estimated the fair value of these CVRs at $568,000, which was based on its estimate of credit losses on the existing loan portfolio over the five-year life of these instruments. These CVRs were recorded at fair value in other liabilities in acquisition accounting.

Non-controlling Interest

In determining the estimated fair value of the non-controlling interest, the Company utilized the closing market price of its common stock on the acquisition date, which was $3.40, and multiplied this stock price by the number of outstanding non-controlling shares at that date.

Transaction Expenses

As required by the NAFH Investment, the Company incurred and reimbursed third party expenses of $750,000 which were recorded as a reduction of proceeds received from the issuance of common shares to NAFH.

There were no indemnification assets in this transaction, nor was there any contingent consideration to be recognized.

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3. Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS assumes the conversion, exercise or issuance of all potential common stock instruments, such as stock options and warrants, unless the effect is to reduce a loss or increase earnings. Basic EPS is adjusted for outstanding stock options and warrants using the treasury stock method in order to compute diluted EPS. The calculation of basic and diluted EPS for the period of January 29, 2011 to March 31, 2011 (Successor), the period of January 1, 2011 to January 28, 2011 (Predecessor) and the three months ended March 31, 2010 (Predecessor) was as follows:

	Successor Company			Predecessor Company
	Jan. 29, 2011 to Mar. 31, 2011			Jan. 1, 2011 to Jan. 28, 2011			Three Months Ended Mar. 31, 2010
(Dollars in thousands except per share data)
Net loss attributable to common shareholders	$	(574	)	$	(265	)	$	(5,923	)
Shares used in the computation of earnings per share:
Weighted average number of shares outstanding—basic		84,970,748			13,188,612			12,014,430
Incremental shares from assumed exercise of stock options and warrants		—			—			—
Weighted average number of shares outstanding—diluted		84,970,748			13,188,612			12,014,430
Earnings (loss) per common share—basic	$	(0.01	)	$	(0.02	)	$	(0.49	)
Earnings (loss) per common share—diluted	$	(0.01	)	$	(0.02	)	$	(0.49	)

For both the period of January 29, 2011 to March 31, 2011 (Successor), the period of January 1, 2011 to January 28, 2011 (Predecessor) and the three months ended March 31, 2010 (Predecessor), outstanding options to purchase 296,880, 297,880 and 336,261 shares, respectively, of common stock were excluded from the diluted calculation because the option exercise prices exceeded the average market value of the associated shares of common stock. For both the period of January 1, 2011 to January 28, 2011 (Predecessor) and the three months ended March 31, 2010 (Predecessor), outstanding warrants to purchase 749,619 shares of common stock were excluded from the diluted calculation because the warrant exercise price exceeded the average fair market value of the associated shares of common stock.

4. Comprehensive Income (Loss)

Comprehensive income (loss) represents the change in the Company’s equity during the period from transactions and other events and circumstances from non-owner sources. Total comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). The Company’s other comprehensive income (loss) and accumulated other comprehensive income (loss) are comprised of unrealized gains and losses on certain investments in debt securities and derivatives that qualify as cash flow hedges to the extent that the hedge is effective. The Company’s other comprehensive income (loss) for the period of January 29, 2011 to March 31, 2011 (Successor), the period of January 1, 2011 to January 28, 2011 (Predecessor) and the three months ended March 31, 2010 (Predecessor) was as follows:

	Successor Company			Predecessor Company
	Jan. 29, 2011 to Mar. 31, 2011			Jan. 1, 2011 to Jan. 28, 2011			Three Months Ended Mar. 31, 2010
(Dollars in thousands)
Unrealized gain (loss) on securities—available for sale	$	2,235		$	(528	)	$	(606	)
Amortization of prior service cost on SERP		—			1			2
Income tax effect		(862	)		204			234
Other comprehensive income (loss)	$	1,373		$	(323	)	$	(370	)

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5. Investment Securities

Investment securities as of March 31, 2011 (Successor) and December 31, 2010 (Predecessor) are summarized as follows:

March 31, 2011 (Successor Company)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
(Dollars in thousands)
Available for sale:
U.S. agency obligations	$	13,917	$	14	$	5	$	13,926
Municipal bonds		20,584		964		—		21,548
Mortgage-backed securities issued by GSEs		251,516		1,354		122		252,748
Non-agency mortgage-backed securities		5,541		41		1		5,581
Other securities		2,838		—		9		2,829
		294,396		2,373		137		296,632
Other investments		8,270		—		—		8,270
Total	$	302,666	$	2,373	$	137	$	304,902

December 31, 2010 (Predecessor Company)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
(Dollars in thousands)
Available for sale:
U.S. agency obligations	$	19,003	$	18	$	87	$	18,934
Municipal bonds		22,455		75		1,521		21,009
Mortgage-backed securities issued by GSEs		165,540		78		195		165,423
Non-agency mortgage-backed securities		6,790		39		242		6,587
Other securities		3,252		—		214		3,038
		217,040		210		2,259		214,991
Other investments		8,301		—		—		8,301
Total	$	225,341	$	210	$	2,259	$	223,292

On at least a quarterly basis, the Company completes an other than temporary impairment (“OTTI”) assessment of its investment portfolio. The Company considers many factors, including the severity and duration of the impairment and recent events specific to the issuer or industry, including any changes in credit ratings. The following table summarizes the gross unrealized losses and fair value of the Company’s investments in an unrealized loss position for which OTTI has not been recognized in earnings, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 2011 (Successor) and December 31, 2010 (Predecessor):

March 31, 2011 (Successor Company)	Less than 12 Months				12 Months or Greater				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale:
U.S. agency obligations	$	2,978	$	5	$	—	$	—	$	2,978	$	5
Mortgage-backed securities issued by GSEs		24,382		122		—		—		24,382		122
Non-agency mortgage-backed securities		1,503		1		—		—		1,503		1
Other securities		1,722		9		—		—		1,722		9
Total	$	30,585	$	137	$	—	$	—	$	30,585	$	137

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December 31, 2010 (Predecessor Company)	Less than 12 Months				12 Months or Greater				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for sale:
U.S. agency obligations	$	8,916	$	87	$	—	$	—	$	8,916	$	87
Municipal bonds		14,886		1,134		2,453		387		17,339		1,521
Mortgage-backed securities issued by GSEs		14,473		195		—		—		14,473		195
Non-agency mortgage-backed securities		—		—		4,183		242		4,183		242
Other securities		—		—		2,536		214		2,536		214
Total	$	38,275	$	1,416	$	9,172	$	843	$	47,447	$	2,259

As of March 31, 2011 (Successor), the majority of unrealized losses related to four mortgage-backed securities issued by government-sponsored enterprises (“GSEs”). These unrealized losses are a result of changes in market interest rates since the NAFH Investment on January 28, 2011. Because of their GSE status, there is minimal credit risk in these securities. No investment securities were in an unrealized loss position greater than 1% or for a period of more than 12 months as of March 31, 2011 (Successor).

The securities in an unrealized loss position as of March 31, 2011 (Successor) continue to perform and are expected to perform through maturity, and the issuers have not experienced significant adverse events that would call into question their ability to repay these debt obligations according to contractual terms. Further, because the Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider unrealized losses on such securities to represent OTTI as of March 31, 2011 (Successor).

Other investment securities primarily include an investment in Federal Home Loan Bank (“FHLB”) stock, which has no readily determinable market value and is recorded at cost. As of both March 31, 2011 (Successor) and December 31, 2010 (Predecessor), the Company’s investment in FHLB stock totaled $7,668,000. Based on its quarterly evaluation, management has concluded that the Company’s investment in FHLB stock was not impaired as of March 31, 2011 (Successor) and that ultimate recoverability of the par value of this investment is probable.

The amortized cost and estimated market values of debt securities as of March 31, 2011 (Successor) by final contractual maturities are summarized in the table below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

March 31, 2011 (Successor Company)	Available for Sale
(Dollars in thousands)	Amortized Cost		Fair Value
Debt securities:
Due within one year	$	—	$	—
Due after one year through five years		15,842		15,861
Due after five years through ten years		129,828		130,604
Due after ten years		146,995		148,445
Total debt securities		292,665		294,910
Equity securities		1,731		1,722
Total investment securities	$	294,396	$	296,632

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6. Loans

The composition of the loan portfolio by loan classification as of March 31, 2011 (Successor) and December 31, 2010 (Predecessor) was as follows:

	Successor Company		Predecessor Company
	Mar. 31, 2011		Dec. 31, 2010
(Dollars in thousands)
Commercial real estate:
Construction and land development	$	274,541	$	350,587
Real estate—non-owner occupied		275,005		283,943
Real estate—owner occupied		163,934		170,470
Total commercial real estate		713,480		805,000
Consumer real estate:
Residential mortgage		172,574		173,777
Home equity lines		79,253		89,178
Total consumer real estate		251,827		262,955
Commercial and industrial		118,510		145,435
Consumer		6,416		6,163
Other loans		33,759		33,742
		1,123,992		1,253,295
Deferred loan fees and origination costs, net		1,268		1,184
	$	1,125,260	$	1,254,479

Loans pledged as collateral for certain borrowings totaled $324,313,000 and $341,520,000 as of March 31, 2011 (Successor) and December 31, 2010 (Predecessor), respectively.

Successor Company:

Purchased credit-impaired loans for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

	As of Jan. 28, 2011
(Dollars in thousands)
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:

	Jan. 29, 2011 to Mar. 31, 2011
(Dollars in thousands)
Balance, beginning of period	$	163,892
New loans purchased		—
Accretion of income		(10,265	)
Reclassifications from nonaccretable difference		—
Balance, end of period	$	153,627

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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.

7. Allowance for Loan Losses and Credit Quality

The following is a summary of activity in the allowance for loan losses for the period from January 29, 2011 to March 31, 2011 (Successor), the period from January 1, 2011 to January 28, 2011 (Predecessor) and the three months ended March 31, 2010 (Predecessor):

	Successor Company		Predecessor Company
	Jan. 29, 2011 to Mar. 31, 2011		Jan. 1, 2011 to Jan. 28, 2011			Three Months Ended Mar. 31, 2010
(Dollars in thousands)
Balance at beginning of year, predecessor	$	—	$	36,061		$	26,081
Loans charged off		—		(49	)		(8,758	)
Recoveries of loans previously charged off		—		9			103
Net charge-offs		—		(40	)		(8,655	)
Provision for loan losses		167		40			11,734
Balance at the end of period, predecessor	$	—	$	36,061		$	29,160
Acquisition accounting adjustment		—		(36,061	)		—
Balance at end of period, successor	$	167	$	—		$	—

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The allowance for credit losses includes the allowance for loan losses, detailed above, and the reserve for unfunded lending commitments, which is included in other liabilities on the Condensed Consolidated Balance Sheets. As of March 31, 2011 (Successor) and December 31, 2010 (Predecessor), the reserve for unfunded lending commitments totaled $1,040,000 and $623,000, respectively. The following is an analysis of the allowance for loan losses by portfolio segment in addition to the disaggregation of the allowance and outstanding loan balances by impairment method as of March 31, 2011 (Successor):

	Allowance for Loan Losses						Loans
March 31, 2011 (Successor Company)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased  – Credit Impaired		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased – Credit Impaired
(Dollars in thousands)
Commercial real estate	$	—	$	113	$	—	$	—	$	7,610	$	705,870
Consumer real estate		—		39		—		—		77,784		174,043
Commercial and industrial		—		9		—		—		1,264		117,246
Consumer		—		4		—		—		2,361		4,055
Other		—		2		—		—		199		33,560
	$	—	$	167	$	—	$	—	$	89,218	$	1,034,774

	Allowance for Loan Losses						Loans
December 31, 2010 (Predecessor Company)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased – Credit Impaired		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased – Credit Impaired
(Dollars in thousands)
Commercial real estate	$	351	$	24,039	$	—	$	65,840	$	739,160	$	—
Consumer real estate		87		4,645		—		3,879		259,076		—
Commercial and industrial		89		6,343		—		6,013		139,422		—
Consumer		2		352		—		6		6,157		—
Other		—		153		—		781		32,961		—
	$	529	$	35,532	$	—	$	76,519	$	1,176,776	$	—

To monitor and quantify credit risk in the loan portfolio, the Company uses a two-dimensional risk rating system. The first digit represents the credit quality of the borrower and is used to calculate the probability of default used in the “pooled” reserve calculation on loans evaluated collectively for impairment, while the second digit represents the loan collateral type and is used to calculate the loss given default also used in the “pooled” reserve calculation. The first digit ranges from 1 to 9, where a higher rating represents higher credit risk, and is selected on the financial strength and overall resources of the borrower, and the second digit is chosen by the type of primary collateral securing the loan. Based on these two components, the Company determines the risk profile for every commercial loan and non-pass rated consumer loans in the portfolio. The nine risk rating categories (first digit) can generally be described by the following groupings:

• Pass (risk rating 1–6)—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 (risk rating 7)—Loans in this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or the institution’s credit position at some future date. They contain unfavorable characteristics and are generally undesirable. Loans in this category are currently protected by current sound net worth and paying capacity of the obligor or of the collateral pledged, if any, but are potentially weak and constitute an undue and unwarranted credit risk, but not to

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the point of a Substandard classification. A Special Mention loan has potential weaknesses, which if not checked or corrected, weaken the asset or inadequately protect the Bank’s position at some future date.

• Substandard (risk rating 8)—Loans in this category are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. A substandard loan normally has one or more well-defined weaknesses that could jeopardize repayment of the debt. The likely need to liquidate assets to correct the problem, rather than repayment from successful operations is the key distinction between Special Mention and Substandard.

• Doubtful (risk rating 9)—For loans in this category, the borrower’s ability to continue repayment is highly unlikely. Full collection based on currently known facts, conditions, and values is highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and specific reasonable pending factors, which work to the bank’s advantage and strengthen the asset in the near term, its classification as loss is deferred until its more exact status may be determined. Loans in this category are immediately placed on nonaccrual with all payments applied to principal until such time as the potential loss exposure is eliminated.

The following is an analysis of the Company’s credit risk profile, excluding purchased credit-impaired loans, based on internally assigned risk ratings as of March 31, 2011 (Successor) and December 31, 2010 (Predecessor):

	Commercial Loans
March 31, 2011 (Successor Company)	Construction and Land Development		Non-Owner Occupied Real Estate		Owner Occupied Real Estate		Commercial and Industrial		Other		Total
(Dollars in thousands)
Pass	$	5,417	$	392	$	1,756	$	1,264	$	199	$	9,028
Special mention		—		—		—		—		—		—
Substandard		45		—		—		—		—		45
Doubtful		—		—		—		—		—		—
Total	$	5,462	$	392	$	1,756	$	1,264	$	199	$	9,073

	Consumer Loans
March 31, 2011 (Successor Company)	Residential Mortgage		Home Equity Lines		Other Consumer		Total
(Dollars in thousands)
Pass	$	3,799	$	73,556	$	2,361	$	79,716
Special mention		—		91		—		91
Substandard		—		338		—		338
Doubtful		—		—		—		—
Total	$	3,799	$	73,985	$	2,361	$	80,145

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	Commercial Loans
December 31, 2010 (Predecessor Company)	Construction and Land Development		Non-Owner Occupied Real Estate		Owner Occupied Real Estate		Commercial and Industrial		Other		Total
(Dollars in thousands)
Pass	$	250,557	$	266,523	$	154,156	$	101,674	$	32,961	$	805,871
Special mention		20,178		12,505		2,287		20,488		—		55,458
Substandard		79,852		4,610		13,967		23,266		781		122,476
Doubtful		—		305		60		7		—		372
Total	$	350,587	$	283,943	$	170,470	$	145,435	$	33,742	$	984,177

	Consumer Loans
December 31, 2010 (Predecessor Company)	Residential Mortgage		Home Equity Lines		Other Consumer		Total
(Dollars in thousands)
Pass	$	162,002	$	85,000	$	5,803	$	252,805
Special mention		5,518		1,972		188		7,678
Substandard		6,138		2,110		172		8,420
Doubtful		119		96		—		215
Total	$	173,777	$	89,178	$	6,163	$	269,118

The following is an aging analysis of the Company’s portfolio by loan class as of March 31, 2011 (Successor) and December 31, 2010 (Predecessor):

March 31, 2011 (Successor Company)	30–59 Days Past Due		60–89 Days Past Due		Over 90 Days Past Due and Accruing		Nonaccrual Loans		Current Loans		Total Loans
(Dollars in thousands)
Commercial real estate:
Construction and land development	$	11,051	$	3,078	$	52,973		$—	$	207,439	$	274,541
Real estate–non-owner occupied		8,620		1,361		5,857		—		259,167		275,005
Real estate–owner occupied		2,465		2,471		8,117		—		150,881		163,934
Consumer real estate:
Residential mortgage		2,076		87		3,916		—		166,495		172,574
Home equity lines		606		162		366		—		78,119		79,253
Commercial and industrial		6,746		325		3,141		—		108,298		118,510
Consumer		—		—		51		—		6,365		6,416
Other loans		—		—		—		—		33,759		33,759
Total	$	31,564	$	7,484	$	74,421		$—	$	1,010,523	$	1,123,992
December 31, 2010 (Predecessor Company)	30–59 Days Past Due		60–89 Days Past Due		Over 90 Days Past Due and Accruing		Nonaccrual Loans		Current Loans		Total Loans
(Dollars in thousands)
Commercial real estate:
Construction and land development	$	6,166	$	204		$—	$	50,693	$	293,524	$	350,587
Real estate–non-owner occupied		509		—		—		2,678		280,756		283,943
Real estate–owner occupied		3,165		—		—		8,198		159,107		170,470
Consumer real estate:
Residential mortgage		2,213		329		—		3,481		167,754		173,777
Home equity lines		498		109		—		277		88,294		89,178
Commercial and industrial		175		146		—		5,830		139,284		145,435
Consumer		4		4		—		6		6,149		6,163
Other loans		—		—		—		781		32,961		33,742
Total	$	12,730	$	792		$—	$	71,944	$	1,167,829	$	1,253,295

F-200

Purchased credit-impaired loans are not classified as nonaccrual because interest income on these loans relates to the accretable yield recognized subsequent to the acquisition date and not to contractual interest payments.

There were no troubled debt restructurings as of March 31, 2011 (Successor).

8. Stock-Based Compensation

Stock Options

Pursuant to the Capital Bank Corporation Equity Incentive Plan (“Equity Incentive Plan”), the Company has a stock option plan providing for the issuance of options for the purchase of up to 1,150,000 shares of the Company’s common stock to officers and directors. As of March 31, 2011 (Successor), options for 296,880 shares of common stock were outstanding and options for 604,709 shares of common stock remained available for future issuance. Grants of options are made by the Board of Directors. All grants must be made with an exercise price at no less than fair market value on the date of grant, must be exercised no later than 10 years from the date of grant, and may be subject to certain vesting provisions.

A summary of the activity during the period of January 29, 2011 to March 31, 2011 (Successor), the period of January 1, 2011 to January 28, 2011 (Predecessor) and the three months ended March 31, 2010 (Predecessor) of the Company’s stock option plans, including the weighted average exercise price (“WAEP”), is presented below:

	Successor Company					Predecessor Company
	Period of Jan. 29 to Mar. 31, 2011					Period of Jan. 1 to Jan. 28, 2011				Three Months Ended Mar. 31, 2010
	Shares			WAEP		Shares		WAEP		Shares			WAEP
Outstanding options, beginning of period		297,880		$	12.11		297,880	$	12.11		366,583		$	11.76
Granted		—			—		—		—		—			—
Exercised		—			—		—		—		—			—
Forfeited and expired		(1,000	)		11.29		—		—		(30,322	)		8.08
Outstanding options, end of period		296,880		$	12.12		297,880	$	12.11		336,261		$	12.09
Options exercisable at end of period		257,680		$	12.96		226,430	$	13.53		256,161		$	12.83

The following table summarizes information about the Company’s stock options as of March 31, 2011 (Successor):

Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life in Years		Number Exercisable		Intrinsic Value
$3.85–$6.00		78,250		8.05		42,250	$	—
$6.01–$9.00		—		—		—		—
$9.01–$12.00		74,880		0.95		74,880		—
$12.01–$15.00		20,000		5.38		16,800		—
$15.01–$18.00		70,000		3.92		70,000		—
$18.00–$18.37		53,750		3.74		53,750		—
		296,880		4.33		257,680	$	—

The fair values of options granted are estimated on the date of the grants using the Black-Scholes option pricing model. Option pricing models require the use of highly subjective assumptions, including expected stock price volatility, which when changed can materially affect fair value estimates. There were no options granted in the period of January 29, 2011 to March 31, 2011 (Successor), the period of January 1, 2011 to January 28, 2011 (Predecessor) and the three months ended March 31, 2010 (Predecessor).

F-201

As of March 31, 2011 (Successor), the Company had unamortized compensation expense related to unvested stock options of $27,000, which is expected to be fully amortized over the next two years. For the period from January 29, 2011 to March 31, 2011 (Successor), the period from January 1, 2011 to January 28, 2011 (Predecessor) and the three months ended March 31, 2010 (Predecessor), the Company recorded total compensation expense related to stock options of $69,000, $5,000 and $12,000, respectively, related to stock options. On January 28, 2011, vesting was accelerated on certain outstanding stock options in connection with the NAFH Investment. Compensation expense related to the accelerated vesting was recorded in the Successor period.

Restricted Stock

Pursuant to the Equity Incentive Plan, the Board of Directors may grant restricted stock to certain employees and Board members at its discretion. Nonvested shares are subject to forfeiture if employment terminates prior to the vesting dates. The Company expenses the cost of the stock awards, determined to be the fair value of the shares at the date of grant, ratably over the period of the vesting. Nonvested restricted stock for the three months ended March 31, 2011 is summarized in the following table:

	Shares			Weighted Avg. Grant Date Fair Value
Nonvested at beginning of period		11,700		$	6.00
Granted		—			—
Vested		(11,700	)		6.00
Nonvested at end of period		—		$	—

Total compensation expense related to these restricted stock awards for the period of January 29, 2011 to March 31, 2011 (Successor), the period of January 1, 2011 to January 28, 2011 (Predecessor) and the three months ended March 31, 2010 (Predecessor) totaled $68,000, $2,000 and $30,000, respectively. On January 28, 2011, vesting was accelerated on all remaining nonvested restricted shares in connection with the NAFH Investment. Compensation expense related to the accelerated vesting was recorded in the Successor period.

Deferred Compensation for Non-employee Directors

Until the NAFH Investment, the Company administered the Capital Bank Corporation Deferred Compensation Plan for Outside Directors (“Deferred Compensation Plan”). Eligible directors may have elected to participate in the Deferred Compensation Plan by deferring all or part of their directors’ fees for at least one calendar year, in exchange for common stock of the Company. If a director did not elect to defer all or part of his fees, then he was not considered a participant in the Deferred Compensation Plan. The amount deferred was equal to 125% of total director fees. Each participant was fully vested in his account balance. The Deferred Compensation Plan provides for payment of share units in shares of common stock of the Company after the participant ceased to serve as a director for any reason.

Upon closing of the NAFH Investment, the Deferred Compensation Plan was terminated and all phantom shares in the Plan were distributed to the participants. For the period of January 29, 2011 to March 31, 2011 (Successor), the period of January 1, 2011 to January 28, 2011 (Predecessor) and the three months ended March 31, 2010 (Predecessor), the Company recognized stock-based compensation expense of $0, $35,000 and $150,000, respectively, related to the Deferred Compensation Plan.

9. Derivative Instruments

The Company enters into interest rate lock commitments with customers and commitments to sell mortgages to investors. The period of time between the issuance of a mortgage loan commitment and the closing and sale of the mortgage loan is generally less than 60 days. Interest rate lock commitments and forward loan

F-202

sale commitments represent derivative instruments which are carried at fair value. These derivative instruments do not qualify for hedge accounting. The fair values of the Company’s interest rate lock commitments and forward loan sales commitments are based on current secondary market pricing and are included on the Condensed Consolidated Balance Sheets in mortgage loans held for sale and on the Condensed Consolidated Statements of Operations in mortgage origination and other loan fees.

As of March 31, 2011 (Successor) and December 31, 2010 (Predecessor), the Company had $4,677,000 and $10,318,000, respectively, of commitments outstanding to originate mortgage loans held for sale at fixed rates and $6,101,000 and $17,311,000, respectively, of forward commitments under best efforts contracts to sell mortgages to four different investors. The fair value of the interest rate lock commitments and forward loan sales commitments were not considered material as of March 31, 2011 (Successor) or December 31, 2010 (Predecessor). Thus, there was no impact to the Condensed Consolidated Statements of Operations in either the Successor or Predecessor periods.

10. Commitments and Contingencies

To meet the financial needs of its customers, the Company is party to financial instruments with off-balance-sheet risk in the normal course of business. These financial instruments are comprised of various types of commitments to extend credit, including unused lines of credit and overdraft lines, as well as standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet.

The Company’s exposure to credit loss in the event of nonperformance by the other party is represented by the contractual amount of those instruments. The Company uses the same credit policies in making these commitments as it does for on-balance-sheet instruments. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may include trade accounts receivable, property, plant and equipment, and income-producing commercial properties. Since many unused lines of credit expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Company’s exposure to off-balance-sheet credit risk as of March 31, 2011 (Successor) and December 31, 2010 (Predecessor) was as follows:

	Successor Company		Predecessor Company
	Mar. 31, 2011		Dec. 31, 2010
(Dollars in thousands)
Commitments to extend credit	$	164,640	$	175,318
Standby letters of credit		9,718		10,285
Total commitments	$	174,358	$	185,603

The Company has limited partnership investments in two related private investment funds which totaled $1,829,000 as of both March 31, 2011 (Successor) and December 31, 2010 (Predecessor). These investments are recorded on the cost basis and were included in other assets on the Condensed Consolidated Balance Sheets. Remaining capital commitments to these funds totaled $1,550,000 as of March 31, 2011 (Successor).

11. Fair Value

Fair Value Measurements

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. For example, investment securities, available for sale, are recorded at fair value on a recurring basis. Additionally, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, impaired loans and certain other assets. These

F-203

nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. The following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

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

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.

Loans are not recorded at fair value on a recurring basis. However, certain loans are determined to be impaired, and those loans are charged down to estimated fair value. The fair value of impaired loans that are collateral dependent is based on collateral value. For impaired loans that are not collateral dependent, estimated value is based on either an observable market price, if available, or the present value of expected future cash flows. Those impaired loans not requiring a charge-off represent loans for which the estimated fair value exceeds the recorded investments in such loans. When the fair value of an impaired loan is based on an observable market price or a current appraised value with no adjustments, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value, and there is no observable market price, the Company classifies the impaired loan as nonrecurring Level 3.

Other real estate, which includes foreclosed assets, is adjusted to fair value upon transfer of loans and premises to other real estate. Subsequently, other real estate is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records other real estate as nonrecurring Level 2. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value, and there is no observable market price, the Company classifies other real estate as nonrecurring Level 3.

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2011 (Successor) and December 31, 2010 (Predecessor) are summarized below:

March 31, 2011 (Successor Company)	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
(Dollars in thousands)
Investment securities—available for sale:
U.S. agency obligations	$	—	$	13,926	$	—	$	13,926
Municipal bonds		—		21,548		—		21,548
Mortgage-backed securities issued by GSEs		—		252,748		—		252,748
Non-agency mortgage-backed securities		—		5,581		—		5,581
Other securities		1,722		—		1,107		2,829
Total	$	1,722	$	293,803	$	1,107	$	296,632

F-204

December 31, 2010 (Predecessor Company)	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
(Dollars in thousands)
Investment securities—available for sale:
U.S. agency obligations	$	—	$	18,934	$	—	$	18,934
Municipal bonds		—		21,009		—		21,009
Mortgage-backed securities issued by GSEs		—		165,423		—		165,423
Non-agency mortgage-backed securities		—		6,587		—		6,587
Other securities		1,738		—		1,300		3,038
Total	$	1,738	$	211,953	$	1,300	$	214,991

The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period of January 29, 2011 to March 31, 2011 (Successor), the period of January 1, 2011 to January 28, 2011 (Predecessor) and the three months ended March 31, 2010 (Predecessor):

	Successor Company		Predecessor Company
	Jan. 29, 2011 to Mar.  31, 2011		Jan. 1, 2011 to Jan.  28, 2011			Three Months Ended Mar. 31, 2010
(Dollars in thousands)
Balance at beginning of period	$	1,107	$	1,300		$	1,300
Total unrealized losses included in:
Net income		—		—			—
Other comprehensive income		—		(193	)		—
Purchases, sales and issuances, net		—		—			—
Transfers in and (out) of Level 3		—		—			—
Balance at end of period	$	1,107	$	1,107		$	1,300

Assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2011 (Successor) and December 31, 2010 (Predecessor) are summarized below:

March 31, 2011 (Successor Company)	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
(Dollars in thousands)
Impaired loans	$	—	$	—	$	—	$	—
Other real estate		—		—		14,535		14,535

December 31, 2010 (Predecessor Company)	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
(Dollars in thousands)
Impaired loans	$	—	$	61,006	$	14,985	$	75,990
Other real estate		—		18,334		—		18,334

Fair Value of Financial Instruments

Due to the nature of the Company’s business, a significant portion of its assets and liabilities consist of financial instruments. Accordingly, the estimated fair values of these financial instruments are disclosed. Quoted market prices, if available, are utilized as an estimate of the fair value of financial instruments. Because no

F-205

quoted market prices exist for a significant part of the Company’s financial instruments, the fair value of such instruments has been derived based on management’s assumptions with respect to future economic conditions, the amount and timing of future cash flows and estimated discount rates. Different assumptions could significantly affect these estimates. Accordingly, the net amounts ultimately collected could be materially different from the estimates presented below. In addition, these estimates are only indicative of the values of individual financial instruments and should not be considered an indication of the fair value of the Company taken as a whole.

Fair values of cash and cash equivalents are equal to the carrying value. Estimated fair values of investment securities are based on quoted market prices, if available, or model-based values from pricing sources for mortgage-backed securities and municipal bonds. Fair value of the loan portfolio has been estimated using the present value of expected future cash flows, discounted at a current market rate for each loan type. The amount of expected credit losses and the timing of those losses have also been factored into expected future cash flows. As of March 31, 2011 (Successor), the carrying amount of loans equaled the estimated fair value since the portfolio was adjusted to fair value on January 28, 2011 in connection with the NAFH Investment. Carrying amounts for accrued interest approximate fair value given the short-term nature of interest receivable and payable.

Fair values of time deposits and borrowings are estimated by discounting the future cash flows using the current rates offered for similar deposits and borrowings with the same remaining maturities. Fair value of subordinated debt is estimated based on current market prices for similar trust preferred issues of financial institutions with equivalent credit risk. The estimated fair value for the Company’s subordinated debt is significantly lower than carrying value since credit spreads (i.e., spread to LIBOR) on similar trust preferred issues are currently much wider than when these securities were originally issued. Interest-bearing deposit liabilities and repurchase agreements with no stated maturities are predominately at variable rates and, accordingly, the fair values have been estimated to equal the carrying amounts (the amount payable on demand).

The carrying values and estimated fair values of the Company’s financial instruments as of March 31, 2011 (Successor) and December 31, 2010 (Predecessor) were as follows:

	Successor Company				Predecessor Company
	Mar. 31, 2011				Dec. 31, 2010
(Dollars in thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Cash and cash equivalents	$	116,650	$	116,650	$	66,745	$	66,745
Investment securities		304,902		304,902		223,292		223,292
Mortgage loans held for sale		1,424		1,424		6,993		6,993
Loans		1,125,093		1,125,093		1,218,418		1,146,256
Accrued interest receivable		5,909		5,909		5,158		5,158
Financial Liabilities:
Non-maturity deposits	$	487,419	$	487,419	$	469,956	$	469,956
Time deposits		862,242		862,997		873,330		885,105
Borrowings		93,513		93,513		121,000		126,787
Subordinated debt		19,431		19,431		34,323		19,164
Accrued interest payable		1,442		1,442		1,363		1,363
Unrecognized financial instruments:
Commitments to extend credit		164,640		157,596		175,318		167,817
Standby letters of credit		9,718		9,718		10,285		10,285

F-206

12. TARP Capital Purchase Program

On December 12, 2008, the Company entered into a Securities Purchase Agreement with the U.S. Treasury pursuant to which, among other things, the Company sold to the Treasury 41,279 shares of Series A Preferred Stock and warrants to purchase up to 749,619 shares of common stock (“Warrants”) of the Company for an aggregate purchase price of $41,279,000.

On January 28, 2011, in connection with the NAFH Investment, all outstanding shares of Series A Preferred Stock and the Warrants were repurchased and cancelled for an aggregate purchase price of $41,279,000. The Company recognized a charge of $861,000 for dividends and accretion on preferred stock during the period of January 1, 2011 to January 28, 2011 (Predecessor), which reflected the difference between the carrying value of the preferred stock and its redemption price.

13. Subsequent Events

On April 27, 2011, NAFH received the required regulatory approval to merge Capital Bank into NAFH National Bank, a banking subsidiary owned by NAFH and its affiliate, TIB Financial Corp. In the merger, which the Company expects to complete in June 2011, the Company expects to receive shares of NAFH National Bank in exchange for its shares of Capital Bank at an exchange ratio based on the relative tangible book values of Capital Bank and NAFH National Bank.

F-207

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Capital Bank Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheet of Capital Bank Corporation (the Company) and Subsidiaries as of December 31, 2010, and the related consolidated statements of operations, changes in shareholders’ equity and loss and cash flows for the year ended December 31, 2010. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit 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 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Capital Bank Corporation and Subsidiaries as of December 31, 2010 and the results of their operations and their cash flows for the year ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), of Capital Bank Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 15, 2011, expressed an unqualified opinion on the effectiveness of Capital Bank Corporation’s internal control over financial reporting.

/s/ ELLIOTT DAVIS PLLC

Charlotte, North Carolina

March 15, 2011

F-208

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

of Capital Bank Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheet of Capital Bank Corporation (a North Carolina corporation) and subsidiaries as of December 31, 2009, and the related consolidated statements of operations, changes in shareholders’ equity and comprehensive income (loss) and cash flows for the years in the periods ended December 31, 2009 and 2008. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Capital Bank Corporation and subsidiaries as of December 31, 2009, and the results of its operations and its cash flows for the years in the periods ended December 31, 2009 and 2008, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Capital Bank Corporation’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 10, 2010 (not separately included herein), expressed an unqualified opinion.

/s/ GRANT THORNTON LLP

Raleigh, North Carolina

March 10, 2010

F-209

CAPITAL BANK CORPORATION

CONSOLIDATED BALANCE SHEETS

December 31, 2010 and 2009

	December 31,
	2010			2009
	(Dollars in thousands)
Assets
Cash and cash equivalents:
Cash and due from banks	$	13,646		$	25,002
Interest-bearing deposits with banks		53,099			4,511
Total cash and cash equivalents		66,745			29,513
Investment securities:
Investment securities—available for sale, at fair value		214,991			235,426
Investment securities—held to maturity, at amortized cost		—			3,676
Other investments		8,301			6,390
Total investment securities		223,292			245,492
Mortgage loans held for sale		6,993			—
Loans:
Loans—net of unearned income and deferred fees		1,254,479			1,390,302
Allowance for loan losses		(36,061	)		(26,081	)
Net loans		1,218,418			1,364,221
Other real estate (“ORE”)		18,334			10,732
Premises and equipment, net		25,034			23,756
Bank-owned life insurance		6,972			22,746
Core deposit intangible, net		1,774			2,711
Deferred tax asset		—			12,096
Other assets		17,985			23,401
Total assets	$	1,585,547		$	1,734,668
Liabilities
Deposits:
Demand, noninterest checking	$	116,113		$	141,069
NOW accounts		185,782			175,084
Money market deposit accounts		137,422			184,146
Savings accounts		30,639			28,958
Time deposits		873,330			848,708
Total deposits		1,343,286			1,377,965
Securities sold under agreements to repurchase		—			6,543
Borrowings		121,000			167,000
Subordinated debentures		34,323			30,930
Other liabilities		10,250			12,445
Total liabilities		1,508,859			1,594,883
Shareholders’ Equity
Preferred stock, $1,000 par value; 100,000 shares authorized; 41,279 shares issued and outstanding (liquidation preference of $41,279)		40,418			40,127
Common stock, no par value; 300,000,000 shares authorized; 12,877,846 and 11,348,117 shares issued and outstanding		145,594			139,909
Accumulated deficit		(108,027	)		(44,206	)
Accumulated other comprehensive income (loss)		(1,297	)		3,955
Total shareholders’ equity		76,688			139,785
Total liabilities and shareholders’ equity	$	1,585,547		$	1,734,668

The accompanying notes are an integral part of these consolidated financial statements.

F-210

CAPITAL BANK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2010, 2009 and 2008

	2010			2009			2008
	(Dollars in thousands except per share data)
Interest income:
Loans and loan fees	$	68,474		$	70,178		$	72,494
Investment securities:
Taxable interest income		7,483			9,849			8,935
Tax-exempt interest income		1,596			3,026			3,169
Dividends		80			46			294
Federal funds and other interest income		89			42			128
Total interest income		77,722			83,141			85,020
Interest expense:
Deposits		21,082			28,037			33,042
Borrowings and repurchase agreements		5,677			6,226			9,382
Total interest expense		26,759			34,263			42,424
Net interest income		50,963			48,878			42,596
Provision for loan losses		58,545			23,064			3,876
Net interest income (loss) after provision for loan losses		(7,582	)		25,814			38,720
Noninterest income:
Service charges and other fees		3,311			3,883			4,545
Bank card services		2,020			1,539			1,332
Mortgage origination and other loan fees		1,861			1,935			2,148
Brokerage fees		963			698			732
Bank-owned life insurance		699			1,830			952
Gain on sale of branch		—			—			374
Other income		840			607			719
Securities gains (losses):
Realized securities gains, net		5,855			173			249
Other-than-temporary impairments		—			(1,082	)		—
Less: non-credit portion recognized in other comprehensive income		—			584			—
Total securities gains (losses), net		5,855			(325	)		249
Total noninterest income		15,549			10,167			11,051
Noninterest expense:
Salaries and employee benefits		22,675			22,112			20,951
Occupancy		5,906			5,630			4,458
Furniture and equipment		3,183			3,155			3,135
Data processing and telecommunications		2,092			2,317			2,135
Advertising and public relations		1,887			1,610			1,515
Office expenses		1,260			1,383			1,317
Professional fees		2,514			1,488			1,479
Business development and travel		1,350			1,244			1,393
Amortization of core deposit intangible		937			1,146			1,037
ORE losses and miscellaneous loan costs		5,006			1,646			898
Directors’ fees		1,061			1,418			1,044
FDIC deposit insurance		3,846			2,721			685
Goodwill impairment charge		—			—			65,191
Other expenses		2,592			3,940			1,424
Total noninterest expense		54,309			49,810			106,662
Net loss before income taxes		(46,342	)		(13,829	)		(56,891	)
Income tax expense (benefit)		15,124			(7,013	)		(1,207	)
Net loss		(61,466	)		(6,816	)		(55,684	)
Dividends and accretion on preferred stock		2,355			2,352			124
Net loss attributable to common shareholders	$	(63,821	)	$	(9,168	)	$	(55,808	)
Net loss per common share—basic	$	(4.98	)	$	(0.80	)	$	(4.94	)
Net loss per common share—diluted	$	(4.98	)	$	(0.80	)	$	(4.94	)

The accompanying notes are an integral part of these consolidated financial statements.

F-211

CAPITAL BANK CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE LOSS

For the Years Ended December 31, 2010, 2009 and 2008

											Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total
	Preferred Stock				Common Stock
	Shares		Amount		Shares			Amount
	(Dollars in thousands)
Balance at January 1, 2008		—	$	—		11,169,777		$	136,154		$	161		$	27,985		$	164,300
Comprehensive loss:
Net loss		—		—		—			—			—			(55,684	)		(55,684	)
Net unrealized loss on investment securities, net of tax benefit of $9		—		—		—			—			(13	)		—			(13	)
Net unrealized gain on cash flow hedge, net of tax of $464		—		—		—			—			738			—			738
Total comprehensive loss		—		—		—			—			—			—			(54,959	)
Issuance of preferred stock with warrants, net of issuance costs		41,279		39,827		—			1,333			—			—			41,160
Accretion of preferred stock discount		—		12		—			—			—			(12	)		—
Repurchase of common stock		—		—		(10,166	)		(92	)		—			—			(92	)
Issuance of common stock for options exercised		—		—		26,591			206			—			—			206
Restricted stock awards		—		—		24,000			288			—			—			288
Stock option expense		—		—		—			32			—			—			32
Modification of directors’ deferred compensation plan		—		—		—			943			—			—			943
Directors’ deferred compensation		—		—		27,883			345			—			—			345
Dividends on preferred stock		—		—		—			—			—			(112	)		(112	)
Dividends on common stock ($0.32 per share)		—		—		—			—			—			(3,597	)		(3,597	)
Balance at December 31, 2008		41,279	$	39,839		11,238,085		$	139,209		$	886		$	(31,420	)	$	148,514
Comprehensive loss:
Net loss		—		—		—			—			—			(6,816	)		(6,816	)
Net unrealized gain on investment securities, net of tax of $3,169		—		—		—			—			5,051			—			5,051
Net unrealized loss on cash flow hedge, net of tax benefit of $1,215		—		—		—			—			(1,936	)		—			(1,936	)
Prior service cost recognized on SERP, net of amortization		—		—		—			—			(46	)		—			(46	)
Total comprehensive loss		—		—		—			—			—			—			(3,747	)
Accretion of preferred stock discount		—		288		—			—			—			(288	)		—
Restricted stock awards		—		—		16,692			107			—			—			107
Stock option expense		—		—		—			50			—			—			50
Directors’ deferred compensation						93,340			543			—			—			543
Dividends on preferred stock		—		—		—			—			—			(2,064	)		(2,064	)
Dividends on common stock ($0.32 per share)		—		—		—			—			—			(3,618	)		(3,618	)
Balance at December 31, 2009		41,279	$	40,127		11,348,117		$	139,909		$	3,955		$	(44,206	)	$	139,785
Comprehensive loss:
Net loss		—		—		—			—			—			(61,466	)		(61,466	)
Net unrealized loss on investment securities, net of tax benefit of $3,300		—		—		—			—			(5,260	)		—			(5,260	)
Prior service cost recognized on SERP, net of amortization		—		—		—			—			8			—			8
Total comprehensive loss		—		—		—			—			—			—			(66,718	)
Accretion of preferred stock discount		—		291		—			—			—			(291	)		—
Issuance of common stock		—		—		1,468,770			5,065			—			—			5,065
Restricted stock forfeiture		—		—		(3,508	)		(10	)		—			—			(10	)
Stock option expense		—		—					54			—			—			54
Directors’ deferred compensation		—		—		64,467			576			—			—			576
Dividends on preferred stock		—		—		—			—			—			(2,064	)		(2,064	)
Balance at December 31, 2010		41,279	$	40,418		12,877,846		$	145,594		$	(1,297	)	$	(108,027	)	$	76,688

The accompanying notes are an integral part of these consolidated financial statements.

F-212

CAPITAL BANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2010, 2009 and 2008

	2010			2009			2008
(Dollars in thousands)
Cash flows from operating activities:
Net loss	$	(61,466	)	$	(6,816	)	$	(55,684	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for loan losses		58,545			23,064			3,876
Loss on repurchase of mortgage loans		—			361			—
Amortization of core deposit intangible		937			1,146			1,037
Depreciation		2,629			2,893			2,639
Goodwill impairment charge		—			—			65,191
Stock-based compensation		736			702			477
(Gain) loss on securities, net		(5,855	)		325			(249	)
Amortization of premium on securities, net		98			180			80
Loss on disposal of premises, equipment and other real estate		444			88			81
ORE valuation adjustments		2,088			217			—
Bank-owned life insurance income		(699	)		(378	)		(779	)
Deferred income tax expense (benefit)		15,396			(4,708	)		(3,715	)
Gain on sale of branch		—			—			(374	)
Net change in:
Mortgage loans held for sale		(6,993	)		—			—
Accrued interest receivable and other assets		5,070			(5,972	)		1,344
Accrued interest payable and other liabilities		(1,279	)		(220	)		(1,553	)
Net cash provided by operating activities		9,651			10,882			12,371
Cash flows from investing activities:
Loan (originations) principal repayments, net		68,805			(162,132	)		(124,503	)
Additions to premises and equipment		(3,938	)		(3,326	)		(4,750	)
Proceeds from sales of premises, equipment and real estate owned		8,350			5,686			7,693
Proceeds from surrender of bank-owned life insurance		16,473			—			—
Net cash paid in branch sale		—			—			(7,757	)
Net cash received in business combination		—			—			50,573
(Purchases) sales of FHLB stock, net		(1,680	)		(20	)		1,272
Purchases of securities—available for sale		(232,579	)		(31,842	)		(91,243	)
Proceeds from sales of securities—available for sale		164,012			21,703			38,359
Proceeds from principal repayments/calls/maturities of securities—available for sale		89,021			48,947			27,913
Proceeds from principal repayments/calls/maturities of securities—held to maturity		853			1,503			4,824
Net cash provided by (used in) investing activities		109,317			(119,481	)		(97,619	)
Cash flows from financing activities:
Increase (decrease) in deposits, net		(34,679	)		62,651			125,134
Decrease in repurchase agreements, net		(6,543	)		(8,467	)		(24,890	)
Proceeds from borrowings		189,000			183,000			302,600
Principal repayments of borrowings		(235,000	)		(148,000	)		(335,600	)
Repayment of federal funds purchased		—			—			(5,395	)
Proceeds from issuance of subordinated debentures		3,393			—			—
Proceeds from issuance of preferred stock		—			—			41,160
Proceeds from issuance of common stock		5,065			—			206
Repurchase of common stock		—			—			(92	)
Dividends paid		(2,972	)		(5,527	)		(3,592	)
Net cash provided by (used in) financing activities		(81,736	)		83,657			99,531
Net change in cash and cash equivalents	$	37,232		$	(24,942	)	$	14,283
Cash and cash equivalents at beginning of year		29,513			54,455			40,172
Cash and cash equivalents at end of year	$	66,745		$	29,513		$	54,455
Supplemental Disclosure of Cash Flow Information
Noncash investing activities:
Transfers of loans and premises to ORE	$	18,453		$	15,356		$	2,645
Transfers of securities from held to maturity to available for sale		2,822			—			—
Cash paid for (received from):
Income taxes	$	(2,190	)	$	(4,521	)	$	2,815
Interest		27,219			35,364			41,983

F-213

Capital Bank Corporation—Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Organization and Nature of Operations

Capital Bank Corporation (the “Company”) is a bank holding company incorporated under the laws of North Carolina on August 10, 1998. The Company’s primary wholly-owned subsidiary is Capital Bank (the “Bank”), a state-chartered banking corporation that was incorporated under the laws of North Carolina on May 30, 1997 and commenced operations on June 20, 1997. In addition, the Company has interest in three trusts, Capital Bank Statutory Trust I, II, and III (hereinafter collectively referred to as the “Trusts”).

The Bank is a community bank engaged in general commercial banking, providing a full range of banking services. The majority of the Bank’s customers are individuals and small- to medium-size businesses. The Bank’s primary source of revenue is interest earned from loans to customers, interest earned from invested cash and securities, and noninterest income derived from various fees. The Bank 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 each in Clayton, Graham, Hickory, Holly Springs, Mebane, Morrisville, Oxford, Siler City, Pittsboro, Wake Forest and Zebulon. The Company’s corporate headquarters is located at 333 Fayetteville Street in Raleigh, North Carolina.

The Trusts were formed for the sole purpose of issuing trust preferred securities and are not consolidated with the financial statements of the Company. The proceeds from such issuances were loaned to the Company in exchange for the subordinated debentures, which are the sole assets of the Trusts. A portion of the proceeds from the issuance of the subordinated debentures were used by the Company to repurchase shares of Company common stock. The Company’s obligation under the subordinated debentures constitutes a full and unconditional guarantee by the Company of the Trust’s obligations under the trust preferred securities. The Trusts have no operations other than those that are incidental to the issuance of the trust preferred securities (See Note 9—Subordinated Debentures).

Transaction with North American Financial Holdings, Inc.

On January 28, 2011, the Company completed the issuance and sale to North American Financial Holdings, Inc. of 71,000,000 shares of common stock for $181,050,000 in cash. As a result of the Investment and following the completion of the Rights Offering on March 11, 2011, NAFH currently owns approximately 83% of the Company’s common stock. The Company’s shareholders approved the issuance of such shares to NAFH, and an amendment to the Company’s articles of incorporation to increase the authorized shares of common stock to 300,000,000 shares from 50,000,000 shares, at a special meeting of shareholders held on December 16, 2010. In connection with the Investment, each existing Company shareholder received one contingent value right 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 the Bank’s existing loan portfolio.

Also in connection with the Investment, pursuant to an agreement among NAFH, the Treasury, and the Company, the Company’s Series A Preferred Stock and warrant to purchase shares of common stock issued by the Company to the Treasury in connection with the TARP were repurchased. Following the TARP Repurchase, the Series A Preferred Stock and warrant are no longer outstanding, and accordingly the Company no longer expects to be subject to the restrictions imposed by the terms of the Series A Preferred Stock or certain regulatory provisions of the EESA and the ARRA that are imposed on TARP recipients.

Pursuant to the Investment Agreement, shareholders as of January 27, 2011 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 $2.55 per share, subject to certain limitations. 1,613,165 shares of the Company’s common stock were issued in exchange for $4,113,570.75 upon completion of the Rights Offering on March 11, 2011.

See Note 21 (Subsequent Events) for more details on this transaction.

F-214

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Assets held by the Company in trust are not assets of the Company and are not included in the consolidated financial statements.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The more significant estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, other-than-temporary impairment on investment securities, deferred tax asset valuation allowances, and impairment of long-lived assets. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include demand and time deposits (with original maturities of 90 days or less) at other institutions, federal funds sold and other short-term investments. Generally, federal funds are purchased and sold for one-day periods. At times, the Company places deposits with high credit quality financial institutions in amounts, which may be in excess of federally insured limits. Depository institutions are required to maintain reserve and clearing balances with the Federal Reserve Bank (“FRB”). Accordingly, the Company held funds with the FRB to cover daily reserve and clearing balance requirements totaling $5.2 million and $6.1 million as of December 31, 2010 and 2009, respectively.

Investment Securities

Investments in certain securities are classified into three categories and accounted for as follows:

• Held to Maturity—Debt securities that the institution has the positive intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost; or

• Trading Securities—Debt and equity securities that are bought and held principally for the purpose of selling in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings; or

• Available for Sale—Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses reported as other comprehensive income, a separate component of shareholders’ equity.

The initial classification of securities is determined at the date of purchase. Gains and losses on sales of investment securities, computed based on specific identification of the adjusted cost of each security, are included in noninterest income at the time of the sales. Premiums and discounts on debt securities are recognized in interest income using the level interest yield method over the period to maturity, or when the debt securities are called.

At each reporting date, the Company evaluates each held to maturity and available for sale investment security in a loss position for other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as (1) the length of time and the extent to which the fair value has been below cost, (2) changes in the earnings performance, credit rating, asset quality, or business prospects

F-215

of the issuer, (3) the ability of the issuer to make principal and interest payments, (4) changes in the regulatory, economic, or technological environment of the issuer, and (5) changes in the general market condition of either the geographic area or industry in which the issuer operates.

Regardless of these factors, if the Company has developed a plan to sell the security or it is likely that the Company will be forced to sell the security in the near future, then the impairment is considered other-than-temporary and the carrying value of the security is permanently written down to the current fair value with the difference between the new carrying value and the amortized cost charged to earnings. If the Company 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 credit loss, the other-than-temporary impairment is separated into the following: (1) the amount representing the credit loss and (2) the amount related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings, and the amount of the total other-than-temporary impairment related to other factors is recognized in other comprehensive income, net of applicable taxes.

Other investments primarily include Federal Home Loan Bank of Atlanta (“FHLB”) stock, which does not have a readily determinable fair value because its ownership is restricted and lacks a market for trading. This investment is carried at cost and is periodically evaluated for impairment.

Mortgage Loans Held for Sale

Loans originated and intended for sale in the secondary market 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. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

Loans

Loans are stated at the amount of unpaid principal, net of any unearned income, charge-offs, net deferred loan origination fees and costs, and unamortized premiums or discounts. Interest on loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. Deferred loan fees and costs are amortized to interest income over the contractual life of the loan using the level interest yield method.

For disclosures regarding the credit quality of loans and the allowance for loan losses, the loan portfolio is disaggregated into segments and then further disaggregated into classes. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. A class is generally determined based on the initial measurement attribute (i.e. amortized cost or purchased credit impaired), risk characteristics of the loan, and an entity’s method for monitoring and assessing credit risk. Commercial loan portfolio segments include commercial real estate (“CRE”), commercial and industrial (“C&I”), and other loans, which includes agricultural and municipal loans. Classes within CRE include CRE—construction and land development, CRE—non-owner occupied, and CRE—owner occupied. Consumer loan portfolio segments include consumer real estate and other consumer loans. Classes within consumer real estate include residential mortgage and home equity lines of credit.

Nonperforming Assets and Impaired Loans

Loans are considered past due when the contractual amounts due with respect to principal and interest are not received within 30 days of the contractual due date. Loans are generally classified as nonaccrual if they are past due for a period of more than 90 days, unless such loans are well secured and in the process of collection. If a loan or a portion of a loan is classified as doubtful or as partially charged off, the loan is generally classified as nonaccrual. Loans that are on a current payment status or past due less than 90 days may also be classified as nonaccrual if repayment in full of principal and/or interest is in doubt. Loans may be returned to accrual status

F-216

when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance of interest and principal by the borrower in accordance with the contractual terms.

While a loan is classified as nonaccrual and the future collectability of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to the principal outstanding, except in the case of loans with scheduled amortizations where the payment is generally applied to the oldest payment due. When the future collectability of the recorded loan balance is expected, interest income may be recognized on a cash basis. In the case where a nonaccrual loan had been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered.

Assets acquired as a result of foreclosure are recorded at estimated fair value in other real estate. Any excess of cost over estimated fair value at the time of foreclosure is charged to the allowance for loan losses. Valuations are periodically performed on these properties, and any subsequent write-downs are charged to noninterest expense. Routine maintenance and other holding costs are included in noninterest expense.

A loan is classified as a troubled debt restructuring (“TDR”) by the Company when certain modifications are made to the loan terms and concessions are granted to the borrowers due to financial difficulty experienced by those borrowers. The Company only restructures loans for borrowers in financial difficulty that have designed a viable business plan to fully pay off all obligations, including outstanding debt, interest, and fees, either by generating additional income from the business or through liquidation of assets. Generally, these loans are restructured to provide the borrower additional time to execute upon their plans. The Company grants 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. The Company does not generally grant concessions through forgiveness of principal or accrued interest.

Restructured loans where a concession has been granted through extension of the maturity date generally include extension of payments in an interest only period, extension of payments with capitalized interest and extension of payments through a forbearance agreement. These extended payment terms are also combined with a reduction of the stated interest rate in certain cases. In situations where a TDR is unsuccessful and the borrower is unable to follow through with terms of the restructured agreement, the loan is placed on nonaccrual status and continues to be written down to the underlying collateral value.

The Company’s policy with respect to accrual of interest on loans restructured in a TDR follows relevant supervisory guidance. That is, if a borrower has demonstrated performance under the previous loan terms and shows capacity to perform under the restructured loan terms, continued accrual of interest at the restructured interest rate is likely. If a borrower was materially delinquent on payments prior to the restructuring but shows the capacity to meet the restructured loan terms, the loan will likely continue as nonaccrual going forward. Lastly, if the borrower does not perform under the restructured terms, the loan is placed on nonaccrual status. The Company closely monitors these loans and ceases accruing interest on them if management believes that the borrowers may not continue performing based on the restructured note terms. If a loan is restructured a second time, after previously being classified as a TDR, that loan is automatically placed on nonaccrual status. The Company’s policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms before that loan can be placed back on accrual status. Further, the borrower must show capacity to continue performing into the future prior to restoration of accrual status.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectability of principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses represents

F-217

management’s best estimate of probable credit losses that are inherent in the loan portfolio at the balance sheet date and is determined by management through at least quarterly evaluations of the loan portfolio.

The allowance calculation consists of reserves on loans individually evaluated for impairment and reserves on loans collectively evaluated for impairment. A loan is considered impaired, based on current information and events, if it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Reserves, or charge-offs, on individually impaired loans that are collateral dependent are based on the fair value of the underlying collateral while reserves, or charge-offs, on loans that are not collateral dependent are based on either an observable market price, if available, or the present value of expected future cash flows discounted at the historical effective interest rate. Management evaluates loans that are classified as doubtful, substandard or special mention to determine whether or not they are individually impaired. This evaluation includes several factors, including review of the loan payment status and the borrower’s financial condition and operating results such as cash flows, operating income or loss, etc.

Reserves on loans collectively evaluated for impairment are determined by applying loss rates to pools of loans that are grouped according to loan collateral type and credit risk. Loss rates are based on the Company’s historical loss experience in each pool and management’s consideration of the following environmental factors:

• Levels of and trends in delinquencies, impaired loans and classified assets;

• Levels of and trends in charge-offs and recoveries;

• Trends in nature, volume and terms of loans;

• Existence of and changes in portfolio concentrations by product type and geographical location;

• Changes in national, regional and local economic conditions;

• Changes in the experience, ability and depth of lending management;

• Changes in the quality of the loan review system; and

• The effect of other external factors such as legal and regulatory requirements.

The evaluation of the allowance for loan losses is inherently subjective, and management uses the best information available to establish this estimate. However, if factors such as economic conditions differ substantially from assumptions, or if amounts and timing of future cash flows expected to be received on impaired loans vary substantially from the estimates, future adjustments to the allowance for loan losses may be necessary. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about all relevant information available to them at the time of their examination. Any adjustments to original estimates are made in the period in which the factors and other considerations indicate that adjustments to the allowance for loan losses are necessary.

Bank-Owned Life Insurance

The Company has purchased life insurance policies on certain key employees and directors. These policies are recorded in other assets at their cash surrender value, or the amount that can be realized. Income from these policies and changes in the net cash surrender value are recorded in noninterest income.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed by the straight-line method based on estimated service lives of assets. Useful lives range from 3 to 10 years for furniture and equipment, and 10 to 40 years for buildings. The cost of leasehold improvements is being amortized using the straight-line method over the terms of the related leases. Repairs and

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maintenance are charged to expense as incurred. Upon disposition, the asset and related accumulated depreciation and/or amortization are relieved, and any gains or losses are reflected in earnings.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss is recognized if the sum of the undiscounted future cash flows is less than the carrying amount of the asset. Assets to be disposed of are transferred to other real estate owned and are reported at the lower of the carrying amount or fair value less costs to sell.

Goodwill and Other Intangible Assets

Goodwill represents the cost in excess of the fair value of net assets acquired (including identifiable intangibles) in transactions accounted for as business combinations. Goodwill has an indefinite useful life and is evaluated for impairment annually, or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. The goodwill impairment analysis is a two-step test. The first, used to identify potential impairment, involves comparing each reporting unit’s estimated fair value to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment.

If required, the second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess.

Other intangible assets include premiums paid for acquisitions of core deposits and other identifiable intangible assets. Intangible assets other than goodwill, which are determined to have finite lives, are amortized based upon the estimated economic benefits received.

Income Taxes

Deferred tax asset and liability balances are determined by application to temporary differences of the tax rate expected to be in effect when taxes will become payable or receivable. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date. 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.

A valuation allowance is recorded for deferred tax assets 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. In future periods, the Company may be able to reduce some or all of the valuation allowance upon a determination that it will be able to realize such tax savings.

Derivative Instruments

The Company uses derivative instruments to manage and mitigate interest rate risk, to facilitate asset and liability management strategies, and to manage other risk exposures. A derivative is a financial instrument that

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derives its cash flows, and therefore its value, by reference to an underlying instrument, index, or referenced interest rate.

Derivatives are recorded on the consolidated balance sheet at fair value. For fair value hedges, the change in the fair value of the derivative and the corresponding change in fair value of the hedged risk in the underlying item being hedged are accounted for in earnings. Any difference in these two changes in fair value results in hedge ineffectiveness that results in a net impact to earnings. For cash flow hedges, changes in the fair value of the derivative are, to the extent that the hedging relationship is effective, recorded as other comprehensive income and subsequently recognized in earnings at the same time that the hedged item is recognized in earnings. Any portion of a hedge that is ineffective is recognized immediately as other noninterest income or expense.

Derivative contracts are written in amounts referred to as notional amounts. Notional amounts only provide the basis for calculating payments between counterparties and do not represent amounts to be exchanged between parties and are not a measure of financial risk. Like other financial instruments, derivatives contain an element of credit risk, which is the possibility that the Company will incur a loss because a counterparty fails to meet its contractual obligations. Potential credit losses are minimized through careful evaluation of counterparty credit standing, selection of counterparties from a limited group of high quality institutions, and other contract provisions.

Advertising Costs

The Company expenses advertising costs as they are incurred and advertising communications costs the first time the advertising takes place. The Company may establish accruals for committed advertising costs as incurred.

Stock-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees in addition to stock issued through a deferred compensation plan for non-employee directors. Compensation cost is measured as the fair value of these awards on their date of grant. A Black-Scholes option pricing model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used as the fair value of restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period for stock options awards and as the restriction period for restricted stock awards.

Option pricing models require the use of highly subjective assumptions, including expected stock volatility, which if changed can materially affect fair value estimates. The expected life of options used in the option pricing model is the period the options are expected to remain outstanding. Expected stock price volatility is based on the historical volatility of the Company’s common stock for a period approximating the expected life of the option, the expected dividend yield is based on the Company’s historical annual dividend payout, and the risk-free rate is based on the implied yield available on U.S. Treasury issues.

Fair Value Measurements

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company follows the fair value hierarchy which gives the highest priority to quoted prices in active markets (observable inputs) and the lowest priority to the management’s assumptions (unobservable inputs). For assets and liabilities recorded at fair value, the Company’s policy is to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements.

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

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. An adjustment to the pricing method used within either Level 1 or Level 2 inputs could generate a fair value measurement that effectively falls to a lower level in the hierarchy. These levels are described as follows:

• Level 1—Valuations for assets and liabilities traded in active exchange markets.

• Level 2—Valuations for assets and liabilities that can be obtained from readily available pricing sources via independent providers for market transactions involving similar assets or liabilities. The Company’s principal market for these securities is the secondary institutional markets, and valuations are based on observable market data in those markets.

• Level 3—Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

The determination of where an asset or liability falls in the fair value hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures at each reporting period and based on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects changes in classifications between levels will be rare.

Earnings (Loss) per Common Share

Basic earnings (loss) per common share (“EPS”) excludes dilution and is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS assumes the conversion, exercise or issuance of all potential common stock instruments, such as stock options and warrants, unless the effect is to reduce a loss or increase earnings. Basic EPS is adjusted for outstanding stock options and warrants using the treasury stock method in order to compute diluted EPS. The calculation of basic and diluted EPS for the years ended December 31, 2010, 2009 and 2008 were as follows:

	2010			2009			2008
(Dollars in thousands except per share data)
Net loss attributable to common shareholders	$	(63,821	)	$	(9,168	)	$	(55,808	)
Shares used in the computation of earnings per share:
Weighted average number of shares outstanding—basic		12,810,905			11,470,314			11,302,769
Incremental shares from assumed exercise of stock options		—			—			—
Weighted average number of shares outstanding—diluted		12,810,905			11,470,314			11,302,769
Net loss per common share—basic	$	(4.98	)	$	(0.80	)	$	(4.94	)
Net loss per common share—diluted	$	(4.98	)	$	(0.80	)	$	(4.94	)

For the years ended December 31, 2010, 2009 and 2008, outstanding options to purchase 297,880, 366,583 and 238,672 shares, respectively, of common stock were excluded from the diluted calculation because the option price exceeded the average fair market value of the associated shares of common stock. For the year ended

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December 31, 2008, outstanding options to purchase 139,411 shares of common stock were excluded from the diluted calculation because the dilutive effect of those options would have reduced net loss per common share in that year.

For the years ended December 31, 2010, 2009 and 2008, outstanding warrants issued to the U.S. Treasury to purchase 749,619 shares of common stock were excluded from the diluted calculation because the warrant exercise price exceeded the average fair market value of the associated shares of common stock.

Comprehensive Income (Loss)

Comprehensive income (loss) represents the change in the Company’s equity during the period from transactions and other events and circumstances from non-owner sources. Total comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). The Company’s other comprehensive income (loss) and accumulated other comprehensive income (loss) are comprised of unrealized gains and losses on certain investments in debt securities, and in prior years, derivatives that qualified as cash flow hedges to the extent that the hedge was effective. The Company’s other comprehensive income (loss) for the years ended December 31, 2010, 2009 and 2008 was as follows:

	2010			2009			2008
(Dollars in thousands)
Unrealized gains (losses) on securities—available for sale	$	(8,560	)	$	8,220		$	(22	)
Unrealized gain (loss) on cash flow hedge		—			(3,151	)		1,202
Prior service cost recognized on SERP, net of amortization		8			(46	)		—
Income tax effect		3,300			(1,954	)		(455	)
Other comprehensive income (loss)	$	(5,252	)	$	3,069		$	725

Segment Information

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company has determined that it has one significant operating segment, which is the providing of general commercial banking and financial services to individuals and businesses primarily located in North Carolina. The Company’s various products and services are those generally offered by community banks, and the allocation of its resources is based on the overall performance of the institution versus individual regions, branches or products and services.

Reclassifications

Certain amounts previously reported have been reclassified to conform to the current year’s presentation. These reclassifications impacted certain noninterest income and noninterest expense items and had no effect on total assets, net income, or shareholders’ equity previously reported. The noninterest income and noninterest expense reclassifications were made in an effort to more clearly disclose certain elements in the Consolidated Statements of Operations.

Current Accounting Developments

In January 2011, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2011-1, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20, to amend FASB Accounting Standards Codification (“ASC”) Topic 320, Receivables. The amendments in this update temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU 2010-20 for public entities. The delay is intended to allow the FASB time to complete its

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deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated.

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. Management does not believe that adoption of this update will have a material impact on the Company’s financial position or results of operations.

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 financial position or results of operations.

In April 2010, the FASB issued ASU 2010-18, Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset, to amend ASC Topic 320, Receivables. The amendments in this update provide that for acquired troubled loans which meet the criteria to be accounted for within a pool, modifications to one or more of these loans does not result in the removal of the modified loan from the pool even if the modification would otherwise be considered a troubled debt restructuring. The pool of assets in which the loan is included will continue to be considered for impairment. The amendments do not apply to loans not meeting the criteria to be accounted for within a pool. These amendments were effective for modifications of loans accounted for within pools occurring in the first interim or annual period ending on or after July 15, 2010. Adoption of this update did not have a material impact on the Company’s financial position or results of operations.

In February 2010, the FASB issued ASU 2010-09, Amendments to Certain Recognition and Disclosure Requirements, to amend ASC Topic 855, Subsequent Events. The amendments in this update removed the requirement to disclose the date through which subsequent events have been evaluated and became effective immediately upon issuance. Adoption of this update did not have a material impact on the Company’s financial position or results of operations.

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2. Investment Securities

Investment securities as of December 31, 2010 and 2009 are summarized as follows:

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
(Dollars in thousands)
December 31, 2010
Available for sale:
U.S. agency obligations	$	19,003	$	18	$	87	$	18,934
Municipal bonds		22,455		75		1,521		21,009
Mortgage-backed securities issued by GSEs		165,540		78		195		165,423
Non-agency mortgage-backed securities		6,790		39		242		6,587
Other securities		3,252		—		214		3,038
		217,040		210		2,259		214,991
Other investments		8,301		—		—		8,301
Total at December 31, 2010	$	225,341	$	210	$	2,259	$	223,292
December 31, 2009
Available for sale:
U.S. agency obligations	$	1,000	$	29	$	—	$	1,029
Municipal bonds		72,556		1,006		668		72,894
Mortgage-backed securities issued by GSEs		144,762		6,896		—		151,658
Non-agency mortgage-backed securities		8,345		19		567		7,797
Other securities		2,252		—		204		2,048
		228,915		7,950		1,439		235,426
Held to maturity:
Municipal bonds	$	300	$	7	$	—	$	307
Mortgage-backed securities issued by GSEs		1,576		84		—		1,660
Non-agency mortgage-backed securities		1,800		—		145		1,655
		3,676		91		145		3,622
Other investments		6,390		—		—		6,390
Total at December 31, 2009	$	238,981	$	8,041	$	1,584	$	245,438

Credit related other than temporary impairments (“OTTI”) are recognized in net income (loss) and non-credit related impairments are recognized in other comprehensive income (loss) during the period the impairment is identified. Gross realized gains and losses and OTTI recognized in net income and other comprehensive income are reflected in the following table:

	Years Ended December 31,
	2010			2009			2008
(Dollars in thousands)
Gross realized gains	$	5,863		$	493		$	323
Gross realized losses		(8	)		(320	)		(74	)
Net realized gains		5,855			173			249
OTTI recognized on non-agency mortgage-backed securities:
Total OTTI on non-agency mortgage-backed securities		—			(381	)		—
Non-credit portion recognized in other comprehensive income		—			381			—
Credit related OTTI on non-agency mortgage-backed securities recognized in income
OTTI recognized on corporate bonds (in other securities):
Total OTTI on corporate bonds		—			(701	)		—
Non-credit portion recognized in other comprehensive income		—			202			—
Credit related OTTI on corporate bonds recognized in income		—			(498	)		—
Total OTTI recognized in income		—			(498	)		—
Securities gains (losses), net	$	5,855		$	(325	)	$	249

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On at least a quarterly basis, the Company completes an OTTI assessment of its investment portfolio. The Company considers many factors, including the severity and duration of the impairment and recent events specific to the issuer or industry, including any changes in credit ratings.

In the year ended December 31, 2009, losses on 3 securities were determined to represent OTTI. The first of these investments was a private label mortgage security with a book value and unrealized loss of $699,000 and ($212,000), respectively, as of December 31, 2010 compared with a book value and unrealized loss of $810,000 and ($381,000), respectively, as of December 31, 2009. This impairment determination was based on the extent and duration of the unrealized loss as well as credit rating downgrades from rating agencies to below investment grade. Based on its analysis of expected cash flows, management expects to receive all contractual principal and interest from this security and therefore did not consider any of the unrealized loss to represent credit impairment. The second of these investments was subordinated debt of a community bank with a book value and unrealized loss of $1.0 million and ($202,000), respectively, as of both December 31, 2010 and 2009. This impairment determination was based on the extent of the unrealized loss as well as recent adverse economic and market conditions for community banks in general. Based on its review of capital, liquidity and earnings of this institution, management expects to receive all contractual principal and interest from this security and therefore did not consider any of the unrealized loss to represent credit impairment. Unrealized losses from these two investments were related to factors other than credit and were recorded to other comprehensive income. The third of these investments was an investment in trust preferred securities of a community bank with a par value of $1.0 million. This investment was determined to be credit impaired and was written down to estimated fair value with a $498,000 charge to income in the year ended December 31, 2009.

The following table summarizes the gross unrealized losses and fair value of the Company’s investments in an unrealized loss position for which OTTI has not been recognized in income, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of December 31, 2010 and 2009:

	Less than 12 Months				12 Months or Greater				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(Dollars in thousands)
December 31, 2010
Available for sale:
U.S. agency obligations	$	8,916	$	87	$	—	$	—	$	8,916	$	87
Municipal bonds		14,886		1,134		2,453		387		17,339		1,521
Mortgage-backed securities issued by GSEs		14,473		195		—		—		14,473		195
Non-agency mortgage-backed securities		—		—		4,183		242		4,183		242
Other securities		—		—		2,536		214		2,536		214
Total at December 31, 2010	$	38,275	$	1,416	$	9,172	$	843	$	47,447	$	2,259
December 31, 2009
Available for sale:
Municipal bonds	$	21,194	$	448	$	2,382	$	220	$	23,576	$	668
Non-agency mortgage-backed securities		3,711		93		2,791		474		6,502		567
Other securities		—		—		1,546		204		1,546		204
		24,905		541		6,719		898		31,624		1,439
Held to maturity:
Non-agency mortgage-backed securities		—		—		1,655		145		1,655		145
Total at December 31, 2009	$	24,905	$	541	$	8,374	$	1,043	$	33,279	$	1,584

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As of December 31, 2010, unrealized losses on the Company’s investments in non-agency mortgage-backed securities, or private label mortgage securities, are related to 4 different securities. These losses are due to a combination of changes in credit spreads and other market factors. These mortgage securities are not issued or guaranteed by an agency of the federal government but are instead issued by private financial institutions and therefore carry an element of credit risk. Management closely monitors the performance of these securities and the underlying mortgages, which includes a detailed review of credit ratings, prepayment speeds, delinquency rates, default rates, current loan-to-values, geography of collateral, remaining terms, interest rates, loan types, etc. The Company has engaged a third party expert to provide a quarterly “stress test” of each private label mortgage security through a model using assumptions to simulate certain credit events and recessionary conditions and their impact on the performance and expected cash flows of each mortgage security.

Unrealized losses on the Company’s investments in municipal bonds are related to 30 different securities. These losses are primarily related to concerns in the marketplace regarding credit quality of certain municipalities in light of the recent economic recession and high unemployment rates as well as expectations of future market interest rates. Management monitors the underlying credit of these bonds by reviewing the financial strength of the issuers and the sources of taxes and other revenues available to service the debt. Unrealized losses on other securities relate to an investment in subordinated debt of one corporate financial institution. Management monitors the financial strength of this institution by reviewing its quarterly financial reports and considers its capital, liquidity and earnings in this review.

The securities in an unrealized loss position as of December 31, 2010 not previously determined to have OTTI continue to perform and are expected to perform through maturity, and the issuers have not experienced significant adverse events that would call into question their ability to repay these debt obligations according to contractual terms. Further, because the Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider unrealized losses on such securities to represent OTTI as of December 31, 2010.

Other investment securities primarily include an investment in Federal Home Loan Bank (“FHLB”) stock, which has no readily determinable market value and is recorded at cost. As of December 31, 2010 and 2009, the Company’s investment in FHLB stock totaled $7.7 million and $6.0 million, respectively. Based on its quarterly evaluation, management has concluded that the Company’s investment in FHLB stock was not impaired as of December 31, 2010 and that ultimate recoverability of the par value of this investment is probable. During 2009, the Company recorded an investment loss of $320,000 related to an equity investment in Silverton Bank, a correspondent financial institution that was closed by its regulators in 2009. The loss represented the full amount of the Company’s investment in Silverton Bank and was recorded as a reduction to noninterest income.

The amortized cost and estimated market values of available-for-sale debt securities as of December 31, 2010 by final contractual maturities are summarized in the table below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale
	Amortized Cost		Fair Value
(Dollars in thousands)
Debt securities:
Due within one year	$	300	$	301
Due after one year through five years		17,882		17,904
Due after five years through ten years		49,567		49,401
Due after ten years		147,541		145,647
Total debt securities		215,290		213,253
Equity securities		1,750		1,738
Total investment securities	$	217,040	$	214,991

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As of December 31, 2010 and 2009, investment securities with book values totaling $68.2 million and $149.7 million, respectively, were pledged to secure public deposits, repurchase agreements, FHLB advances and other borrowings.

3. Loans

The composition of the loan portfolio by loan class as of December 31, 2010 and 2009 was as follows:

	2010		2009
(Dollars in thousands)
Commercial real estate:
Construction and land development	$	350,587	$	452,120
Commercial real estate—non-owner occupied		283,943		245,674
Total commercial real estate—non-owner occupied		634,530		697,794
Consumer real estate:
Residential mortgage		173,777		165,374
Home equity lines		89,178		97,129
Total consumer real estate		262,955		262,503
Commercial real estate—owner occupied		170,470		194,359
Commercial and industrial		145,435		183,733
Consumer		6,163		9,692
Other loans		33,742		41,851
		1,253,295		1,389,932
Deferred loan fees and origination costs, net		1,184		370
	$	1,254,479	$	1,390,302

Loans pledged as collateral for certain borrowings totaled $341.5 million and $279.6 million as of December 31, 2010 and 2009, respectively.

4. Allowance for Loan Losses and Credit Quality

The following is a summary of activity in the allowance for loan losses for the years ended December 31, 2010, 2009 and 2008:

	2010			2009			2008
(Dollars in thousands)
Balance at beginning of year	$	26,081		$	14,795		$	13,571
Loans charged off		(49,420	)		(12,197	)		(4,568	)
Recoveries of loans previously charged off		855			419			1,071
Net charge-offs		(48,565	)		(11,778	)		(3,497	)
Acquired in business combination		—			—			845
Provision for loan losses		58,545			23,064			3,876
Balance at end of year	$	36,061		$	26,081		$	14,795

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The allowance for credit losses includes the allowance for loan losses and the reserve for unfunded lending commitments, which is included in other liabilities on the Consolidated Balance Sheets. As of December 31, 2010 and 2009, the reserve for unfunded lending commitments totaled $623,000 and $351,000, respectively. The following is an analysis of activity in the allowance for loan losses by portfolio segment in addition to the disaggregation of the allowance and outstanding loan balances by impairment method as of and for the year ended December 31, 2010:

	CRE – Non- Owner Occupied			Consumer Real Estate			CRE – Owner Occupied			Commercial and Industrial			Consumer			Other			Total
(Dollars in thousands)
Allowance for loan losses:
Beginning balance	$	14,987		$	2,383		$	2,650		$	5,536		$	326		$	199		$	26,081
Charge-offs		(33,803	)		(3,923	)		(4,417	)		(6,639	)		(429	)		(209	)		(49,420	)
Recoveries		616			54			48			115			22			–			855
Provision		39,195			6,218			5,114			7,420			435			163			58,545
Ending balance—total	$	20,995		$	4,732		$	3,395		$	6,432		$	354		$	153		$	36,061
Ending balance—individually evaluated for impairment	$	212		$	87		$	139		$	89		$	2		$	—		$	529
Ending balance—collectively evaluated for impairment	$	20,783		$	4,645		$	3,256		$	6,343		$	352		$	153		$	35,532
Loans:
Ending balance—total	$	634,530		$	262,955		$	170,470		$	145,435		$	6,163		$	33,742		$	1,253,295
Ending balance—individually evaluated for impairment	$	57,227		$	3,879		$	8,613		$	6,013		$	6		$	781		$	76,519
Ending balance—collectively evaluated for impairment	$	577,303		$	259,076		$	161,857		$	139,422		$	6,157		$	32,961		$	1,176,776

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The following is an analysis presenting impaired loan information by loan class as of December 31, 2010:

	Recorded Investment		Unpaid Principal Balance		Related Allowance
(Dollars in thousands)
Impaired loans for which the full loss has been charged-off:
Commercial real estate:
Construction and land development	$	53,675	$	65,918	$	—
Commercial real estate—non-owner occupied		2,678		3,772		—
Consumer real estate:
Residential mortgage		3,222		4,436		—
Home equity lines		236		332		—
Commercial real estate—owner occupied		8,083		10,475		—
Commercial and industrial		5,466		6,128		—
Other loans		781		990		—
Total with no related allowance		74,141		92,051		—
Impaired loans with an allowance recorded:
Commercial real estate:
Construction and land development		874		874		212
Consumer real estate:
Residential mortgage		380		380		79
Home equity lines		41		41		8
Commercial real estate—owner occupied		530		530		139
Commercial and industrial		547		565		89
Consumer		6		6		2
Total with an allowance		2,378		2,396		529
Total impaired loans:
Commercial		72,634		89,252		440
Consumer		3,885		5,195		89
Total impaired loans	$	76,519	$	94,447	$	529

All TDRs are classified as individually impaired. The following table summarizes the Company’s recorded investment in TDRs as of December 31, 2010 and 2009:

	2010		2009
(Dollars in thousands)
Nonperforming TDRs:
Commercial real estate	$	10,775	$	13,926
Consumer real estate		808		1,031
Commercial owner occupied		2,271		1,127
Commercial and industrial		106		—
Total nonperforming TDRs		13,960		16,084
Performing TDRs:
Commercial real estate		3,856		27,532
Consumer real estate		121		598
Commercial owner occupied		421		4,633
Commercial and industrial		65		1,288
Consumer		—		126
Total performing TDRs		4,463		34,177
Total TDRs	$	18,423	$	50,261

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As of December 31, 2010, there was no allowance for loan losses allocated to TDRs as all of these loans were charged down to estimated fair value. As of December 31, 2009, the allowance for loan losses allocated to nonperforming and performing TDRs totaled $0.7 million and $3.5 million, respectively.

To monitor and quantify credit risk in the loan portfolio, the Company uses a two-dimensional risk rating system. The first digit represents the credit quality of the borrower and is used to calculate the probability of default used in the “pooled” reserve calculation on loans evaluated collectively for impairment, while the second digit represents the loan collateral type and is used to calculate the loss given default also used in the “pooled” reserve calculation. The first digit ranges from 1 to 9, where a higher rating represents higher credit risk, and is selected on the financial strength and overall resources of the borrower, and the second digit is chosen by the type of primary collateral securing the loan. Based on these two components, the Company determines the risk profile for every commercial loan and non-pass rated consumer loans in the portfolio. The nine risk rating categories (first digit) can generally be described by the following groupings:

• Pass (risk rating 1–6)—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 (risk rating 7)—Loans in this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or the institution’s credit position at some future date. They contain unfavorable characteristics and are generally undesirable. Loans in this category are currently protected by current sound net worth and paying capacity of the obligor or of the collateral pledged, if any, but are potentially weak and constitute an undue and unwarranted credit risk, but not to the point of a Substandard classification. A Special Mention loan has potential weaknesses, which if not checked or corrected, weaken the asset or inadequately protect the Bank’s position at some future date.

• Substandard (risk rating 8)—Loans in this category are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. A substandard loan normally has one or more well-defined weaknesses that could jeopardize repayment of the debt. The likely need to liquidate assets to correct the problem, rather than repayment from successful operations is the key distinction between Special Mention and Substandard.

• Doubtful (risk rating 9)—For loans in this category, the borrower’s ability to continue repayment is highly unlikely. Full collection based on currently known facts, conditions, and values is highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and specific reasonable pending factors, which work to the bank’s advantage and strengthen the asset in the near term, its classification as loss is deferred until its more exact status may be determined. Loans in this category are immediately placed on nonaccrual with all payments applied to principal until such time as the potential loss exposure is eliminated.

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The following is an analysis of the Company’s commercial credit risk profile based on internally assigned risk ratings as of December 31, 2010:

	CRE – Construction and Land Development		CRE – Non-Owner Occupied		CRE – Owner Occupied		Commercial and Industrial		Other		Total
(Dollars in thousands)
Risk rating:
Pass	$	250,557	$	266,523	$	154,156	$	101,674	$	32,961	$	805,871
Special mention		20,178		12,505		2,287		20,488		—		55,458
Substandard		79,852		4,610		13,967		23,266		781		122,476
Doubtful		—		305		60		7		—		372
Total	$	350,587	$	283,943	$	170,470	$	145,435	$	33,742	$	984,177

The following is an analysis of the Company’s consumer credit risk profile based on the internally assigned risk rating as of December 31, 2010:

	Consumer Real Estate – Residential Mortgage		Consumer Real Estate – Home Equity		Other Consumer		Total
(Dollars in thousands)
Risk rating:
Pass	$	162,002	$	85,000	$	5,803	$	252,805
Special mention		5,518		1,972		188		7,678
Substandard		6,138		2,110		172		8,420
Doubtful		119		96		—		215
Total	$	173,777	$	89,178	$	6,163	$	269,118

The following is an aging analysis of the Company’s portfolio by loan class as of December 31, 2010:

	30–59 Days  Past Due and Still Accruing		60–89 Days  Past Due and Still Accruing		Greater than 90  Days and Still Accruing		Total Past Due and Still Accruing		Nonaccrual Loans		Current Loans		Total Loans
(Dollars in thousands)
Commercial real estate:
Construction and land development	$	6,166	$	204	$	—	$	6,370	$	50,693	$	293,524	$	350,587
Commercial real estate—non-owner occupied		509		—		—		509		2,678		280,756		283,943
Consumer real estate:
Residential mortgage		2,213		329		—		2,542		3,481		167,754		173,777
Home equity lines		498		109		—		607		277		88,294		89,178
Commercial real estate—owner occupied		3,165		—		—		3,165		8,198		159,107		170,470
Commercial and industrial		175		146		—		321		5,830		139,284		145,435
Consumer		4		4		—		8		6		6,149		6,163
Other loans		—		—		—		—		781		32,961		33,742
Total	$	12,730	$	792	$	—	$	13,522	$	71,944	$	1,167,829	$	1,253,295

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For the years ended December 31, 2010, 2009 and 2008, no interest income was recognized on loans while in nonaccrual status, including cash received for interest on these loans. Cumulative interest payments collected on nonaccrual loans and applied as a reduction to the principal balance of the respective loans totaled $837,000 and $366,000 as of December 31, 2010 and 2009, respectively.

5. Premises and Equipment

Premises and equipment as of December 31, 2010 and 2009 were as follows:

	2010			2009
(Dollars in thousands)
Land	$	6,795		$	6,210
Buildings and leasehold improvements		17,927			16,072
Furniture and equipment		19,163			21,300
Automobiles		265			179
Construction in progress		411			1,308
		44,561			45,069
Less accumulated depreciation and amortization		(19,527	)		(21,313	)
	$	25,034		$	23,756

Depreciation expense for the years ended December 31, 2010, 2009 and 2008 was $2.6 million, $2.9 million, and $2.6 million, respectively.

6. Goodwill and Other Intangible Assets

The changes in carrying amounts of goodwill and other intangible assets (core deposit intangibles) for the years ended December 31, 2010, 2009 and 2008 were as follows:

	Goodwill			Core Deposit Intangible
				Gross		Accumulated Amortization			Net
(Dollars in thousands)
Balance at January 1, 2008	$	59,776		$	7,089	$	(3,520	)	$	3,569
Amortization expense		—			—		(1,037	)		(1,037	)
Branch acquisition in December 2008		5,415			1,325		—			1,325
Goodwill impairment charge		(65,191	)		—		—			—
Balance at December 31, 2008		—			8,414		(4,557	)		3,857
Amortization expense		—			—		(1,146	)		(1,146	)
Balance at December 31, 2009		—			8,414		(5,703	)		2,711
Amortization expense		—			—		(937	)		(937	)
Balance at December 31, 2010	$	—		$	8,414	$	(6,640	)	$	1,774

Core deposit intangibles are amortized over periods of up to ten years using an accelerated method approximating the period of economic benefits received. Estimated amortization expense for the next five years is as follows: 2011–$737,000; 2012–$527,000; 2013–$294,000; 2014–$109,000; 2015–$72,000; and thereafter–$35,000.

Goodwill is reviewed for potential impairment at least annually at the reporting unit level. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The Company’s annual goodwill impairment evaluation in 2008 resulted in a goodwill impairment charge of $65.2 million, which

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was recorded to noninterest expense for the year ended December 31, 2008. This impairment charge, representing the full amount of goodwill on the Consolidated Balance Sheet, was primarily due to a significant decline in the market value of the Company’s common stock during 2008 to below tangible book value for an extended period of time.

Core deposit intangibles are evaluated for impairment if events and circumstances indicate a potential for impairment. Such an evaluation of other intangible assets is based on undiscounted cash flow projections. No impairment charges were recorded for other intangible assets in the years ended December 31, 2010, 2009 and 2008.

7. Deposits

As of December 31, 2010, the scheduled maturities of time deposits were as follows:

	Amount		Weighted Average Rate
(Dollars in thousands)
2011	$	234,572		1.06	%
2012		311,121		2.02
2013		257,327		1.76
2014		11,698		2.69
2015		58,568		2.72
Thereafter		44		2.64
	$	873,330		1.74	%

Time deposits of $100,000 or greater totaled $327.5 million and $341.4 million as of December 31, 2010 and 2009, respectively, while brokered deposits (excluding reciprocal CDARS deposits of $29.2 million and $35.0 million as of December 31, 2010 and 2009, respectively) totaled $110.5 million and $70.1 million as of December 31, 2010 and 2009, respectively. Deposit overdrafts of $71,000 and $94,000 were included in total loans as of December 31, 2010 and 2009, respectively.

In the normal course of business, certain directors and executive officers of the Company, including their immediate families and companies in which they have an interest, may be deposit customers.

8. Borrowings

The following is an analysis of securities sold under agreements to repurchase as of December 31, 2010 and 2009:

	End of Period					Daily Average Balance					Maximum Outstanding at Any Month End
	Balance		Weighted Average Rate			Balance		Interest Rate
(Dollars in thousands)
2010
Securities sold under agreements to repurchase	$	—		—	%	$	1,564		0.32	%	$	5,026
2009
Securities sold under agreements to repurchase	$	6,543		0.18	%	$	10,919		0.22	%	$	14,158

Interest expense on federal funds purchased totaled $0, $2,000 and $34,000 for the years ended December 31, 2010, 2009 and 2008, respectively. Interest expense on securities sold under agreements to repurchase totaled $5,000, $21,000 and $353,000 for the years ended December 31, 2010, 2009 and 2008, respectively.

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The following table presents information regarding the Company’s outstanding borrowings as of December 31, 2010 and 2009:

	2010		2009
(Dollars in thousands)
FHLB advances without call options or where call options expired prior to December 31, 2010; fixed interest rates on advances outstanding as of December 31, 2010 ranging from 1.86% to 5.50%; maturity dates on those advances ranging from January 26, 2011 to January 20, 2015	$	41,000	$	39,000
FHLB advance with next quarterly call option on February 22, 2011; fixed interest rate of 3.63%; matures on August 21, 2017		10,000		10,000
FHLB overnight borrowings; interest rate of 0.47% as of December 31, 2010, subject to change daily		20,000		18,000
Structured repurchase agreements without call options or where call options expired prior to December 31, 2010; fixed interest rates on advances outstanding as of December 31, 2010 of 3.72% and 3.79%; agreements mature on December 18, 2017		20,000		10,000
Structured repurchase agreements with various forms of call options remaining; fixed interest rates ranging from 3.56% to 4.75%; maturity dates ranging from November 6, 2016 to March 22, 2019		30,000		40,000
Federal Reserve Bank primary credit facility; current interest rate of 0.75% as of December 31, 2010		—		50,000
	$	121,000	$	167,000

Advances from the FHLB totaled $51.0 million and $49.0 million as of December 31, 2010 and 2009, respectively, and had a weighted average rates of 4.22% and 4.69% as of December 31, 2010 and 2009, respectively. In addition, overnight borrowings on the Company’s credit line at the FHLB totaled $20.0 million and $18.0 million as of December 31, 2010 and 2009, respectively. These fixed rate advances as well as the Company’s credit line with the FHLB were collateralized by eligible 1–4 family mortgages, home equity loans and commercial loans totaling $216.3 million and $118.0 million as of December 31, 2010 and 2009, respectively. In addition, the Company pledged certain mortgage-backed securities with a book value of $0 and $46.4 million as of December 31, 2010 and 2009, respectively. As of December 31, 2010, the Company had $20.7 million of available borrowing capacity with the FHLB.

Outstanding structured repurchase agreements totaled $50.0 million as of December 31, 2010 and 2009. These repurchase agreements had a weighted average rate of 4.06% as of December 31, 2010 and 2009 and were collateralized by certain U.S. agency and mortgage-backed securities with a book value of $61.2 million and $57.4 million as of December 31, 2010 and 2009, respectively.

The Company maintains a credit line at the FRB discount window that is used for short-term funding needs and as an additional source of liquidity. Primary credit borrowings as well as the Company’s credit line at the discount window were collateralized by eligible commercial construction as well as commercial and industrial loans totaling $125.2 million and $161.6 million as of December 31, 2010 and 2009, respectively. As of December 31, 2010, the Company had $77.0 million of available borrowing capacity with the FRB.

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As of December 31, 2010, the scheduled maturities of borrowings were as follows:

	Balance		Weighted Average Rate
(Dollars in thousands)
2011	$	51,000		3.21	%
2012		—		—
2013		3,000		1.86
2014		3,000		2.43
2015		4,000		2.92
Thereafter		60,000		3.99
	$	121,000		3.54	%

9. Subordinated Debentures

Capital Bank Statutory Trusts

The Company formed Capital Bank Statutory Trust I, Capital Bank Statutory Trust II and Capital Bank Statutory Trust III (the “Trusts”) in June 2003, December 2003 and December 2005, respectively. Each issued $10 million of its floating-rate capital securities (the “trust preferred securities”), with a liquidation amount of $1,000 per capital security, in pooled offerings of trust preferred securities. The Trusts sold their common securities to the Company for an aggregate of $900,000, resulting in total proceeds from each offering equal to $10.3 million, or $30.9 million in aggregate. The Trusts then used these proceeds to purchase $30.9 million in principal amount of the Company’s Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Debentures”). Following payment by the Company of a placement fee and other expenses of the offering, the Company’s net proceeds from the offerings aggregated $30.0 million.

The trust preferred securities each have 30-year maturities and became redeemable after five years by the Company with certain exceptions. Prior to the redemption date, the trust preferred securities may be redeemed at the option of the Company after the occurrence of certain events, including without limitation events that would have a negative tax effect on the Company or the Trusts, would cause the trust preferred securities to no longer qualify as Tier 1 capital, or would result in the Trusts being treated as an investment company. The Trusts’ ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the Debentures. The Company’s obligation under the Debentures constitutes a full and unconditional guarantee by the Company of the Trusts’ obligations under the trust preferred securities.

The securities associated with each trust are floating rate, based on 90-day LIBOR, and adjust quarterly. Trust I securities adjust at LIBOR + 3.10%, Trust II securities adjust at LIBOR + 2.85% and Trust III securities adjust at LIBOR +1.40%.

The Debentures, which are subordinate and junior in right of payment to all present and future senior indebtedness and certain other financial obligations of the Company, are the sole assets of the Trusts, and the Company’s payment under the Debentures is the sole source of revenue for the Trusts.

The assets and liabilities of the Trusts are not consolidated into the consolidated financial statements of the Company. Interest on the Debentures is included in the Consolidated Statements of Operations as interest expense. The Debentures are recorded in subordinated debentures on the Consolidated Balance Sheets. For regulatory purposes, the $30 million of trust preferred securities qualifies as Tier 1 capital, subject to certain limitations, or Tier 2 capital in accordance with regulatory reporting requirements. The Company recorded interest expense on the Debentures of $865,000, $1.1 million and $1.8 million for the years ended December 31, 2010, 2009 and 2008, respectively.

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Private Placement Offering of Investment Units

On March 18, 2010, the Company sold 849 investment units (“Units”) to certain accredited investors for gross proceeds of $8.5 million. Each Unit was priced at $10,000 and consisted of a $3,996.90 subordinated promissory note and a number of shares of the Company’s common stock valued at $6,003.10. As a result of the sale of the Units, the Company sold $3.4 million in aggregate principal amount of subordinated promissory notes due March 18, 2020 (the “Notes”) and 1,468,770 shares of the Company’s common stock valued at $5.1 million. The Notes are recorded in subordinated debentures on the Condensed Consolidated Balance Sheets. The Company may prepay the Notes at any time after March 18, 2015 subject to regulatory approval and compliance with applicable law. The Company’s obligation to repay the Notes is subordinate to all indebtedness owed by the Company to its current and future secured creditors and general creditors and certain other financial obligations of the Company.

The Company is obligated to pay annual interest on the Notes at 10% payable in quarterly installments. The Company recorded interest expense on the Notes of $266,000 for the year ended December 31, 2010.

10. Leases

The Company has non-cancelable operating leases for its corporate office, certain branch locations and corporate aircraft that expire at various times through 2036. Certain of the leases contain escalating rent clauses, for which the Company recognizes rent expense on a straight-line basis. The Company subleases certain office space and the corporate aircraft to outside parties. Future minimum lease payments under the leases and sublease receipts for years subsequent to December 31, 2010 are as follows:

	Lease Payments		Sublease Receipts
(Dollars in thousands)
2011	$	4,112	$	383
2012		4,058		295
2013		3,919		242
2014		3,817		240
2015		3,623		247
Thereafter		29,747		62
	$	49,276	$	1,469

Rent expense under operating leases was $3.8 million, $3.3 million and $2.7 million for the years ended December 31, 2010, 2009 and 2008, respectively.

11. Related Party Transactions

In the normal course of business, certain directors and executive officers of the Company, including their immediate families and companies in which they have an interest, may be borrowers. Total loans to such groups and activity during the year ended December 31, 2010 is summarized as follows:

	2010
(Dollars in thousands)
Balance as of December 31, 2009	$	103,326
Advances		14,734
Repayments		(31,090	)
Balance as of December 31, 2010	$	86,970

In addition, such groups had available unused lines of credit in the amount of $10.7 million as of December 31, 2010. These transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the Company. Certain

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deposits are held by related parties, and the rates and terms of these accounts are consistent with those of non-related parties. Further, the Company paid an aggregate of $2.8 million, $1.2 million and $1.1 million to companies owned by members of the board of directors or immediate family members for leased space, equipment, construction and consulting services in the years ended December 31, 2010, 2009 and 2008, respectively.

12. Employee Benefit Plans

401(k) Retirement Plan

The Company maintains the Capital Bank 401(k) Retirement Plan (the “Plan”) for the benefit of its employees, which includes provisions for employee contributions, subject to limitation under the Internal Revenue Code, and discretionary matching contributions by the Company. The Plan provides that employee’s contributions are 100% vested at all times, and the Company’s matching contributions vest 20% after the second year of service, an additional 20% after the third and fourth years of service and the remaining 40% after the fifth year of service. Through May 31, 2009, the Company matched 100% of employee contributions up to 6% of an employee’s salary. Effective June 1, 2009, the Company suspended its discretionary matching contributions to the Plan. Aggregate matching contributions, which are recorded in salaries and employee benefits expense on the Consolidated Statements of Operations, for the years ended December 31, 2010, 2009 and 2008 were $0, $387,000 and $772,000, respectively.

Supplemental Retirement Plans

In May 2005, the Company established two supplemental retirement plans for the benefit of certain executive officers and certain directors of the Company. The Capital Bank Defined Benefit Supplemental Executive Retirement Plan (“Executive Plan”) covers the Company’s chief executive officer and three other members of executive management. Under the Executive Plan, the participants were to receive a supplemental retirement benefit equal to a targeted percentage of the participant’s average annual salary during the last three years of employment. Under the Executive Plan, benefits vest over an eight-year period with the first 20% vesting after four years of service and 20% vesting annually thereafter. The Capital Bank Supplemental Retirement Plan for Directors (“Director Plan”) covered certain directors and provided for a fixed annual retirement benefit to be paid for a number of years equal to the director’s total years of service, up to a maximum of ten years. As of December 31, 2010, there were four executives participating in the Executive Plan and fourteen current and former directors participating in the Director Plan.

For the years ended December 31, 2010, 2009 and 2008, the Company recognized $255,000, $236,000 and $154,000, respectively, of expense related to the Executive Plan; and $238,000, $353,000 and $315,000, respectively, of expense related to the Director Plan. The obligations associated with the two plans are included in other liabilities on the Consolidated Balance Sheets and totaled $1.0 million and $774,000 (Executive Plan) and $1.6 million and $1.5 million (Director Plan) as of December 31, 2010 and 2009, respectively. On January 28, 2011, cash benefit payments were made to participants from both the Executive Plan and Director Plan in connection with the controlling investment in the Company made by NAFH. See Note 21 (Subsequent Events) for more details on these transactions.

13. Stock-Based Compensation

Stock Options

Pursuant to the Capital Bank Corporation Equity Incentive Plan (“Equity Incentive Plan”), the Company has a stock option plan providing for the issuance of up to 1,150,000 options to purchase shares of the Company’s stock to officers and directors. As of December 31, 2010, options for 288,100 shares of common stock were outstanding and options for 604,359 shares of common stock remained available for future issuance. In addition, there were 566,071 options which were assumed under various plans from previously acquired financial institutions, of which 9,780 remain outstanding. Grants of options are made by the Board of Directors or the

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Compensation/Human Resources Committee of the Board. All grants must be made with an exercise price at no less than fair market value on the date of grant, must be exercised no later than 10 years from the date of grant, and may be subject to some vesting provisions.

A summary of the activity during the years ending December 31, 2010, 2009 and 2008 of the Company’s stock option plans, including the weighted average exercise price (“WAEP”) is presented below:

	2010					2009					2008
	Shares			WAEP		Shares			WAEP		Shares			WAEP
Outstanding at beginning of year		366,583		$	11.76		377,083		$	11.71		384,075		$	12.56
Granted		19,250			4.38		—			—		63,500			6.24
Exercised		—			—		—			—		(26,591	)		6.62
Forfeited and expired		(87,953	)		8.93		(10,500	)		10.09		(43,901	)		14.31
Outstanding at end of year		297,880		$	12.11		366,583		$	11.76		377,083		$	11.71
Options exercisable at year end		226,430		$	13.53		285,983		$	12.33		273,783		$	12.41

The following table summarizes information about the Company’s stock options as of December 31, 2010:

Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life in Years		Number Exercisable		Intrinsic Value
$3.85 – $6.00		78,750		8.31		24,000	$	—
$6.01 – $9.00		—		—		—		—
$9.01 – $12.00		74,880		1.20		73,380		—
$12.01 – $15.00		20,000		5.63		13,600		—
$15.01 – $18.00		70,000		4.16		61,200		—
$18.01 – $18.37		54,250		3.99		54,250		—
		297,880		4.58		226,430	$	—

The fair values of options granted are estimated on the date of the grants using the Black-Scholes option pricing model. Option pricing models require the use of highly subjective assumptions, including expected stock volatility, which when changed can materially affect fair value estimates. The expected life of the options used in this calculation is the period the options are expected to be outstanding. Expected stock price volatility is based on the historical volatility of the Company’s common stock for a period approximating the expected life; the expected dividend yield is based on the Company’s historical annual dividend payout; and the risk-free rate is based on the implied yield available on U.S. Treasury issues. The following weighted-average assumptions were used in determining fair value for options granted in the years ended December 31, 2010, 2009 and 2008, respectively:

Assumptions	2010			2009		2008
Dividend yield		—			—		6.3	%
Expected volatility		33.0	%		—		26.4	%
Risk-free interest rate		3.1	%		—		2.2	%
Expected life		7 years			—		7 years

The weighted average fair value of options granted for the years ended December 31, 2010 and 2008 was $1.80 and $0.77, respectively. There were no options granted in the year ended December 31, 2009.

As of December 31, 2010, the Company had unamortized compensation expense related to stock options of $103,000, which was expected to be amortized over the remaining vesting period of the respective option grants. For the years ended December 31, 2010, 2009 and 2008, the Company recorded compensation expense of

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$54,000, $50,000 and $32,000, respectively, related to stock options. On January 28, 2011, vesting was accelerated on certain outstanding stock options in connection with the controlling investment in the Company made by NAFH. See Note 21 (Subsequent Events) for more details.

Restricted Stock

Pursuant to the Equity Incentive Plan, the Board of Directors may grant restricted stock to certain employees and Board members at its discretion. There have been no restricted stock grants since 2008. Nonvested shares are subject to forfeiture if employment terminates prior to the vesting dates. The Company expenses the cost of the stock awards, determined to be the fair value of the shares at the date of grant, ratably over the period of the vesting. Nonvested restricted stock for the year ended December 31, 2010 is summarized in the following table:

	Shares			Weighted Average Grant Date Fair Value
Nonvested at beginning of period		24,000			8.08
Granted		—			—
Vested		(11,900	)		10.19
Forfeited		(400	)		6.00
Nonvested at end of period		11,700			6.00

As of December 31, 2010, the Company had 11,700 shares of nonvested restricted stock grants, which represented unrecognized compensation expense of $70,000 to be recognized over the remaining vesting period of the respective grants. Total compensation expense related to these restricted stock awards for the years ended December 31, 2010, 2009 and 2008 was $106,000, $109,000 and $98,000, respectively. On January 28, 2011, vesting was accelerated on certain outstanding nonvested restricted shares in connection with the controlling investment in the Company made by NAFH. See Note 21 (Subsequent Events) for more details.

Deferred Compensation for Non-employee Directors

The Company administered the Capital Bank Corporation Deferred Compensation Plan for Outside Directors (“Deferred Compensation Plan”). Eligible directors may have elected to participate in the Deferred Compensation Plan by deferring all or part of their directors’ fees for at least one calendar year, in exchange for common stock of the Company. If a director did not elect to defer all or part of his fees, then he was not considered a participant in the Deferred Compensation Plan. The amount deferred was equal to 125 percent of total director fees. Each participant was fully vested in his account balance. The Deferred Compensation Plan provided for payment of share units in shares of common stock of the Company after the participant ceased to serve as a director for any reason. For the years ended December 31, 2010, 2009 and 2008, the Company recognized compensation expense of $576,000, $543,000 and $322,000, respectively, related to the Deferred Compensation Plan.

Prior to amendment on November 20, 2008, the Deferred Compensation Plan was classified as a liability-based plan due to certain plan provisions which would have allowed plan participants to receive payments in either cash or shares of common stock. The Deferred Compensation Plan was reclassified to an equity-based plan when amended after the plan terms were modified to require all participants in the Deferred Compensation Plan to receive deferred payments in shares of common stock. Upon amendment in 2008, the liability for plan benefits was adjusted to a fair market value of $943,000 and was reclassified to equity. Benefits under this plan are now recognized as compensation expense and a corresponding increase to equity based on fair value of the deferred stock at date of grant.

On January 28, 2011, all of the share units under the Deferred Compensation Plan became payable to participants in shares of common stock of the Company in connection with the controlling investment in the Company made by NAFH, which was a change in control under the Deferred Compensation Plan. See Note 21 (Subsequent Events) for more details.

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14. Income Taxes

Income taxes charged to operations for the years ended December 31, 2010, 2009 and 2008 consisted of the following components:

	2010			2009			2008
(Dollars in thousands)
Current income tax expense (benefit)	$	(272	)	$	(2,305	)	$	2,508
Deferred income tax expense (benefit)		15,396			(4,708	)		(3,715	)
Total income tax expense (benefit)	$	15,124		$	(7,013	)	$	(1,207	)

A reconciliation of the difference between income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate of 34% is as follows:

	Amount									Percent of Pretax Loss
(Dollars in thousands)	2010			2009			2008			2010			2009			2008
Tax benefit at statutory rate on net loss before taxes	$	(15,756	)	$	(4,702	)	$	(19,342	)		34.00	%		34.00	%		34.00	%
State taxes, net of federal benefit		(1,894	)		(558	)		18			4.09			4.03			(0.03	)
Increase (reduction) in taxes resulting from:
Valuation allowance on deferred tax asset		31,821			—			—			(68.67	)		—			—
Tax exempt interest		(945	)		(1,184	)		(1,085	)		2.04			8.56			1.91
Nontaxable BOLI income		(238	)		(622	)		(324	)		0.51			4.50			0.57
Taxable income on BOLI surrender		1,981			—			—			(4.27	)		—			—
Goodwill impairment charge		—			—			19,360			—			—			(34.03	)
Other, net		155			53			166			(0.34	)		(0.38	)		(0.29	)
	$	15,124		$	(7,013	)	$	(1,207	)		(32.64	)%		50.71	%		2.13	%

Significant components of deferred tax assets and liabilities as of December 31, 2010 and 2009 were as follows:

	2010			2009
(Dollars in thousands)
Deferred tax assets:
Allowance for loan losses	$	14,143		$	10,191
ORE valuation adjustments		666			84
Intangible assets		1,808			1,743
Net unrealized loss on investment securities		790			—
Deferred compensation		2,632			2,485
Deferred rent		335			242
Nonaccrual interest		323			141
Deferred gain on sale-leaseback		318			359
Stock offering costs		—			640
Net operating loss carryforwards		11,587			—
AMT credit carryforward		1,831			596
Other		304			412
Gross deferred tax assets before valuation allowance		34,737			16,893
Less: valuation allowance		(31,821	)		—
Gross deferred tax assets after valuation allowance		2,916			16,893
Deferred tax liabilities:
Depreciation		1,202			834
FHLB stock dividends		343			343
Net unrealized gain on investment securities		—			2,510
Deferred loan origination costs		719			493
Prepaid expenses		515			328
Other		137			289
Gross deferred tax liabilities		2,916			4,797
Net deferred tax asset	$	—		$	12,096

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As of December 31, 2010 and 2009, the Company had net deferred tax assets before valuation allowance of $31.8 million and $12.1 million, respectively. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Due to a cumulative three-year, pre-tax loss position, significant net operating losses in 2010, and ongoing stress on the Company’s financial performance from elevated credit losses, the Company fully reserved its deferred tax assets as of December 31, 2010. A cumulative loss position makes it more difficult for management to rely on future earnings as a reliable source of future taxable income to realize deferred tax assets. In future periods, the Company may be able to reduce some or all of the valuation allowance upon a determination that it will be able to realize such tax savings.

The Company and its subsidiaries are subject to U.S. federal income tax as well as North Carolina income tax. The Company has concluded all U.S. federal income tax matters for years through 2006.

15. Derivative Instruments

The Company enters into interest rate lock commitments with customers and commitments to sell mortgages to investors. The period of time between the issuance of a mortgage loan commitment and the closing and sale of the mortgage loan is generally less than 60 days. Interest rate lock commitments and forward loan sale commitments represent derivative instruments which are carried at fair value. These derivative instruments do not qualify for hedge accounting. The fair values of the Company’s interest rate lock commitments and forward loan sales commitments are based on current secondary market pricing and are included on the Condensed Consolidated Balance Sheets in mortgage loans held for sale and on the Condensed Consolidated Statements of Operations in mortgage origination and other loan fees.

As of December 31, 2010, the Company had $10.3 million of commitments outstanding to originate mortgage loans held for sale at fixed rates and $17.3 million of forward commitments under best efforts contracts to sell mortgages to three different investors. The fair value adjustments of the interest rate lock commitments and forward loan sales commitments were not considered material as of December 31, 2010. Thus, there was no impact to the Condensed Consolidated Statements of Operations for the year ended December 31, 2010. There were no such commitments outstanding as of December 31, 2009.

16. Commitments, Contingencies and Concentrations of Credit Risk

To meet the financial needs of its customers, the Company is party to financial instruments with off-balance-sheet risk in the normal course of business. These financial instruments are comprised of unused lines of credit, overdraft lines and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet.

The Company’s exposure to credit loss in the event of nonperformance by the other party is represented by the contractual amount of those instruments. The Company uses the same credit policies in making these commitments as it does for on-balance-sheet instruments. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may include trade accounts receivable, property, plant and equipment, and income-producing commercial properties. Since many unused lines of credit expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Company’s exposure to off-balance-sheet credit risk as of December 31, 2010 and 2009 was as follows:

	2010		2009
(Dollars in thousands)
Commitments to extend credit	$	175,318	$	231,691
Standby letters of credit		10,285		9,144
Total commitments	$	185,603	$	240,835

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Because the majority of the Company’s lending is concentrated in Alamance, Buncombe, Catawba, Chatham, Cumberland, Granville, Johnston, Lee and Wake counties in North Carolina, economic conditions in those and surrounding counties significantly impact the ability of borrowers to repay their loans. As of December 31, 2010 and 2009, $1.07 billion (85%) and $1.15 billion (83%), respectively, of the total loan portfolio was secured by real estate, including commercial owner occupied loans. The credits in the loan portfolio are diversified, and the Company does not have significant concentrations to any one credit relationship.

The Company has limited partnership investments in two related private investment funds which totaled $1.8 million as of December 31, 2010 and 2009. These investments were included in other assets on the Consolidated Balance Sheets. Remaining capital commitments for these funds totaled $1.6 million as of December 31, 2010.

17. Fair Value

Fair Value Measurements

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

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

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.

Loans are not recorded at fair value on a recurring basis. However, certain loans are determined to be impaired, and those loans are charged down to estimated fair value. The fair value of impaired loans that are collateral dependent is based on collateral value. For impaired loans that are not collateral dependent, estimated value is based on either an observable market price, if available, or the present value of expected future cash flows. Those impaired loans not requiring a charge-off represent loans for which the estimated fair value exceeds the recorded investments in such loans. When the fair value of an impaired loan is based on an observable market price or a current appraised value with no adjustments, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value, and there is no observable market price, the Company classifies the impaired loan as nonrecurring Level 3.

Other real estate, which includes foreclosed assets, is adjusted to fair value upon transfer of loans and premises to other real estate. Subsequently, other real estate is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s

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estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records other real estate as nonrecurring Level 2. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value, and there is no observable market price, the Company classifies other real estate as nonrecurring Level 3.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and 2009 are summarized below:

	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
(Dollars in thousands)
December 31, 2010
Investment securities—available for sale:
U.S. agency obligations	$	—	$	18,934	$	—	$	18,934
Municipal bonds		—		21,009		—		21,009
Mortgage-backed securities issued by GSEs		—		165,423		—		165,423
Non-agency mortgage-backed securities		—		6,587		—		6,587
Other securities		1,738		—		1,300		3,038
Total	$	1,738	$	211,953	$	1,300	$	214,991
December 31, 2009
Investment securities—available for sale:
U.S. agency obligations	$	—	$	1,029	$	—	$	1,029
Municipal bonds		—		72,894		—		72,894
Mortgage-backed securities issued by GSEs		—		151,658		—		151,658
Non-agency mortgage-backed securities		—		7,797		—		7,797
Other securities		748		—		1,300		2,048
Total	$	748	$	233,378	$	1,300	$	235,426

The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for year ended December 31, 2010:

	Level 3 Securities
(Dollars in thousands)
Balance at beginning of period	$	1,300
Total unrealized losses included in:
Net income (loss)		—
Other comprehensive income (loss)		—
Purchases, sales and issuances, net		—
Transfers in and (out) of Level 3		—
Balance at end of period	$	1,300

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Assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2010 and 2009 are summarized below:

	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
(Dollars in thousands)
December 31, 2010
Impaired loans	$	—	$	61,006	$	14,985	$	75,990
Other real estate		—		18,334		—		18,334
December 31, 2009
Impaired loans	$	—	$	36,972	$	34,181	$	71,153
Other real estate		—		10,732		—		10,732

Fair Value of Financial Instruments

Due to the nature of the Company’s business, a significant portion of its assets and liabilities consist of financial instruments. Accordingly, the estimated fair values of these financial instruments are disclosed. Quoted market prices, if available, are utilized as an estimate of the fair value of financial instruments. Because no quoted market prices exist for a significant part of the Company’s financial instruments, the fair value of such instruments has been derived based on management’s assumptions with respect to future economic conditions, the amount and timing of future cash flows and estimated discount rates. Different assumptions could significantly affect these estimates. Accordingly, the net amounts ultimately collected could be materially different from the estimates presented below. In addition, these estimates are only indicative of the values of individual financial instruments and should not be considered an indication of the fair value of the Company taken as a whole.

Fair values of cash and cash equivalents are equal to the carrying value. Estimated fair values of investment securities are based on quoted market prices, if available, or model-based values from pricing sources for mortgage-backed securities and municipal bonds. Fair value of the loan portfolio has been estimated using the present value of expected future cash flows, discounted at a current market rate for each loan type. The amount of expected credit losses and the timing of those losses were factored into expected future cash flows as of December 31, 2010. At December 31, 2009, the credit risk component of the loan portfolio was set at the recorded allowance for loan losses balance for purposes of estimating fair value. Thus, there was no difference between the carrying amount and estimated fair value attributed to credit risk in the portfolio as of December 31, 2009. Carrying amounts for accrued interest approximate fair value given the short-term nature of interest receivable and payable.

Fair values of time deposits and borrowings are estimated by discounting the future cash flows using the current rates offered for similar deposits and borrowings with the same remaining maturities. Fair value of subordinated debt is estimated based on current market prices for similar trust preferred issues of financial institutions with equivalent credit risk. The estimated fair value for the Company’s subordinated debt is significantly lower than carrying value since credit spreads (i.e., spread to LIBOR) on similar trust preferred issues are currently much wider than when these securities were originally issued. Interest-bearing deposit liabilities and repurchase agreements with no stated maturities are predominately at variable rates and, accordingly, the fair values have been estimated to equal the carrying amounts (the amount payable on demand).

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The carrying values and estimated fair values of the Company’s financial instruments as of December 31, 2010 and 2009 are as follows:

	2010				2009
(Dollars in thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	66,745	$	66,745	$	29,513	$	29,513
Investment securities		223,292		223,292		245,492		245,438
Mortgage loans held for sale		6,993		6,993		—		—
Loans		1,218,418		1,146,256		1,364,221		1,368,233
Accrued interest receivable		5,158		5,158		6,590		6,590
Financial liabilities:
Non-maturity deposits	$	469,956	$	469,956	$	529,257	$	529,257
Time deposits		873,330		885,105		848,708		861,378
Securities sold under agreements to repurchase		—		—		6,543		6,543
Borrowings		121,000		126,787		167,000		171,278
Subordinated debt		34,323		19,164		30,930		12,200
Accrued interest payable		1,363		1,363		1,824		1,824
Unrecognized financial instruments:
Commitments to extend credit		175,318		167,817		231,691		231,691
Standby letters of credit		10,285		10,285		9,144		9,144

18. Capital Purchase Program

On December 12, 2008, the Company entered into a Securities Purchase Agreement—Standard Terms (“Securities Purchase Agreement”) with the Treasury pursuant to which, among other things, the Company sold to the Treasury for an aggregate purchase price of $41.3 million, 41,279 shares of Series A Preferred Stock and warrants to purchase up to 749,619 shares of common stock (“Warrants”) of the Company.

The Series A Preferred Stock ranked senior to the Company’s common shares and paid a compounding cumulative dividend, in cash, at a rate of 5% per annum for the first five years, and 9% per annum thereafter on the liquidation preference of $1,000 per share. While the Series A Preferred Stock was outstanding, the Company was prohibited from paying any dividend with respect to shares of common stock or repurchasing or redeeming any shares of the Company’s common shares unless all accrued and unpaid dividends were paid on the Series A Preferred Stock for all past dividend periods. The Series A Preferred Stock was non-voting, other than class voting rights on matters that could adversely affect the Series A Preferred Stock. The Series A Preferred Stock was callable at par after three years. In connection with the adoption of ARRA, subject to the approval of the Treasury and the Federal Reserve, the Company could redeem the Series A Preferred Stock at any time regardless of whether or not it had replaced such funds from any other source. The Treasury may also have transferred the Series A Preferred Stock to a third party at any time. The Series A Preferred Stock qualified as Tier 1 capital in accordance with regulatory capital requirements (See Note 19—Regulatory Matters and Restrictions).

The Warrants had a term of 10 years and were exercisable at any time, in whole or in part, at an exercise price of $8.26 per share (subject to certain anti-dilution adjustments).

The $41.3 million in proceeds was allocated to the Series A Preferred Stock and the Warrants based on their relative fair values at issuance (approximately $40.0 million was allocated to the Series A Preferred Stock and approximately $1.3 million to the Warrants). The difference between the initial value allocated to the Series A Preferred Stock of approximately $40.0 million and the liquidation value of $41.3 million was to be charged to

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retained earnings and accreted to preferred stock over the first five years of the contract as an adjustment to the dividend yield using the effective yield method. Thus, at the end of the five year accretion period, the preferred stock balance was to have equaled the liquidation value of $41.3 million. The amount charged to retained earnings was deducted from the numerator in calculating basic and diluted earnings per common share. During the years ended December 31, 2010, 2009 and 2008, the Company recorded accretion of the preferred stock discount of $291,000, $288,000 and $12,000, respectively.

The fair value of the Series A Preferred Stock was estimated using a discount rate of 11%, which approximated the dividend yield on the S&P U.S. Preferred Stock Index on the issuance date, and an expected life of five years. The fair value of each Warrant issued was estimated to be $1.42 on the date of issuance using the Black-Scholes option pricing model. The following assumptions were used in determining fair value for the Warrants:

Warrant Assumptions	December 12, 2008
Dividend yield		4.4	%
Expected volatility		26.4	%
Risk-free interest rate		2.6	%
Expected life		10 years

On January 28, 2011, all outstanding shares of Series A Preferred Stock and the Warrants were repurchased and cancelled in connection with the controlling investment in the Company made by NAFH. See Note 21 (Subsequent Events) for more details on these transactions.

19. Regulatory Matters and Restrictions

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. 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 the Company’s financial position and results of operation. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios, as set forth in the table below.

On October 28, 2010, the Bank entered into an informal Memorandum of Understanding (“MOU”) with the Federal Depository Insurance Corporation and the North Carolina Commissioner of Banks. An MOU is characterized by regulatory authorities as an informal action that is not published or publicly available and that is used when circumstances warrant a milder form of action than a formal supervisory action, such as a formal written agreement or order. In accordance with the terms of the MOU, the Bank has agreed to, among other things, (i) increase regulatory capital to achieve and maintain a minimum Tier 1 leverage capital ratio of at least 8% and a total risk-based capital ratio of at least 12%, (ii) monitor and reduce its commercial real estate concentration, (iii) timely identify and reduce its overall level of problem loans, (iv) establish and maintain an adequate allowance for loan losses, and (v) ensure adherence to loan policy guidelines. In addition, the Bank must obtain regulatory approval prior to paying any dividends to the Company. The MOU will remain in effect until modified, terminated, lifted, suspended or set aside by the regulatory authorities. In addition, the Company consults with the Federal Reserve Bank of Richmond prior to payment of any dividends or interest on debt.

The Bank, as a North Carolina banking corporation, may pay dividends only out of undivided profits as determined pursuant to North Carolina General Statutes Section 53–87. However, state and federal regulatory authorities may limit payment of dividends by any bank for other reasons, including when it is determined that such a limitation is in the public interest and is necessary to ensure financial soundness of the Bank. On February 1, 2010, the Company announced that its Board of Directors voted to suspend payment of the Company’s quarterly cash dividend to its common shareholders.

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The Company and the Bank must maintain minimum capital amounts and ratios. The Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2010 and 2009 and the minimum requirements are presented in the following table:

						Minimum Requirements To Be:
	Actual					Adequately Capitalized					Well Capitalized
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Capital Bank Corporation:
2010
Total capital (to risk-weighted assets)	$	126,280		9.59	%	$	105,289		8.00	%		n/a		n/a
Tier I capital (to risk-weighted assets)		106,186		8.07			52,644		4.00			n/a		n/a
Tier I capital (to average assets)		106,186		6.45			65,858		4.00			n/a		n/a
2009
Total capital (to risk-weighted assets)	$	173,261		11.41	%	$	121,460		8.00	%		n/a		n/a
Tier I capital (to risk-weighted assets)		154,227		10.16			60,730		4.00			n/a		n/a
Tier I capital (to average assets)		154,227		8.94			69,043		4.00			n/a		n/a

						Minimum Requirements To Be:
	Actual					Adequately Capitalized					Well Capitalized
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Capital Bank:
2010
Total capital (to risk-weighted assets)	$	124,841		9.50	%	$	105,112		8.00	%	$	131,391		10.00	%
Tier I capital (to risk-weighted assets)		104,774		7.97			52,556		4.00			78,834		6.00
Tier I capital (to average assets)		104,774		6.37			65,821		4.00			82,276		5.00
2009
Total capital (to risk-weighted assets)	$	131,469		8.68	%	$	121,231		8.00	%	$	151,539		10.00	%
Tier I capital (to risk-weighted assets)		112,435		7.42			60,615		4.00			90,923		6.00
Tier I capital (to average assets)		112,435		6.52			68,934		4.00			86,167		5.00

The Bank’s regulatory capital ratios as of December 31, 2009 were revised after its Call Reports were restated and amended in 2010 to reflect an adjustment to the regulatory capital treatment of the injection of proceeds from the sale of Series A Preferred Stock from the Company into the Bank in 2008.

20. Parent Company Financial Information

Condensed financial information of the financial holding company of the Bank as of December 31, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008 is presented below:

Condensed Balance Sheets

	As of December 31,
	2010		2009
(Dollars in thousands)
Assets:
Cash	$	492	$	1,523
Equity investment in subsidiary		105,278		168,633
Note receivable due from subsidiary		3,393		—
Other assets		2,178		2,810
Total assets	$	111,341	$	172,966
Liabilities:
Subordinated debt	$	34,323	$	30,930
Dividends payable		258		1,166
Other liabilities		72		1,085
Total liabilities		34,653		33,181
Shareholders’ equity		76,688		139,785
Total liabilities and shareholders’ equity	$	111,341	$	172,966

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Condensed Statements of Operations

	For the Years Ended December 31,
	2010			2009			2008
(Dollars in thousands)
Dividends from wholly-owned subsidiaries	$	3,548		$	6,409		$	2,750
Undistributed net loss of subsidiaries		(63,065	)		(11,245	)		(57,256	)
Interest income		299			46			106
Interest expense		1,140			1,072			1,800
Other expense		88			1,974			92
Net loss before income taxes		(60,446	)		(7,836	)		(56,292	)
Income tax expense (benefit)		1,020			(1,020	)		(608	)
Net loss	$	(61,466	)	$	(6,816	)	$	(55,684	)

Condensed Statements of Cash Flows

	For the Years Ended December 31,
	2010			2009			2008
(Dollars in thousands)
Operating activities:
Net loss	$	(61,466	)	$	(6,816	)	$	(55,684	)
Equity in undistributed net loss of subsidiaries		63,065			11,245			57,256
Net change in other assets and liabilities		93			1,591			(412	)
Net cash provided by operating activities		1,692			6,020			1,160
Investing activities:
Payments for equity investments in subsidiary		(5,065	)		—			(41,279	)
Payment for note receivable due from subsidiary		(3,393	)		—			—
Net cash used in investing activities		(8,458	)		—			(41,279	)
Financing activities:
Proceeds from issuance of subordinated debt		3,393			—			—
Proceeds from issuance of preferred stock, net of issuance costs		—			—			41,160
Proceeds from issuance of common stock		5,314			700			872
Payments to repurchase common stock		—			—			(92	)
Dividends paid		(2,972	)		(5,527	)		(3,592	)
Net cash provided by (used in) financing activities		5,735			(4,827	)		38,348
Net change in cash and cash equivalents		(1,031	)		1,193			(1,771	)
Cash and cash equivalents, beginning of year		1,523			330			2,101
Cash and cash equivalents, end of year	$	492		$	1,523		$	330

21. Subsequent Events (Unaudited)

On January 28, 2011, the Company completed the issuance and sale to North American Financial Holdings, Inc. of 71,000,000 shares of common stock for $181,050,000 in cash. As a result of the Investment and following the completion of the Rights Offering on March 11, 2011, NAFH currently owns approximately 83% of the Company’s common stock. The Company’s shareholders approved the issuance of such shares to NAFH, and an amendment to the Company’s articles of incorporation to increase the authorized shares of common stock to 300,000,000 shares from 50,000,000 shares, at a special meeting of shareholders held on December 16, 2010. In connection with the Investment, each existing Company shareholder received one CVR per share that entitles the holder to receive up to $0.75 in cash per contingent value right at the end of a five-year period based on the credit performance of the Bank’s existing loan portfolio.

F-248

Also in connection with the Investment, pursuant to an agreement among NAFH, the Treasury, and the Company, the Company’s Series A Preferred Stock and warrant to purchase shares of common stock issued by the Company to the Treasury in connection with the TARP were repurchased. Following the TARP Repurchase, the Series A Preferred Stock and warrant are no longer outstanding, and accordingly the Company no longer expects to be subject to the restrictions imposed by the terms of the Series A Preferred Stock, or certain regulatory provisions of the EESA and the ARRA that are imposed on TARP recipients.

Pursuant to the Investment Agreement, shareholders as of January 27, 2011 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 $2.55 per share, subject to certain limitations. 1,613,165 shares of the Company’s common stock were issued in exchange for $4,113,570.75 upon completion of the Rights Offering on March 11, 2011.

Upon closing of the investment, R. Eugene Taylor, NAFH’s Chief Executive Officer, Christopher G. Marshall, NAFH’s Chief Financial Officer, and R. Bruce Singletary, NAFH’s Chief Risk Officer, were named as the Company’s CEO, CFO and CRO, respectively, and members of the Company’s Board of Directors. In addition to the aforementioned members of NAFH management, the Company’s Board of Directors was reconstituted with a combination of two existing members (Oscar A. Keller III and Charles F. Atkins) and two additional NAFH-designated members (Peter N. Foss and William A. Hodges).

Also in connection with the closing of the Investment, the Company amended the Executive Plan 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 Investment or any subsequent transaction or series of transactions that result in an affiliate of NAFH holding the Company’s outstanding voting securities or total voting power. On January 28, 2011, the Company 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 Company stock options in connection with the transactions contemplated by the Investment Agreement. Cash payments made to participants in the Executive Plan upon change in control related to vested benefits totaled $1.1 million. The Director Plan was not amended, and cash payments made to participants upon change in control pursuant to terms of this plan totaled $3.2 million.

In Staff Accounting Bulletin Topic No. 5.J, Push Down Basis of Accounting Required in Certain Limited Circumstances, the Securities and Exchange Commission (“SEC”) staff indicated that it believes push-down accounting is required in purchase transactions that result in an entity becoming substantially wholly owned. In determining whether a company has become substantially wholly owned, the SEC staff has stated that push-down accounting would be required if 95% or more of the company has been acquired, permitted if 80% to 95% has been acquired, and prohibited if less than 80% of the company is acquired. The Company has elected to use push-down accounting, and as such, will apply the acquisition method of accounting due to NAFH’s acquisition of 85% of the Company’s outstanding common stock on January 28, 2011.

F-249

22. Selected Quarterly Financial Data (Unaudited)

Selected unaudited quarterly balances and results of operations as of and for the years ended December 31, 2010 and 2009 are as follows:

	Three Months Ended
	December 31			September 30			June 30			March 31
(Dollars in thousands except per share data)
2010
Total assets	$	1,585,547		$	1,649,699		$	1,694,336		$	1,739,857
Cash and cash equivalents		66,745			68,069			41,417			53,341
Investment securities		223,292			196,046			228,812			232,780
Loans		1,254,479			1,324,932			1,351,101			1,376,085
Allowance for loan losses		36,061			36,249			35,762			29,160
Deposits		1,343,286			1,359,411			1,370,777			1,380,539
Borrowings		121,000			129,000			153,000			172,000
Subordinated debt		34,323			34,323			34,323			34,323
Shareholders’ equity		76,688			116,103			125,479			138,792
Net interest income	$	12,287		$	13,382		$	12,744		$	12,550
Provision for loan losses		20,011			6,763			20,037			11,734
Noninterest income		8,004			2,500			2,514			2,531
Noninterest expense		15,129			14,210			12,380			12,590
Net loss before taxes		(14,849	)		(5,091	)		(17,159	)		(9,243	)
Income tax expense (benefit)		18,634			3,975			(3,576	)		(3,909	)
Net loss		(33,483	)		(9,066	)		(13,583	)		(5,334	)
Dividends and accretion on preferred stock		589			588			589			589
Net loss attributable to common shareholders	$	(34,072	)	$	(9,654	)	$	(14,172	)	$	(5,923	)
Net loss per common share—basic	$	(2.59	)	$	(0.74	)	$	(1.09	)	$	(0.49	)
Net loss per common share—diluted	$	(2.59	)	$	(0.74	)	$	(1.09	)	$	(0.49	)

	Three Months Ended
	December 31			September 30			June 30		March 31
(Dollars in thousands except per share data)
2009
Total assets	$	1,734,668		$	1,734,950		$	1,695,342	$	1,665,611
Cash and cash equivalents		29,513			52,694			72,694		39,917
Investment securities		245,492			262,499			268,224		286,310
Loans		1,390,302			1,357,243			1,293,340		1,277,064
Allowance for loan losses		26,081			19,511			18,602		18,480
Deposits		1,377,965			1,385,250			1,380,842		1,340,974
Borrowings		167,000			147,000			117,000		127,000
Subordinated debt		30,930			30,930			30,930		30,930
Shareholders’ equity		139,785			149,525			143,306		142,674
Net interest income	$	12,978		$	13,555		$	12,164	$	10,181
Provision for loan losses		11,822			3,564			1,692		5,986
Noninterest income		1,830			2,507			3,724		2,106
Noninterest expense		14,683			11,098			12,465		11,564
Net loss before taxes		(11,697	)		1,400			1,731		(5,263	)
Income tax expense (benefit)		(4,452	)		(2,143	)		382		(800	)
Net loss		(7,245	)		3,543			1,349		(4,463	)
Dividends and accretion on preferred stock		588			590			587		587
Net loss attributable to common shareholders	$	(7,833	)	$	2,953		$	762	$	(5,050	)
Net loss per common share—basic	$	(0.68	)	$	0.26		$	0.07	$	(0.45	)
Net loss per common share—diluted	$	(0.68	)	$	0.26		$	0.07	$	(0.45	)

F-250

GREEN BANKSHARES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2011 and December 31, 2010

(Amounts in thousands, except share and per share data)

	(Unaudited)
	March 31, 2011			December 31, 2010*
ASSETS
Cash and due from banks	$	323,485		$	289,358
Federal funds sold		7,931			4,856
Cash and cash equivalents		331,416			294,214
Interest earning deposits in other banks		—			—
Securities available for sale		226,732			202,002
Securities held to maturity (with a market value of $115 and $467)		115			465
Loans held for sale		960			1,299
Loans, net of unearned interest		1,680,249			1,745,378
Allowance for loan losses		(65,109	)		(66,830	)
Other real estate owned and repossessed assets		60,033			60,095
Premises and equipment, net		77,814			78,794
FHLB and other stock, at cost		12,734			12,734
Cash surrender value of life insurance		31,758			31,479
Core deposit and other intangibles		6,125			6,751
Deferred tax asset (net of valuation allowance of $47,563 and $43,455)		6,339			2,177
Other assets		23,528			37,482
Total assets	$	2,392,694		$	2,406,040
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Non-interest bearing deposits	$	165,927		$	152,752
Interest bearing deposits		1,808,309			1,822,703
Brokered deposits		1,399			1,399
Total deposits		1,975,635			1,976,854
Repurchase agreements		18,712			19,413
FHLB advances and notes payable		158,588			158,653
Subordinated debentures		88,662			88,662
Accrued interest payable and other liabilities		18,267			18,561
Total liabilities	$	2,259,864		$	2,262,143
Shareholders’ equity
Preferred stock: no par, 1,000,000 shares authorized, 72,278 shares outstanding	$	68,468		$	68,121
Common stock: $2 par, 20,000,000 shares authorized, 13,182,797 and 13,188,896 shares outstanding		26,366			26,378
Common stock warrants		6,934			6,934
Additional paid-in capital		189,022			188,901
Accumulated Deficit		(158,997	)		(147,436	)
Accumulated other comprehensive income		1,037			999
Total shareholders’ equity		132,830			143,897
Total liabilities and shareholders’ equity	$	2,392,694		$	2,406,040

* Derived from the audited consolidated balance sheet, as filed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

See notes to condensed consolidated financial statements.

F-251

GREEN BANKSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31, 2011 and 2010

(Amounts in thousands, except share and per share data)

	Three Months Ended March 31,
	2011			2010
	(Unaudited)
Interest income
Interest and fees on loans	$	24,600		$	30,060
Taxable securities		1,401			1,288
Nontaxable securities		305			312
FHLB and other stock		138			138
Federal funds sold and other		181			94
Total interest income		26,625			31,892
Interest expense
Deposits		5,330			8,061
Federal funds purchased and repurchase agreements		4			6
FHLB advances and notes payable		1,543			1,694
Subordinated debentures		481			472
Total interest expense		7,358			10,233
Net interest income		19,267			21,659
Provision for loan losses		13,897			3,889
Net interest income after provision for loan losses		5,370			17,770
Non-interest income
Service charges on deposit accounts		5,830			5,940
Other charges and fees		430			356
Trust and investment services income		515			582
Mortgage banking income		87			118
Other income		765			690
Total non-interest income		7,627			7,686
Non-interest expense
Employee compensation		8,131			7,665
Employee benefits		977			977
Occupancy expense		1,794			1,699
Equipment expense		877			708
Computer hardware/software expense		919			824
Professional services		788			607
Advertising		719			598
OREO maintenance expense		1,155			445
Collection and repossession expense		547			1,287
Loss on OREO and repossessed assets		2,101			509
FDIC Insurance		1,086			851
Core deposit and other intangibles amortization		626			651
Other expenses		3,307			3,725
Total non-interest expenses		23,027			20,546
Income (loss) before income taxes		(10,030	)		4,910
Provision for income/(loss) taxes		281			1,714
Net income/(loss)	$	(10,311	)	$	3,196
Preferred stock dividends and accretion of discount		1,250			1,250
Net income/(loss) available to common shareholders	$	(11,561	)	$	1,946
Per share of common stock:
Basic earnings	$	(0.88	)	$	0.15
Diluted earnings		(0.88	)		0.15
Dividends		—			—
Weighted average shares outstanding:
Basic		13,108,598			13,082,347
Diluted		13,108,598			13,172,727

See notes to condensed consolidated financial statements.

F-252

GREEN BANKSHARES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three Months Ended March 31, 2011

(Unaudited)

(Amounts in thousands, except share and per share data)

	Preferred Stock		Common Stock						Warrants For Common Stock		Additional Paid-in Capital			Accumulated (Deficit)			Accumulated Other Comprehensive Income		Total Shareholders’ Equity
			Shares			Amount
Balance, December 31, 2010	$	68,121		13,188,896		$	26,378		$	6,934	$	188,901		$	(147,436	)	$	999	$	143,897
Preferred stock transactions:
Accretion of preferred stock discount		347		—			—			—		—			(347	)		—		—
Preferred stock dividends accrued		—		—			—			—		—			(903	)		—		(903	)
Common stock transactions:
Forfeiture of restricted common shares		—		(6,099	)		(12	)		—		(52	)		—			—		(64	)
Compensation expense:
Stock options		—		—			—			—		50			—			—		50
Restricted stock		—		—			—			—		123			—			—		123
Comprehensive income/(loss):
Net (loss)		—		—			—			—		—			(10,311	)		—		(10,311	)
Change in unrealized gains, net of reclassification and taxes		—		—			—			—		—			—			38		38
Total comprehensive income/(loss)																				(10,273	)
Balance, March 31, 2011	$	68,468		13,182,797		$	26,366		$	6,934	$	189,022		$	(158,997	)	$	1,037	$	132,830

See notes to condensed consolidated financial statements.

F-253

GREEN BANKSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2011 and 2010

(Amounts in thousands, except share and per share data)

	March 31, 2011			March 31, 2010
	(Unaudited)
Cash flows from operating activities
Net income (loss)	$	(10,311	)	$	3,196
Adjustments to reconcile net income/(loss) to net cash provided by operating activities
Provision for loan losses		13,897			3,889
Depreciation and amortization		1,736			1,828
Security amortization and accretion, net		129			59
Net gain on sale of mortgage loans		(78	)		(110	)
Originations of mortgage loans held for sale		(7,421	)		(8,741	)
Proceeds from sales of mortgage loans		7,838			9,794
Increase in cash surrender value of life insurance		(279	)		(265	)
Net losses from sales of fixed assets		203			3
Stock-based compensation expense		109			156
Net loss on other real estate and repossessed assets		2,099			509
Deferred tax benefit		—			(303	)
Net changes:
Other assets		9,769			4,970
Accrued interest payable and other liabilities		(1,196	)		(5,895	)
Net cash provided by operating activities		16,495			9,090
Cash flows from investing activities
Purchase of securities available for sale		(35,782	)		(51,525	)
Proceeds from maturities of securities available for sale		10,985			27,072
Proceeds from maturities of securities held to maturity		350			10
Net change in loans		43,266			28,763
Proceeds from sale of other real estate		4,322			2,368
Improvements to other real estate		(113	)		(332	)
Proceeds from sale of fixed assets		7			—
Premises and equipment expenditures		(342	)		(566	)
Net cash provided by investing activities		22,693			5,790
Cash flows from financing activities
Net change in core deposits		(1,219	)		(41,046	)
Net change in brokered deposits		—			(5,185	)
Net change in repurchase agreements		(702	)		(619	)
Repayments of FHLB advances and notes payable		(65	)		(80	)
Preferred stock dividends paid		—			(903	)
Common stock dividends paid		—			—
Net cash (used) in financing activities		(1,986	)		(47,833	)
Net change in cash and cash equivalents		37,202			(32,953	)
Cash and cash equivalents, beginning of period		294,214			210,494
Cash and cash equivalents, end of period	$	331,416		$	177,541
Supplemental disclosures—cash and noncash
Interest paid	$	7,044		$	10,523
Loans converted to other real estate		6,616			18,540
Unrealized gain on available for sale securities, net of tax		38			970
Loans Originated to finance/sell other real estate		1,020			1,417

See notes to condensed consolidated financial statements.

F-254

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 1—PRINCIPLES OF CONSOLIDATION

The accompanying unaudited condensed consolidated financial statements of Green Bankshares, Inc. (the “Company”) and its wholly owned subsidiary, GreenBank (the “Bank”), have been prepared in accordance with accounting principles generally accepted in the United States of America for interim information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Certain amounts from prior period financial statements have been reclassified to conform to the current year’s presentation.

NOTE 2—SECURITIES

Securities are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
March 31, 2011
U.S. government agencies	$	93,966	$	138	$	(1,031	)	$	93,073
States and political subdivisions		30,225		845		(271	)		30,799
Collateralized mortgage obligations		78,300		1,861		(395	)		79,766
Mortgage-backed securities		20,685		749		(30	)		21,404
Trust preferred securities		1,850		—		(160	)		1,690
	$	225,026	$	3,593	$	(1,887	)	$	226,732
December 31, 2010
U.S. government agencies	$	84,106	$	115	$	(922	)	$	83,299
States and political subdivisions		31,192		705		(396	)		31,501
Collateralized mortgage obligations		66,043		1,901		(369	)		67,575
Mortgage-backed securities		17,168		815		(19	)		17,964
Trust preferred securities		1,850		—		(187	)		1,663
	$	200,359	$	3,536	$	(1,893	)	$	202,002
Held to Maturity
March 31, 2011
States and political subdivisions	$	115	$	—	$	—		$	115
	$	115	$	—	$	—		$	115
December 31, 2010
States and political subdivisions	$	215	$	1	$	—		$	216
Other securities		250		1		—			251
	$	465	$	2	$	—		$	467

F-255

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

F-256

NOTE 3—LOANS

Contractual maturities of securities at March 31, 2011 are shown below. Securities not due at a single maturity date, collateralized mortgage obligations and mortgage-backed securities are shown separately.

	Available for Sale		Held to Maturity
	Fair Value		Carrying Amount		Fair Value
Due in one year or less	$	989	$	115	$	115
Due after one year through five years		4,723		—		—
Due after five years through ten years		64,980		—		—
Due after ten years		54,870		—		—
Collateralized mortgage obligations		79,766		—		—
Mortgage-backed securities		21,404		—		—
Total maturities	$	226,732	$	115	$	115

There were no realized gross gains or (losses) from sales of investment securities for the three month periods ended March 31, 2011 and 2010.

Securities with a carrying value of $164,457 and $135,692 at March 31, 2011 and December 31, 2010, respectively, were pledged for public deposits and securities sold under agreements to repurchase and to the Federal Reserve Bank. The balance of pledged securities in excess of the pledging requirements was $19,381 and $7,983 at March 31, 2011 and December 31, 2010, respectively.

Securities with unrealized losses at March 31, 2011 and December 31, 2010 are as follows:

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
March 31, 2011
U.S. government agencies	$	66,950	$	(1,031	)	$	—	$	—		$	66,950	$	(1,031	)
States and political subdivisions		3,798		(58	)		1,749		(213	)		5,547		(271	)
Collateralized mortgage obligations		19,893		(383	)		2,790		(12	)		22,683		(395	)
Mortgage-backed securities		2,986		(27	)		6		(3	)		2,992		(30	)
Trust preferred securities		—		—			1,690		(160	)		1,690		(160	)
Total temporarily impaired	$	93,627	$	(1,499	)	$	6,235	$	(388	)	$	99,862	$	(1,887	)
December 31, 2010
U.S. government agencies	$	65,178	$	(922	)	$	—	$	—		$	65,178	$	(922	)
States and political subdivisions		2,488		(114	)		1,659		(282	)		4,147		(396	)
Collateralized mortgage obligations		14,666		(266	)		2,699		(104	)		17,365		(370	)
Mortgage-backed securities		2,821		(17	)		8		(2	)		2,829		(19	)
Trust preferred securities		—		—			1,663		(186	)		1,663		(186	)
Total temporarily impaired	$	85,153	$	(1,319	)	$	6,029	$	(574	)	$	91,182	$	(1,893	)

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 3—LOANS (Continued)

The Company reviews its investment portfolio on a quarterly basis judging each investment for other-than-temporary impairment (“OTTI”). Management does not have the intent to sell any of the temporarily impaired investments and believes it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The OTTI analysis focuses on the duration and amount a security is below book value and assesses a calculation for both a credit loss and a non credit loss for each measured security considering the security’s type, performance, underlying collateral, and any current or potential debt rating changes. The OTTI calculation for credit loss is reflected in the income statement while the non credit loss is reflected in other comprehensive income (loss).

The Company holds a single issue trust preferred security issued by a privately held bank holding company. The bank holding company deferred its interest payments beginning in the second quarter of 2009, and we have placed the security on non-accrual. The Federal Reserve Bank of St. Louis entered into an agreement with the bank holding company on October 22, 2009 which was made public on October 30, 2009. Among other provisions of the regulatory agreement, the bank holding company must strengthen its management of operations, strengthen its credit risk management practices, and submit a capital plan. As of March 31, 2011 no other communications between the bank holding company and the Federal Reserve Bank of St. Louis have been made public. Our estimated fair value implies a modest unrealized loss of $37, related primarily to illiquidity. The Company did not recognize other-than-temporary impairment on the security during the quarter ended March 31, 2011.

The Company holds a private label class A21 collateralized mortgage obligation that was analyzed for the quarter ended March 31, 2011 with multiple stress scenarios using conservative assumptions for underlying collateral defaults, loss severity, and prepayments. The security’s estimated fair value implies an unrealized loss of $12, an improvement of $91 compared to December 31, 2010. The Company did not recognize a write-down through non-interest income representing other-than-temporary impairment on the security for the quarter ended March 31, 2011.

The following table presents more detail on selective Company security holdings as of March 31, 2011. These details are listed separately due to the inherent level of risk for OTTI on these securities.

Description	Cusip#		Current Credit Rating		Book Value		Fair Value		Unrealized Loss
Collateralized mortgage obligations
Wells Fargo—2007 - 4 A21		94985RAW2		Caa2	$	2,802	$	2,790	$	(12	)
Trust preferred securities
West Tennessee Bancshares, Inc.		956192AA6		N/A		675		638		37

F-257

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 3—LOANS (Continued)

The following table presents a roll-forward of the cumulative amount of credit losses on the Company’s investment securities that have been recognized through earnings as of March 31, 2011 and 2010. There were no credit losses on the Company’s investment securities recognized in earnings during the quarter ended March 31, 2011 or the quarter ended March 31, 2010.

	First Quarter 2011		First Quarter 2010
Beginning balance of credit losses at January 1, 2011 and 2010	$	1,069	$	976
Other-than-temporary impairment credit losses		—		—
Ending balance of cumulative credit losses recognized in earnings	$	1,069	$	976

Loans at March 31, 2011 and December 31, 2010 were as follows:

	March 31, 2011			December 31, 2010
Commercial real estate	$	1,028,903		$	1,080,805
Residential real estate		379,616			378,783
Commercial		208,496			222,927
Consumer		75,379			75,498
Other		3,139			1,913
Unearned income		(15,284	)		(14,548	)
Loans, net of unearned income	$	1,680,249		$	1,745,378
Allowance for loan losses	$	(65,109	)	$	(66,830	)

Activity in the allowance for loan losses is as follows:

	March 31, 2011			December 31, 2010
Beginning balance	$	66,830		$	50,161
Add (deduct):
Provision for loan losses		13,897			3,889
Loans charged off		(16,404	)		(4,733	)
Recoveries of loans charged off		786			850
Balance, end of period	$	65,109		$	50,167

F-258

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 3—LOANS (Continued)

Activity in the allowance for loan losses and recorded investment in loans by segment:

	Commercial Real Estate			Residential Real Estate			Commercial			Consumer			Other		Total
2011
Allowance for loan losses:
Beginning balance	$	54,203		$	4,431		$	5,080		$	3,108		$	8	$	66,830
Add (deduct):
Charge-offs		(14,919	)		(312	)		(728	)		(445	)		—		(16,404	)
Recoveries		196			29			378			183			—		786
Provision		13,886			234			915			(1,138	)		—		13,897
Ending balance	$	53,366		$	4,382		$	5,645		$	1,708		$	8	$	65,109
As of December 31, 2010
Allowance for loan losses
Allocation for loans individually evaluated for impairment	$	22,939		$	1,027		$	722		$	146		$	—	$	24,834
Allocation for loans collectively evaluated for impairment		31,264			3,404			4,358			2,962			8		41,996
Ending balance:	$	54,203		$	4,431		$	5,080		$	3,108		$	8	$	66,830
As of March 31, 2011
Allowance for loan losses
Allocation for loans individually evaluated for impairment	$	19,662		$	1,120		$	1,732		$	154		$	—	$	22,668
Allocation for loans collectively evaluated for impairment		33,704			3,262			3,913			1,554			8		42,441
Ending balance:	$	53,366		$	4,382		$	5,645		$	1,708		$	8	$	65,109
As of December 31, 2010
Loans:
Ending balance:
individually evaluated for impairment	$	170,175		$	8,697		$	6,149		$	970		$	—	$	185,991
Ending balance:
collectively evaluated for impairment	$	910,630		$	363,506		$	216,778		$	66,470		$	1,913	$	1,559,387
As of March 31, 2011
Loans:
Ending balance:
individually evaluated for impairment	$	181,082		$	9,657		$	7,512		$	1,286		$	—	$	199,537
Ending balance:
collectively evaluated for impairment	$	847,821		$	363,266		$	200,984		$	66,458		$	3,139	$	1,481,668

F-259

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 3—LOANS (Continued)

Impaired loans were as follows:

	March 31, 2011		December 31, 2010
Loans with no allowance allocated	$	95,432	$	81,981
Loans with allowance allocated	$	104,105	$	104,010
Amount of allowance allocated		22,668		24,834
Average impaired loan balance during the year		207,166		212,167
Interest income not recognized during impairment		500		1,105

Impaired loans of $199,537, and $185,991, respectively, at March 31, 2011 and December 31, 2010 are shown net of amounts previously charged off of $36,813, and $36,574, respectively. Interest income actually recognized on these loans at March 31, 2011 and December 31, 2010 was $578, and $4,843, respectively.

Impaired loans by class are presented below as of March 31, 2011:

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Record Investment		Interest Income Recognized
Commercial Real Estate:
Speculative 1-4 Family	$	75,482	$	111,392	$	11,085	$	79,742	$	231
Construction		46,456		65,525		4,379		49,747		71
Owner Occupied		14,782		15,365		543		15,143		18
Non-owner Occupied		43,663		46,035		3,655		44,177		182
Other		699		738		—		706		—
Residential Real Estate:
HELOC		3,199		3,295		—		3,206		15
Mortgage-Prime		6,260		6,801		1,069		6,373		41
Mortgage-Subprime		650		649		51		650		—
Other		102		122		—		103		—
Commercial		7,512		8,702		1,732		7,825		17
Other		—		—		—		—		—
Consumer:
Prime		222		234		—		235		3
Subprime		86		86		90		86		—
Auto-Subprime		424		424		64		424		—
Other		—		—		—		—		—
Total	$	199,537		259,368		22,668		208,417		578

F-260

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 3—LOANS (Continued)

Impaired loans by class are presented below as of December 31, 2010:

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Record Investment		Interest Income Recognized
Commercial Real Estate:
Speculative 1-4 Family	$	72,138	$	98,141	$	11,830	$	85,487	$	2,292
Construction		56,758		69,355		8,366		63,710		2,565
Owner Occupied		13,590		14,513		851		14,119		644
Non-owner Occupied		25,824		27,561		1,823		28,786		1,375
Other		1,865		2,090		69		2,278		66
Residential Real Estate:
HELOC		2,807		2,894		346		2,603		88
Mortgage-Prime		4,539		4,722		590		4,661		209
Mortgage-Subprime		370		370		57		370		—
Other		981		1,285		34		2,419		47
Commercial		6,149		7,510		722		6,729		171
Other
Consumer:
Prime		217		228		32		252		13
Subprime		228		228		35		228		—
Auto-Subprime		525		525		79		525		—
Other		—		—		—		—		—
Total		185,991		229,422		24,834		212,167		7,470

The Bank manages the loan portfolio by assigning one of nine credit risk ratings based on an internal assessment of credit risk. The credit risk categories are prime, desirable, satisfactory I or pass, satisfactory II, acceptable with care, management watch, substandard, and loss.

Prime credit risk rating: Assets of this grade are the highest quality credits of the Bank. They exceed substantially all the Bank’s underwriting criteria, and provide superior protection for the Bank through the paying capacity of the borrower and value of the collateral. The Bank’s credit risk is considered to be negligible. Included in this section are well-established borrowers with significant, diversified sources of income and net worth, or borrowers with ready access to alternative financing and unquestioned ability to meet debt obligations as agreed. A loan secured by cash or other highly liquid collateral, where the Bank holds such collateral, may be assigned this grade.

Desirable credit risk rating: Assets of this grade also exceed substantially all of the Bank’s underwriting criteria; however, they may lack the consistent long-term performance of a Prime rated credit. The credit risk to the Bank is considered minimal on these assets. Paying capacity of the borrower is still very strong with favorable trends and the value of the collateral is considered more than adequate to protect the Bank. Unsecured loans to borrowers with above-average earnings, liquidity and capital may be assigned this grade.

Satisfactory I credit risk rating or pass credit rating: Assets of this grade conform to all of the Bank’s underwriting criteria and evidence a below-average level of credit risk. Borrower’s paying capacity is strong, with stable trends. If the borrower is a company, its earnings, liquidity and capitalization compare favorably to

F-261

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 3—LOANS (Continued)

typical companies in its industry. The credit is well structured and serviced. Secondary sources of repayment are considered to be good. Payment history is good, and borrower consistently complies with all major covenants.

Satisfactory II credit risk rating: Assets of this grade conform to substantially all of the Bank’s underwriting criteria and evidence an average level of credit risk. However, such assets display more susceptibility to economic, technological or political changes since they lack the above-average financial strength of credits rated Satisfactory Tier I. Borrower’s repayment capacity is considered to be adequate. Credit is appropriately structured and serviced; payment history is satisfactory.

Acceptable with care credit risk rating: Assets of this grade conform to most of the Bank’s underwriting criteria and evidence an acceptable, though higher than average, level of credit risk. However, these loans have certain risk characteristics that could adversely affect the borrower’s ability to repay, given material adverse trends. Therefore, loans in this category require an above-average level of servicing or show more reliance on collateral and guaranties to preclude a loss to the Bank, should material adverse trends develop. If the borrower is a company, its earnings, liquidity and capitalization are slightly below average, when compared to its peers.

Management watch credit risk rating: Assets included in this category are currently protected but are potentially weak. These assets constitute an undue and unwarranted credit risk but do not presently expose the Bank to a sufficient degree of risk to warrant adverse classification. However, Management Watch assets do possess credit deficiencies deserving management’s close attention. If not corrected, such weaknesses or deficiencies may expose the Bank to an increased risk of loss in the future. Management Watch loans represent assets where the Bank’s ability to substantially affect the outcome has diminished to some degree, and thus it must closely monitor the situation to determine if and when a downgrade is warranted.

Substandard credit risk rating: Substandard assets are inadequately protected by the current net worth and financial capacity of the borrower or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as Substandard.

Loss credit rating: These assets are considered uncollectible and of such little value that their continuance as assets is not warranted. This classification does not mean that an asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off a basically worthless asset even though partial recovery may be affected in the future. Losses should be taken in the period in which they are identified as uncollectible.

F-262

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 3—LOANS (Continued)

Credit quality indicators by class are presented below as of March 31, 2011:

	Speculative 1-4 Family		Construction		Owner Occupied		Non-Owner Occupied		Other
Commercial Real Estate Credit Exposure
Prime	$	—	$	—	$	—	$	—	$	—
Desirable				1,585		971		173
Satisfactory tier I		2,773		899		29,677		35,754		919
Satisfactory tier II		13,816		18,949		111,367		155,082		6,664
Acceptable with care		60,611		43,092		58,729		185,416		6,850
Management Watch		25,855		15,592		8,985		34,028		2,036
Substandard		78,764		55,190		19,051		52,929		3,146
Loss		—		—		—		—		—
Total		181,819		135,307		228,780		463,382		19,615

Credit quality indicators by class are presented below as of December 31, 2010:

	Speculative 1-4 Family		Construction		Owner Occupied		Non-Owner Occupied		Other
Commercial Real Estate Credit Exposure
Prime	$	—	$	—	$	—	$	—	$	—
Desirable		—		1,573		968		177		—
Satisfactory tier I		2,836		978		38,623		56,221		4,246
Satisfactory tier II		14,010		34,239		102,383		130,850		17,999
Acceptable with care		69,902		47,093		62,198		159,216		45,597
Management Watch		27,383		15,259		5,298		26,415		2,965
Substandard		91,845		61,388		16,289		38,037		6,817
Loss		—		—		—		—		—
Total		205,976		160,530		225,759		410,916		77,624

	March 31, 2011 Commercial		December 31, 2010 Commercial
Commercial Credit Exposure
Prime	$	1,418	$	1,236
Desirable		6,098		7,951
Satisfactory tier I		31,276		33,859
Satisfactory tier II		85,849		91,505
Acceptable with care		63,295		72,286
Management Watch		8,826		8,511
Substandard		11,734		7,579
Loss		—		—
Total		208,496		222,927

F-263

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 3—LOANS (Continued)

As of March 31, 2011

	HELOC		Mortgage		Mortgage – Subprime		Other
Consumer Real Estate Credit Exposure
Pass	$	192,083	$	151,975	$	11,668	$	3,932
Management Watch		1,017		2,042		—		—
Substandard		3,695		6,359		50		102
Total		196,795		160,376		11,718		4,034

As of December 31, 2010

	HELOC		Mortgage		Mortgage – Subprime		Other
Consumer Real Estate Credit Exposure
Pass	$	188,086	$	131,845	$	11,692	$	29,833
Management Watch		1,017		317		—		—
Substandard		2,807		5,117		50		1,529
Total		191,910		137,279		11,742		31,362

As of March 31, 2011

	Consumer - Prime		Consumer - Subprime		Consumer Auto - Subprime
Consumer Real Estate Credit Exposure
Pass	$	33,964	$	12,963	$	19,468
Management Watch		—		—		—
Substandard		221		76		96
Total		34,185		13,039		19,564

As of December 31, 2010

	Consumer - Prime		Consumer - Subprime		Consumer Auto - Subprime
Consumer Real Estate Credit Exposure
Pass	$	35,029	$	13,093	$	18,588
Management Watch		—		—		—
Substandard		217		39		474
Total		35,246		13,132		19,062

F-264

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 3—LOANS (Continued)

A substantial portion of commercial real estate loans are secured by real estate in markets in which the Company is located. These loans are often restructured with interest reserves to fund interest costs during the construction and development period. Additionally, certain of these loans are structured with interest-only terms. A portion of the consumer mortgage and commercial real estate portfolios originated through the permanent financing of construction, acquisition and development loans. The prolonged economic downturn has negatively impacted many borrowers’ and guarantors’ ability to make payments under the terms of the loans as their liquidity has been depleted. Accordingly, the ultimate collectability of a substantial portion of these loans and the recovery of a substantial portion of the carrying amount of other real estate owned are susceptible to changes in real estate values in these areas. Continued economic distress could negatively impact additional borrowers’ and guarantors’ ability to repay their debt which will make more of the Company’s loans collateral dependent.

Age analysis of past due loans by class are presented below as of March 31, 2011:

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial real estate:
Speculative 1-4 Family	$	9,179	$	3,222	$	41,377	$	53,778	$	128,041	$	181,819	$	5,518
Construction		—		248		18,622		18,870		116,437		135,307		—
Owner Occupied		4,499		126		11,610		16,235		212,545		228,780		—
Non-owner Occupied		6,170		3,848		17,675		27,693		435,689		463,382		—
Other		835		619		192		1,646		17,969		19,615		—
Residential real estate:
HELOC		1,077		155		1,024		2,256		194,539		196,795		—
Mortgage-Prime		6,196		1,381		2,711		10,288		150,088		160,376		—
Mortgage-Subprime		51		6		72		129		11,589		11,718		—
Other		85		3		81		169		3,865		4,034		—
Commercial		608		267		5,795		6,670		201,826		208,496		72
Consumer
Prime		201		58		51		310		33,875		34,185		2
Subprime		140		104		53		297		12,742		13,039		—
Auto-Subprime		565		110		125		800		18,764		19,564		—
Other		—		—		—		—		3,139		3,139		—
Total		29,606		10,147		99,388		139,141		1,541,108		1,680,249		5,592

F-265

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 3—LOANS (Continued)

Age analysis of past due loans by class are presented below for December 31, 2010:

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial real estate:
Speculative 1-4 Family	$	22,267	$	1,777	$	30,802	$	54,846	$	151,130	$	205,976	$	1,758
Construction		14,541		—		26,915		41,456		119,074		160,530		—
Owner Occupied		8,114		1,633		4,137		13,884		211,875		225,759		—
Non-owner Occupied		4,014		5,961		8,814		18,789		392,127		410,916		170
Other		116		865		1,491		2,472		75,152		77,624		18
Residential real estate:
HELOC		747		358		644		1,749		190,161		191,910		—
Mortgage-Prime		1,359		915		1,779		4,053		133,226		137,279		8
Mortgage-Subprime		100		51		98		249		11,493		11,742		—
Other		403		176		566		1,145		30,217		31,362		19
Commercial		2,422		593		3,922		6,937		215,990		222,927		92
Consumer
Prime		315		86		108		509		34,737		35,246		29
Subprime		155		64		6		225		12,907		13,132		—
Auto-Subprime		476		116		101		743		18,319		19,062		18
Other		73		—		—		73		1,840		1,913		—
Total		55,102		12,645		79,383		147,130		1,598,248		1,745,378		2,112

F-266

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 3—LOANS (Continued)

Non-accrual loans by class are presented below:

	March 31, 2011		December 31, 2010
Commercial real estate:
Speculative 1-4 Family	$	60,024	$	63,298
Construction		38,629		41,789
Owner Occupied		14,458		5,511
Non-owner Occupied		30,720		18,772
Other		192		1,865
Residential real estate:
HELOC		2,025		1,668
Mortgage-Prime		4,758		3,350
Mortgage-Subprime		351		254
Other		102		957
Commercial		7,034		5,813
Consumer:
Prime		143		130
Subprime		163		107
Auto-Subprime		217		193
Other		—		—
Total		158,816		143,707

Nonperforming loans were as follows:

	March 31, 2011		December 31, 2010
Loans past due 90 days still on accrual	$	5,592	$	2,112
Nonaccrual loans		158,816		143,707
Total	$	164,408	$	145,819

Nonperforming loans and impaired loans are defined differently. Nonperforming loans are loans that are 90 days past due and still accruing interest and nonaccrual loans. Impaired loans are loans that based upon current information and events it is considered probable that the Company will be unable to collect all amounts of contractual interest and principal as scheduled in the loan agreement. Some loans may be included in both categories, whereas other loans may only be included in one category.

The Company may elect to formally restructure a loan due to the weakening credit status of a borrower so that the restructuring may facilitate a repayment plan that minimizes the potential losses that the Company may have to otherwise incur. At March 31, 2011, the Company had $39,944 of restructured loans of which $10,255 was classified as non-accrual and the remaining were performing. The Company had taken charge-offs of $2,745 on the restructured non-accrual loans as of March 31, 2011. At December 31, 2010, the Company had $47,154 of restructured loans of which $8,469 was classified as non-accrual and the remaining were performing. The Company had taken charge-offs of $1,743 on the restructured non-accrual loans as of December 31, 2010.

F-267

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 3—LOANS (Continued)

The aggregate amount of loans to executive officers and directors of the Company and their related interests was approximately $7,795 and $7,848 at March 31, 2011 and December 31, 2010, respectively.

NOTE 4—EARNINGS PER SHARE OF COMMON STOCK

Basic earnings per share (“EPS”) of common stock is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share of common stock is computed by dividing net income available to common shareholders by the weighted average number of common shares and potential common shares outstanding during the period. Stock options, warrants and restricted common shares are regarded as potential common shares. Potential common shares are computed using the treasury stock method. For the three months ended March 31, 2011, 979,974 options and warrants are excluded from the effect of dilutive securities because they are anti-dilutive; 1,017,645 options are similarly excluded from the effect of dilutive securities for the three months ended March 31, 2010.

The following is a reconciliation of the numerators and denominators used in the basic and diluted earnings per share computations for the three months ended March 31, 2011 and 2010:

	Three Months Ended March 31,
	2011			2010
Basic Earnings Per Share
Net Income (loss)	$	(10,311	)	$	3,196
Less: preferred stock dividends and accretion of discount on warrants		1,250			1,250
Net income (loss) available to common shareholders	$	(11,561	)	$	1,946
Weighted average common shares outstanding		13,108,598			13,082,347
Basic earnings (loss) per share available to common shareholders	$	(0.88	)	$	0.15
Diluted Earnings Per Share
Net Income (loss)	$	(10,311	)	$	3,196
Less: preferred stock dividends and accretion of discount on warrants		1,250			1,250
Net income (loss) available to common shareholders	$	(11,561	)	$	1,946
Weighted average common shares outstanding		13,108,598			13,082,347
Add: Dilutive effects of assumed conversions of restricted stock and exercises of stock options and warrants		—			90,380
Weighted average common and dilutive potential common shares outstanding		13,108,598			13,172,727
Diluted earnings (loss) available to common shareholders	$	(0.88	)	$	0.15

NOTE: Dividends of $3,255 on preferred stock have been accrued as the Company intends to pay.

F-268

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 5—SEGMENT INFORMATION

The Company’s operating segments include banking, mortgage banking, consumer finance, automobile lending and title insurance. The reportable segments are determined by the products and services offered, and internal reporting. Loans, investments and deposits provide the revenues in the banking operation; loans and fees provide the revenues in consumer finance and mortgage banking and insurance commissions provide revenues for the title insurance company. Consumer finance, automobile lending and title insurance do not meet the quantitative threshold on an individual basis, and are therefore shown below in “Other Segments”. Mortgage banking operations are included in “Bank”. All operations are domestic.

Segment performance is evaluated using net interest income and non-interest income. Income taxes are allocated based on income before income taxes, and indirect expenses (includes management fees) are allocated based on time spent for each segment. Transactions among segments are made at fair value. Information reported internally for performance assessment follows.

Three months ended March 31, 2011	Bank			Other Segments		Holding Company			Eliminations			Totals
Net interest income (expense)	$	17,611		$	2,148	$	(492	)	$	—		$	19,267
Provision for loan losses		13,627			270		—			—			13,897
Noninterest income		7,379			476		14			(242	)		7,627
Noninterest expense		22,115			1,243		(89	)		(242	)		23,027
Income tax expense (benefit)		(46	)		436		(109	)		—			281
Segment profit (loss)		(10,706	)	$	675	$	(280	)	$	—		$	(10,311	)
Segment assets at March 31, 2011	$	2,342,891		$	43,322		6,481			—		$	2,392,694

Three months ended March 31, 2010	Bank		Other Segments		Holding Company			Eliminations			Totals
Net interest income (expense)	$	20,068	$	2,063	$	(472	)	$	—		$	21,659
Provision for loan losses		3,356		533		—			—			3,889
Noninterest income		7,528		371		14			(227	)		7,686
Noninterest expense		19,469		1,115		189			(227	)		20,546
Income tax expense (benefit)		1,628		309		(223	)		—			1,714
Segment profit (loss)		3,143	$	477	$	(424	)	$	—			3,196
Segment assets at March 31, 2011	$	2,520,503	$	41,663		7,566		$	—		$	2,569,732

F-269

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 5—SEGMENT INFORMATION (Continued)

Asset Quality Ratios

As of and for the period ended March 31, 2011	Bank			Other			Total
Nonperforming loans as percentage of total loans, net of unearned income		9.84	%		1.65	%		9.78	%
Nonperforming assets as a percentage of total assets		9.34	%		2.07	%		9.38	%
Allowance for loan losses as a percentage of total loans, net of unearned income		3.72	%		7.25	%		3.87	%
Allowance for loan losses as a percentage of nonperforming loans		37.81	%		439.21	%		39.60	%
YTD net charge-offs to average total loans, net of unearned income		0.90	%		0.61	%		0.91	%
As of and for the period ended March 31, 2010	Bank			Other			Total
Nonperforming loans as percentage of total loans, net of unearned income		3.19	%		1.23	%		3.19	%
Nonperforming assets as a percentage of total assets		5.25	%		1.37	%		5.27	%
Allowance for loan losses as a percentage of total loans, net of unearned income		2.36	%		8.13	%		2.52	%
Allowance for loan losses as a percentage of nonperforming loans		73.98	%		661.74	%		78.85	%
YTD net charge-offs to average total loans, net of unearned income		0.17	%		1.25	%		0.19	%
As of and for the period ended December 31, 2010	Bank			Other			Total
Nonperforming loans as percentage of total loans, net of unearned income		8.40	%		1.30	%		8.35	%
Nonperforming assets as a percentage of total assets		8.52	%		1.34	%		8.56	%
Allowance for loan losses as a percentage of total loans, net of unearned income		3.68	%		7.33	%		3.83	%
Allowance for loan losses as a percentage of nonperforming loans		43.80	%		562.24	%		45.83	%
YTD net charge-offs to average total loans, net of unearned income		2.76	%		4.20	%		2.84	%
Net charge-offs
	Bank			Other			Total
For the three month period ended March 31, 2011	$	15,347		$	270		$	15,617
For the three month period ended March 31, 2010	$	3,345		$	537		$	3,882
For the year ended December 31, 2010	$	52,615		$	1,823		$	54,438

F-270

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 6—FAIR VALUE DISCLOSURES

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Accounting principles generally accepted in the United States of America (“GAAP”), also 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 in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury, other U.S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2

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 for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency mortgage-backed debt securities, corporate debt securities, derivative contracts and residential mortgage loans held-for-sale.

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

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

Investment Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices of like or similar securities, if available and these securities are classified as Level 1 or Level 2. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions and are classified as Level 3.

F-271

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 6—FAIR VALUE DISCLOSURES (Continued)

Loans Held for Sale

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

Impaired Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with GAAP. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, and liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2011, substantially all of the total impaired loans were evaluated based on either the fair value of the collateral or its liquidation value. In accordance with GAAP, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Other Real Estate

Other real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. Gains or losses on sale and any subsequent adjustments to the value are recorded as a component of foreclosed real estate expense. Other real estate is included in Level 3 of the valuation hierarchy.

F-272

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 6—FAIR VALUE DISCLOSURES (Continued)

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Below is a table that presents information about certain assets and liabilities measured at fair value:

	Fair Value Measurement Using						Total Carrying Amount in Balance Sheet		Assets/Liabilities Measured at Fair Value
Description	Level 1		Level 2		Level 3
March 31, 2011
Securities available for sale
U.S. government agencies	$	—	$	93,073	$	—	$	93,073	$	93,073
States and political subdivisions		—		30,799		—		30,799		30,799
Collateralized mortgage obligations		—		79,766		—		79,766		79,766
Mortgage-backed securities		—		21,404		—		21,404		21,404
Trust preferred securities		—		1,052		638		1,690		1,690
December 31, 2010
Securities available for sale
U.S. government agencies	$	—	$	83,299	$	—	$	83,299	$	83,299
States and political subdivisions		—		31,501		—		31,501		31,501
Collateralized mortgage obligations		—		67,575		—		67,575		67,575
Mortgage-backed securities		—		17,964		—		17,964		17,964
Trust preferred securities		—		1,025		638		1,663		1,663

Level 3 Valuations

Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.

Currently the Company has one trust preferred security that is considered Level 3. For more information on this security please refer to Note 2—Securities.

The following table shows a reconciliation of the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs.

	March 31, 2011		March 31, 2010
Beginning balance, January 1	$	638	$	638
Total gains or (loss) (realized/unrealized)		—		—
Included in earnings		—		—
Included in other comprehensive income		—		—
Paydowns and maturities		—		—
Transfers into Level 3		—		—
Ending balance, March 31	$	638	$	638

F-273

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 6—FAIR VALUE DISCLOSURES (Continued)

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

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

	Fair Value Measurement Using						Total Carrying Amount in Balance Sheet		Assets/Liabilities Measured at Fair Value
Description	Level 1		Level 2		Level 3
March 31, 2011
Other real estate	$	—	$	—	$	6,008	$	6,008	$	6,008
Impaired loans		—		—		125,361		125,361		125,361
Total assets at fair value	$	—	$	—	$	131,369	$	131,369	$	131,369
December 31, 2010
Other real estate	$	—	$	—	$	38,806	$	38,806	$	38,806
Impaired loans		—		—		129,088		129,088		129,088
Total assets at fair value	$	—	$	—	$	167,174	$	167,174	$	167,174

The carrying value and estimated fair value of the Company’s financial instruments are as follows at March 31, 2011 and December 31, 2010.

	March 31, 2011				December 31, 2010
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Cash and cash equivalents	$	331,416	$	331,416	$	294,214	$	294,214
Securities available for sale		226,732		226,732		202,002		202,002
Securities held to maturity		115		115		465		467
Loans held for sale		960		970		1,299		1,317
Loans, net		1,615,140		1,600,794		1,678,548		1,664,126
FHLB and other stock		12,734		12,734		12,734		12,734
Cash surrender value of life insurance		31,758		31,758		31,479		31,479
Accrued interest receivable		7,332		7,332		7,845		7,845
Financial liabilities:
Deposit Accounts	$	1,975,635	$	1,988,676	$	1,976,854	$	1,987,105
Federal funds purchased and repurchase agreements		18,712		18,712		19,413		19,413
FHLB advances and notes payable		158,588		166,703		158,653		166,762
Subordinated debentures		88,662		62,985		88,662		64,817
Accrued interest payable		2,454		2,454		2,140		2,140

The following methods and assumptions were used to estimate the fair values for financial instruments that are not disclosed previously in this note. The carrying amount is considered to estimate fair value for cash and short-term instruments, demand deposits, liabilities for repurchase agreements, variable rate loans or deposits that reprice frequently and fully, and accrued interest receivable and payable. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, the fair value is estimated by

F-274

GREEN BANKSHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

Unaudited

(Amounts in thousands, except share and per share data)

NOTE 6—FAIR VALUE DISCLOSURES (Continued)

discounted cash flow analysis using current market rates for the estimated life and credit risk. No adjustment has been made for illiquidity in the market on loans as there is no information from which to reasonably base this estimate. Liabilities for FHLB advances and notes payable are estimated using rates of debt with similar terms and remaining maturities. The fair value of off-balance sheet items is based on the current fees or costs that would be charged to enter into or terminate such arrangements, which is not material. The fair value of commitments to sell loans is based on the difference between the interest rates at which the loans have been committed to sell and the quoted secondary market price for similar loans, which is not material.

NOTE 7—SUBSEQUENT EVENTS

Regulatory Matters

On May 2, 2011, the Bank received notice from the Federal Deposit Insurance Corporation (“FDIC”) and Tennessee Department of Financial Institutions (“TDFI”) that, as a result of those agencies’ findings in their most recently completed joint safety and soundness examination, the agencies would be seeking a formal enforcement action against the Bank aimed at strengthening the Bank’s operations and its financial condition, and that accordingly, the FDIC was pursuing the issuance of a consent order against the Bank and the TDFI was pursuing the issuance of a written agreement against the Bank. The Bank is seeking to negotiate the terms of these formal enforcement actions with the FDIC and the TDFI, and while the final terms of the consent order and written agreement are not currently known, the Company believes that they will contain requirements similar to those that the Bank has already informally committed to comply with, including requirements to maintain the Bank’s capital ratios above those levels required to be considered “well-capitalized” under federal banking regulations. If the Company’s transaction with North American is consummated, including the merger of the Bank with and into a bank subsidiary of North American’s, it is possible that these formal enforcement actions will not be issued.

Investment Agreement with North American Financial Holdings, Inc.

On May 5, 2011, the Company and the Bank entered into an Investment Agreement with North American Financial Holdings, Inc. (“North American”) pursuant to which North American has agreed to acquire approximately 120 million shares of the Company’s common stock at a per share purchase price of $1.81, for a total investment of approximately $217 million. The transaction, which is subject to shareholder and regulatory approval, as well as the satisfaction of other customary closing conditions, is expected to be consummated in the third quarter of 2011. In connection with the investment, the Company expects that North American will enter into a binding agreement with the U.S. Department of Treasury to purchase all of the outstanding shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, and related warrants to purchase shares of the Company’s Common Stock.

In connection with the investment by North American, the Company’s shareholders as of a record date to be fixed near the closing of that transaction will receive a contingent value right, entitling them to cash proceeds of up to $0.75 per share of common stock based on the credit performance of the Bank’s legacy loan portfolio over the five-year period following closing.

Subsequent to the announcement of North American’s planned investment, a class action lawsuit was filed against the Company, the Company’s directors and North American by one of the Company’s shareholders. For additional detail regarding this lawsuit, see Part II, Item 1 “Legal Proceedings” below.

F-275

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

BOARD OF DIRECTORS AND SHAREHOLDERS

GREEN BANKSHARES, INC.

We have audited the accompanying consolidated balance sheets of Green Bankshares, Inc. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits 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 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. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Green Bankshares, Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

Effective January 1, 2009, the Company changed its method of accounting for other-than-temporary impairments of debt securities in connection with the adoption of revised accounting guidance issued by the Financial Accounting Standards Board.

/s/ Dixon Hughes Goodman LLP

(formerly Dixon Hughes PLLC)

Atlanta, Georgia

March 15, 2011

GREEN BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2010 and 2009

(Amounts in thousands, except share and per share data)

	2010			2009
ASSETS
Cash and due from banks	$	289,358		$	206,701
Federal funds sold		4,856			3,793
Cash and cash equivalents		294,214			210,494
Interest earning deposits in other banks		—			11,000
Securities available for sale		202,002			147,724
Securities held to maturity (with a market value of $467 and $638)		465			626
Loans held for sale		1,299			1,533
Loans, net of unearned interest		1,745,378			2,043,807
Allowance for loan losses		(66,830	)		(50,161	)
Other real estate owned and repossessed assets		60,095			57,168
Premises and equipment, net		78,794			81,818
FHLB and other stock, at cost		12,734			12,734
Cash surrender value of life insurance		31,479			30,277
Core deposit and other intangibles		6,751			9,335
Deferred tax asset (net of valuation allowance of $43,455 and $0)		2,177			13,600
Other assets		37,482			49,184
Total assets	$	2,406,040		$	2,619,139
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Non interest-bearing deposits	$	152,752		$	177,602
Interest-bearing deposits		1,822,703			1,899,910
Brokered deposits		1,399			6,584
Total deposits		1,976,854			2,084,096
Repurchase agreements		19,413			24,449
FHLB advances and notes payable		158,653			171,999
Subordinated debentures		88,662			88,662
Accrued interest payable and other liabilities		18,561			23,164
Total liabilities	$	2,262,143		$	2,392,370
Shareholders’ equity
Preferred stock: no par, 1,000,000 shares authorized, 72,278 shares outstanding	$	68,121		$	66,735
Common stock: $2 par, 20,000,000 shares authorized, 13,188,896 and 13,171,474 shares outstanding		26,378			26,343
Common stock warrants		6,934			6,934
Additional paid-in capital		188,901			188,310
Retained earnings (deficit)		(147,436	)		(61,742	)
Accumulated other comprehensive income (loss)		999			189
Total shareholders’ equity		143,897			226,769
Total liabilities and shareholders’ equity	$	2,406,040		$	2,619,139

See accompanying notes.

F-277

GREEN BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 2010, 2009 and 2008

(Amounts in thousands, except share and per share data)

	2010			2009			2008
Interest income
Interest and fees on loans	$	113,721		$	129,212		$	155,627
Taxable securities		4,938			7,035			12,770
Nontaxable securities		1,241			1,260			1,297
FHLB and other stock		530			573			647
Federal funds sold and other		434			376			175
Total interest income		120,864			138,456			170,516
Interest expense
Deposits		28,434			45,768			58,090
Federal funds purchased and repurchase agreements		22			29			2,111
FHLB advances and notes payable		6,835			9,557			10,735
Subordinated debentures		1,980			2,577			4,555
Total interest expense		37,271			57,931			75,491
Net interest income		83,593			80,525			95,025
Provision for loan losses		71,107			50,246			52,810
Net interest income after provision for loan losses		12,486			30,279			42,215
Non-interest income
Service charges on deposit accounts		24,179			23,738			23,176
Other charges and fees		1,791			1,999			2,192
Trust and investment services income		2,842			1,977			1,878
Mortgage banking income		703			383			804
Other income		3,122			3,042			2,903
Securities gains (losses), net
Realized gains		—			1,415			2,661
Other-than-temporary impairment		(553	)		(1,678	)		—
Less non-credit portion recognized in other comprehensive income		460			702			—
Total securities gains (loss), net		(93	)		439			2,661
Total non-interest income		32,544			31,578			33,614
Non-interest expense
Employee compensation		31,990			30,611			33,615
Employee benefits		3,378			3,835			4,788
Occupancy expense		6,908			6,956			6,900
Equipment expense		2,846			3,092			3,555
Computer hardware/software expense		3,523			2,816			2,752
Professional services		2,777			2,108			2,069
Advertising		2,388			1,894			3,538
OREO maintenance expense		2,324			1,222			825
Collection and repossession expense		3,228			3,131			1,109
Loss on OREO and repossessed assets		29,895			8,156			7,028
FDIC insurance		4,155			4,960			1,631
Core deposit and other intangibles amortization		2,584			2,750			2,602
Goodwill impairment		—			143,389			—
Other expenses		14,819			14,667			15,425
Total non-interest expense		110,815			229,587			85,837
Income (loss) before income taxes		(65,785	)		(167,730	)		(10,008	)
Provision (benefit) for income taxes		14,910			(17,036	)		(4,648	)
Net income (loss)		(80,695	)		(150,694	)		(5,360	)
Preferred stock dividends and accretion of discount		5,001			4,982			92
Net income (loss) available to common shareholders	$	(85,696	)	$	(155,676	)	$	(5,452	)
Earnings (loss) per common share:
Basic	$	(6.54	)	$	(11.91	)	$	(0.42	)
Diluted		(6.54	)		(11.91	)		(0.42	)

See accompanying notes.

F-278

GREEN BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Years ended December 31, 2010, 2009 and 2008

(Amounts in thousands, except share and per share data)

	Preferred Stock			Common Stock						Warrants For Common Stock			Additional Paid-In Capital			Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
				Shares			Amount
Balance, January 1, 2008		—			12,931,015			25,863			—			185,170			109,938			1,507			322,477
Preferred stock transactions:
Issuance of 72,278 shares of preferred stock		72,278			—			—			—			—			—			—			72,278
Discount associated with 635,504 common stock warrants issued with preferred stock		(6,934	)		—			—			(6,934	)		—			—			—			—
Accretion of preferred stock discount		2			—			—			—			—			(2	)		—			—
Preferred stock dividends accrued		—			—			—			—			—			(90	)		—			(90	)
Common stock transactions:
Exercise of shares under stock option plan		—			9.759			19			—			201			—			—			220
Common stock exchanged for exercised stock options		—			(7,991	)		(16	)		—			(93	)		—			—			(109	)
Issuance of restricted common shares		—			60,907			122			—			(122	)		—			—			—
Stock dividend		—			118,997			238			—			1,822			(2,060	)		—			—
Compensation expense:
Stock options		—			—			—			—			456			—			—			456
Restricted stock		—			—			—			—			303			—			—			303
Stock option tax benefit		—			—			—			—			5			—			—			5
Dividends paid ($.52 per share)		—			—			—			—			—			(6,779	)					(6,779	)
Comprehensive loss:
Net loss		—			—			—			—			—			(5,360	)		—			(5,360	)
Change in unrealized losses, net of reclassification and taxes		—			—			—			—			—			—			(2,170	)		(2,170	)
Total comprehensive loss																							(7,530	)
Balance, December 31, 2008		65,346			13,112,687			26,225			6,934			187,742			95,647			(663	)		381,231
Preferred stock transactions:
Accretion of preferred stock discount		1,389			—			—			—			—			(1,389	)		—			—
Preferred stock dividends		—			—			—			—			—			(3,593	)		—			(3,593	)
Common stock transactions:
Issuance of restricted common shares		—			58,787			118			—			(118	)		—			—			—
Compensation expense:
Stock options		—			—			—			—			387			—			—			387
Restricted stock		—			—			—			—			299			—			—			299
Dividends paid ($.13 per share)		—			—			—			—			—			(1,713	)		—			(1,713	)
Comprehensive loss:
Net loss		—			—			—			—			—			(150,694	)		—			(150,694	)
Change in unrealized gains, net of reclassification and taxes		—			—			—			—			—			—			852			852
Total comprehensive loss																							(149,842	)
Balance, December 31, 2009	$	66,735			13,171,474		$	26,343		$	6,934		$	188,310		$	(61,742	)	$	189		$	226,769
Preferred stock transactions:
Accretion of preferred stock discount		1,386			—			—			—			—			(1,386	)		—			—
Preferred stock dividends		—			—			—			—			—			(3,613	)		—			(3,613	)
Common Stock transactions:
Issuance of restricted common shares		—			17,422			35			—			(35	)		—			—			—
Stock options		—			—			—			—			295			—			—			295
Restricted stock		—			—			—			—			331			—			—			331
Comprehensive loss:
Net loss		—			—			—			—			—			(80,695	)		—			(80,695	)
Change in unrealized gains, net of reclassification and taxes		—			—			—			—			—			—			810			810
Total comprehensive loss																							(79,885	)
Balance, December 31, 2010	$	68,121			13,188,896		$	26,378		$	6,934		$	188,901		$	(147,436	)	$	999		$	143,897

See accompanying notes.

F-279

GREEN BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2010, 2009 and 2008

(Amounts in thousands)

	2010			2009			2008
Cash flows from operating activities
Net loss	$	(80,695	)	$	(150,694	)	$	(5,360	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Provisions for loan losses		71,107			50,246			52,810
Impairment of goodwill		—			143,389			—
Depreciation and amortization		7,152			7,117			7,030
Security amortization and accretion, net		538			73			(983	)
Write down of investments and other securities for impairment		93			1,272			174
(Gain) loss on sale of securities		—			(1,415	)		(2,661	)
FHLB stock dividends		—			—			(464	)
Net gain on sale of mortgage loans		(653	)		(264	)		(573	)
Originations of mortgage loans held for sale		(46,994	)		(43,879	)		(49,501	)
Proceeds from sales of mortgage loans		47,881			43,050			51,962
Increase in cash surrender value of life insurance		(1,202	)		(1,125	)		(1,073	)
Gain from settlement of life insurance		—			(305	)		—
Net (gains) losses from sales of fixed assets		(1	)		(85	)		665
Stock-based compensation expense		626			686			759
Net loss on OREO and repossessed assets		29,895			8,156			7,028
Deferred tax (benefit)		26,739			(1,654	)		(4,374	)
Net changes:
Other assets		(4,139	)		(21,375	)		78
Accrued interest payable and other liabilities		(5,505	)		(3,177	)		(10,875	)
Net cash provided by operating activities		44,842			30,016			44,642
Cash flows from investing activities
Net change in interest-earning deposits with banks		11,000			(11,000	)		—
Purchase of securities available for sale		(171,820	)		(92,100	)		(180,626	)
Proceeds from sale of securities available for sale		—			36,266			123,701
Proceeds from maturities of securities available for sale		118,246			113,440			88,711
Proceeds from maturities of securities held to maturity		160			30			645
Purchase of FHLB stock		—			—			(417	)
Net change in loans		195,847			99,111			27,754
Proceeds from settlement of life insurance		—			691			—
Proceeds from sale of other real estate		16,136			11,930			20,654
Improvements to other real estate		(813	)		(307	)		(1,071	)
Proceeds from sale of fixed assets		8			800			58
Premises and equipment expenditures		(1,551	)		(3,542	)		(5,814	)
Net cash provided by investing activities		167,213			155,319			73,595
Cash flows financing activities
Net change in core deposits		(102,057	)		270,162			48,589
Net change in brokered deposits		(5,185	)		(370,213	)		148,765
Net change in federal funds purchase and repurchase agreements		(5,036	)		(10,853	)		(159,223	)
Tax benefit resulting from stock options		—			—			5
Proceeds from FHLB advances and notes payable		—			—			20,916
Repayment of FHLB advances and notes payable		(13,346	)		(57,350	)		(110,258	)
Preferred stock dividends paid		(2,711	)		(3,232	)		—
Common stock dividends paid		—			(1,713	)		(6,779	)
Proceeds from issuance of preferred stock and common stock warrants		—			—			72,278
Proceeds from issuance of common stock		—			—			111
Net cash provided by (used in) financing activities		(128,335	)		(173,199	)		14,404
Net change in cash and cash equivalents		83,720			12,136			132,641
Cash and cash equivalents, beginning of year		210,494			198,358			65,717
Cash and cash equivalents, end of year	$	294,214		$	210,494		$	198,358
Supplemental disclosures—cash and non cash
Interest paid	$	41,875		$	62,198		$	77,761
Income taxes paid net of refunds		(148	)		1,675			5,674
Loans converted to other real estate		54,613			75,545			37,991
Unrealized gain (loss) on available for sale securities, net of tax		810			852			(2,170	)

See accompanying notes

F-280

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include the accounts of Green Bankshares, Inc. (the “Company”) and its wholly owned subsidiary, GreenBank (the “Bank”), and the Bank’s wholly owned subsidiaries, Superior Financial Services, Inc., GCB Acceptance Corp., Inc., Fairway Title Company, Inc, and GB Holdings, LLC. All significant inter-company balances and transactions have been eliminated in consolidation.

Nature of Operations: The Company primarily provides financial services through its offices in Eastern, Middle and Southeastern Tennessee, Western North Carolina and Southwestern Virginia. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate.

Use of Estimates: 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 impact the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, deferred tax asset valuation, OREO valuation and fair values of financial instruments are significant items based on estimates and assumptions.

Cash Flows: Cash and cash equivalents include cash, deposits with other financial institutions under 90 days, and federal funds sold. Net cash flows are reported for loan, deposit and other borrowing transactions.

Securities: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in accumulated other comprehensive income.

Interest income includes amortization of purchase premium or discount and is recognized based upon the level-yield method. Gains and losses on sales are based on the amortized cost of the security sold. Securities are written down to fair value when a decline in fair value is other than temporary.

Investments in Equity Securities Carried at Cost: Investment in Federal Home Loan Bank (“FHLB”) stock, which is carried at cost because it can only be redeemed at par, is a required investment based on membership requirements. The Bank also carries certain other equity investments at cost, which approximates fair value.

Loans: Loans are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs.

Interest income is reported on the interest method over the loan term. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method. Interest income includes amortization of purchase premiums or discounts on loans purchased. Premiums and discounts are amortized on the level yield-method. Interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the loan is well secured and in process of collection. Most consumer loans are charged off no later than 120 days past due. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal and interest is doubtful. Interest accrued but not collected is reversed against interest income when a loan is placed on nonaccrual status.

F-281

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Interest received is recognized on the cash basis or cost recovery method until qualifying for return to accrual status. Accrual is resumed when all contractually due payments are brought current, six months of payment performance can be measured, and future payments are reasonably assured.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience, known and inherent risks in the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic 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. Loan losses are charged against the allowance when management believes the uncollectibility of a loan is confirmed.

The Bank uses several factors in determining if a loan is impaired. The internal asset classification procedures include a thorough review of significant loans and lending relationships and include the accumulation of related data. This data includes loan payment and collateral status, borrowers’ financial data and borrowers’ operating factors such as cash flows, operating income, liquidity, leverage and loan documentation, and any significant changes. A loan is considered impaired, based on current information and events, if it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Uncollateralized loans are measured for impairment based on the present value of expected future cash flows discounted at the historical effective interest rate, while all collateral-dependent loans are measured for impairment based on the fair value of the collateral. Larger groups of smaller balance, homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated cost to sell when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed.

Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed over an asset’s useful life on a straight-line basis. Buildings and related components have useful lives ranging from 10 to 40 years, while furniture, fixtures and equipment have useful lives ranging from 3 to 10 years. Leasehold improvements are amortized over the lesser of the life of the asset or lease term.

Mortgage Banking Activities: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market value. The Company controls its interest rate risk with respect to mortgage loans held for sale and loan commitments expected to close by usually entering into agreements to sell loans. The Company records loan commitments related to the origination of mortgage loans held for sale as derivative instruments. The Company’s commitments for fixed rate mortgage loans, generally last 60 to 90 days and are at market rates when initiated. The Company had $4,813 in outstanding loan commitment derivatives at December 31, 2010. The aggregate market value of mortgage loans held for sale takes into account the sales prices of such agreements. The Company also provides currently for any losses on uncovered commitments to lend or sell. The Company sells mortgage loans servicing released.

Bank Owned Life Insurance: The Company has purchased life insurance policies on certain key executives. Company owned life insurance is recorded at its cash surrender value or the amount that can be realized.

F-282

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Goodwill, Core Deposit Intangibles and Other Intangible Assets: Goodwill results from prior business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. During the second quarter of 2009 the Company identified impairment in its goodwill resulting from a prolonged decline in the market value of its stock price relative to book value, and took the appropriate actions. This is explained further in “Note 6—Goodwill and Other Intangible Assets”.

Core deposit intangible assets arise from whole bank and branch acquisitions. They are initially measured at fair value and then are amortized on a straight line method over their estimated useful lives, which range from seven to 15 years and are determined by an independent consulting firm. Core deposit intangible assets are assessed at least annually for impairment and any such impairment is recognized in the period identified.

Other intangible assets consist of mortgage servicing rights (“MSR’s”). MSR’s represent the cost of acquiring the rights to service mortgage loans. MSR’s are amortized based on the principal reduction of the underlying loans. The Company is obligated to service the unpaid principal balances of these loans, which were approximately $33 million and $43 million as of December 31, 2010 and 2009, respectively. The Company pays a third party subcontractor to perform servicing and escrow functions with respect to loans sold with retained servicing. MSR’s are assessed at least annually for impairment. The Company does not intend to further pursue this line of business.

Long-term Assets: Premises and equipment and other long-term 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 recorded at fair value.

Repurchase Agreements: All repurchase agreement liabilities represent secured borrowings from existing Bank customers and are not covered by federal deposit insurance.

Benefit Plans: Retirement plan expense is the amount contributed to the plan as determined by Board decision. Deferred compensation expense is recognized during the year the benefit is earned.

Stock Compensation: Compensation cost for stock-based payments is measured based on the fair value of the award, which most commonly includes restricted stock (i.e., unvested common stock), stock options, and stock appreciation rights at the grant date and is recognized in the consolidated financial statements on a straight-line basis over the requisite service period for service-based awards. The fair value of restricted stock is determined based on the price of the Company’s common stock on the date of grant. The fair value of stock options is estimated at the date of grant using a Black-Scholes option pricing model and related assumptions.

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance reduces deferred tax assets to the amount expected to be realized and as of December 31, 2010 the Company had recorded a deferred tax valuation allowance of $43,455.

Loan Commitments and Related Financial Instruments: Financial instruments include credit instruments, such as commitments to make loans and standby 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

F-283

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

repay. Such financial instruments are recorded when they are funded. Instruments such as standby letters of credit are considered financial guarantees in accordance with applicable accounting standards. The fair value of these financial guarantees is not material.

Earnings (loss) Per Common Share: Basic earnings (loss) per common share are net income (loss) available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings available to common shareholders per common share includes the dilutive impact of additional potential common shares issuable under stock options, unvested restricted stock awards and stock warrants issued to the U.S. Treasury in connection with the Capital Purchase Program.

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 a separate component of equity. Comprehensive income is presented in the consolidated statements of changes in shareholders’ equity.

Recent Accounting Pronouncements: FASB—ASU—2010-06—In January 2010, the FASB issued additional guidance on fair value disclosures. The new guidance clarifies two existing disclosure requirements and requires two new disclosures as follows: (1) a “gross” presentation of activities (purchases, sales, and settlements) within the Level 3 rollforward reconciliation, which will replace the “net” presentation format; and (2) detailed disclosures about the transfers in and out of Level 1 and 2 measurements. This guidance is effective for the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 rollforward information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods within those years. The Company adopted the fair value disclosures guidance on January 1, 2010, except for the gross presentation of the Level 3 rollforward information which is not required to be adopted by the Company until January 1, 2011.

FASB—ASC—810 and amended by FASB ASU—2010-10 became effective on January 1, 2010, and was amended to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The new authoritative accounting guidance requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its effect on the entity’s financial statements. The new authoritative accounting guidance under ASC 810 was effective January 1, 2010 and did not have a significant impact on the Company’s financial statements.

FASB—ASU—2010-20—“Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The Company adopted the new standard governing the disclosures associated with credit quality and the allowance for loan losses. This standard requires additional disclosures related to the allowance for loan loss with the objective of providing financial statement users with greater transparency about an entity’s loan loss reserves and overall credit quality. Additional disclosures include showing on a disaggregated basis the aging of receivables, credit quality indicators, and troubled debt restructures with its effect on the allowance for loan loss. The provisions of this standard were effective for interim and annual periods ending on or after December 15, 2010. The adoption of this standard did not have a material impact on the Company’s financial position and results of operations, but did increase the amount and quality of the credit disclosures in the notes to the consolidated financial statements.

F-284

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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. In the third quarter of 2010, we recognized significant losses as a result of higher costs related to loan charge-offs, coupled with losses incurred on OREO resulting from sales completed and updated property appraisals received during that quarter. As a result, various plaintiffs filed class action lawsuits, which have subsequently been consolidated into one class action, alleging, among other things, disclosure violations regarding our collateral valuations, the timing of our impairment charges and our accounting for loan charge-offs. The defense of this matter has and will continue to entail considerable cost and will be time-consuming for our management. Unfavorable outcomes in this matter could have an adverse effect on our business, financial condition, results of operations and cash flows.

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank of $14,457 and $19,245 was required to meet regulatory reserve and clearing requirements at year-end 2010 and 2009. These balances do not earn interest.

Segments: Internal financial reporting is primarily reported and aggregated in five lines of business: banking, mortgage banking, consumer finance, subprime automobile lending, and title insurance. Banking accounts for 93.6% of revenues for 2010.

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve 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 the estimates.

Reclassifications: Certain items in prior year financial statements have been reclassified to conform to the 2010 presentation. These reclassifications had no effect on net income or shareholders’ equity as previously reported.

F-285

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 2—SECURITIES

Securities are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
2010
U.S. government agencies	$	84,106	$	115	$	(922	)	$	83,299
States and political subdivisions		31,192		705		(396	)		31,501
Collateralized mortgage obligations		66,043		1,901		(369	)		67,575
Mortgage-backed securities		17,168		815		(19	)		17,964
Trust preferred securities		1,850		—		(187	)		1,663
	$	200,359	$	3,536	$	(1,893	)	$	202,002
2009
U.S. government agencies	$	52,937	$	99	$	(988	)	$	52,048
States and political subdivisions		31,764		877		(449	)		32,192
Collateralized mortgage obligations		44,018		1,281		(622	)		44,677
Mortgage-backed securities		16,607		291		(6	)		16,892
Trust preferred securities		2,088		—		(173	)		1,915
	$	147,414	$	2,548	$	(2,238	)	$	147,724
Held to Maturity
2010
States and political subdivisions	$	215	$	1	$	—		$	216
Other securities		250		1		—			251
	$	465	$	2	$	—		$	467
2009
States and political subdivisions	$	251	$	4	$	—		$	255
Other securities		375		8		—			383
	$	626	$	12	$	—		$	638

Contractual maturities of securities at year-end 2010 are shown below. Securities not due at a single maturity date, collateralized mortgage obligations and mortgage-backed securities are shown separately.

	Available for Sale		Held to Maturity
	Fair Value		Carrying Amount		Fair Value
Due on one year or less	$	979	$	465	$	467
Due after one year through five years		4,226		—		—
Due after five years through ten years		61,208		—		—
Due after ten years		50,050		—		—
Collateralized mortgage obligations		67,575		—		—
Mortgage-backed securities		17,964		—		—
Total maturities	$	202,002	$	465	$	467

F-286

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 2—SECURITIES (Continued)

Gross gains of $0, $1,415 and $2,661 were recognized in 2010, 2009 and 2008, respectively, from proceeds of $0, $36,266, and $123,701, respectively, on the sale of securities available for sale.

Securities with a fair value of $135,692 and $125,005 at year-end 2010 and 2009 were pledged for public deposits and securities sold under agreements to repurchase and to the Federal Reserve Bank. The balance of pledged securities in excess of the pledging requirements was $7,983 and $9,135 at year-end 2010 and 2009, respectively.

The Company held 200 and 168 securities in its portfolio as of December 31, 2010 and 2009, respectively, and of these securities 53 and 35 had an unrealized loss. Unrealized losses on securities are due to changes in interest rates and not due to credit quality issues.

Securities with unrealized losses at year-end 2010 and 2009 not recognized in income are as follows:

	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
2010
U.S. government agencies	$	65,178	$	(922	)	$	—	$	—		$	65,178	$	(922	)
States and political subdivisions		2,488		(114	)		1,659		(282	)		4,147		(396	)
Collateralization mortgage obligations		14,666		(266	)		2,699		(104	)		17,365		(370	)
Mortgage-backed securities		2,821		(17	)		8		(2	)		2,829		(19	)
Trust preferred securities		—		—			1,663		(186	)		1,663		(186	)
Total temporarily impaired	$	85,153	$	(1,319	)	$	6,029	$	(574	)	$	91,182	$	(1,893	)
2009
U.S. government agencies	$	40,959	$	(988	)	$	—	$	—		$	40,959	$	(988	)
States and political subdivisions		2,463		(24	)		3,075		(425	)		5,538		(449	)
Collateralized mortgage obligations		4,997		(32	)		3,222		(590	)		8,219		(622	)
Mortgage-backed securities		2,028		(5	)		11		(1	)		2,039		(6	)
Trust preferred securities		1,783		(122	)		132		(51	)		1,915		(173	)
Total temporarily impaired	$	52,230	$	(1,171	)	$	6,440	$	(1,067	)	$	58,670	$	(2,238	)

The Company reviews its investment portfolio on a quarterly basis judging each investment for other-than-temporary impairment (“OTTI”). Management does not have the intent to sell any of the temporarily impaired investments and believes it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The OTTI analysis focuses on the duration and amount a security is below book value and assesses a calculation for both a credit loss and a non credit loss for each measured security considering the security’s type, performance, underlying collateral, and any current or potential debt rating changes. The OTTI calculation for credit loss is reflected in the income statement while the non credit loss is reflected in other comprehensive income (loss).

The Company holds a single issue trust preferred security issued by a privately held bank holding company. Based upon available but limited information we have estimated that the likelihood of collecting the security’s principal and interest payments is approximately 50%. In addition, the bank holding company deferred its

F-287

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 2—SECURITIES (Continued)

interest payments beginning in the second quarter of 2009, and we have placed the security on non-accrual. The Federal Reserve Bank of St. Louis entered into an agreement with the bank holding company on October 22, 2009 which was made public on October 30, 2009. Among other provisions of the regulatory agreement, the bank holding company must strengthen its management of operations, strengthen its credit risk management practices, and submit a capital plan. As of December 31, 2010 no other communications between the bank holding company and the Federal Reserve Bank of St. Louis have been made public.

The Company valued the security by projecting estimated cash flows given the assumption of collecting approximately 50% of the security’s principal and interest and then discounting the amount back to the present value using a discount rate of 3.50% plus three month LIBOR. As of December 31, 2010, our best estimate for the three month LIBOR over the next twenty years (the remaining life of the security) is 3.17%. The difference in the present value and the carrying value of the security was the OTTI credit portion. Due to the illiquid trust preferred market for private issuers and the absence of a credible pricing source, we calculated a 15% illiquidity premium for the security to calculate the OTTI non credit portion. The security is currently booked at a fair value of $638 at December 31, 2010 and during the twelve months ended December 31, 2010 the Company recognized a write-down of $75 through non-interest income representing other-than-temporary impairment on the security.

The Company holds a private label class A21 collateralized mortgage obligation that was analyzed for the year ended December 31, 2010 with multiple stress scenarios using conservative assumptions for underlying collateral defaults, loss severity, and prepayments. The average principal at risk given the stress scenarios was calculated at 4.37%, and then analyzed using the present value of the future cash flows using the fixed rate of the security of 5.5% as the discount rate. The difference in the present value and the carrying value of the security was the OTTI credit portion. The security is currently booked at a fair value of $2,699 at December 31, 2010 and during the twelve months ended December 31, 2010 the Company recognized a write-down of $18 through non-interest income representing other-than-temporary impairment on the security.

The following table presents more detail on selective Company security holdings as of year-end 2010. These details are listed separately due to the inherent level of risk for OTTI on these securities.

Description	Cusip #		Current Credit Rating		Book Value		Fair Value		Unrealized Loss			Present Value Discounted Cash Flow
Collateralized mortgage obligations
Wells Fargo—2007—4 A21		94985RAW2		Caa2	$	2,802	$	2,699		(103	)	$	2,887
Trust preferred securities
West Tennessee Bancshares, Inc.		956192AA6		N/A		675		638		(37	)		675

The following table presents a roll-forward of the cumulative amount of credit losses on the Company’s investment securities that have been recognized through earnings as of December 31, 2010 and 2009. Credit losses on the Company’s investment securities recognized in earnings were $93 for the year ended December 31, 2010 and $976 for the year ended December 31, 2009.

	December 31, 2010		December 31, 2009
Beginning balance of credit losses at January 1, 2010 and 2009	$	976	$	—
Other-than-temporary impairment credit losses		93		976
Ending balance of cumulative credit losses recognized in earnings	$	1,069	$	976

F-288

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 3—LOANS

Loans at year-end by segment, net of unearned interest, were as follows:

	2010			2009			2008
Commercial real estate	$	1,080,805		$	1,306,398		$	1,430,225
Residential real estate		378,783			392,365			397,922
Commercial		222,927			274,346			315,099
Consumer		75,498			83,382			89,733
Other		1,913			2,117			4,656
Unearned interest		(14,548	)		(14,801	)		(14,245	)
Loans, net of unearned interest	$	1,745,378		$	2,043,807		$	2,223,390
Allowance for loan losses	$	(66,830	)	$	(50,161	)	$	(48,811	)

Activity in the allowance for loan losses is as follows:

	2010			2009			2008
Beginning balance	$	50,161		$	48,811		$	34,111
Add (deduct):
Provision for loan losses		71,107			50,246			52,810
Loans charged off		(57,818	)		(54,890	)		(41,269	)
Recoveries of loans charged off		3,380			5,994			3,159
Balance, end of year	$	66,830		$	50,161		$	48,811

Activity in the allowance for loan losses and recorded investment in loans by segment:

	Commercial Real Estate			Residential Real Estate			Commercial			Consumer			Other		Total
2010
Allowance for loan losses:
Beginning balance	$	36,527		$	4,350		$	5,840		$	3,437		$	7	$	50,161
Add (deduct):
Charge-offs		(48,617	)		(3,102	)		(3,210	)		(2,889	)		—		(57,818	)
Recoveries		1,301			287			909			882			1		3,380
Provision		64,992			2,896			1,541			1,678			—		71,107
Ending Balance	$	54,203		$	4,431		$	5,080		$	3,108		$	8	$	66,830
Allowance for loan losses:
Allocation for loans individually evaluated for impairment	$	22,939		$	1,027		$	722		$	146		$	—	$	24,834
Allocation for loans collectively evaluated for impairment		31,264			3,404			4,358			2,962			8		41,996
Ending Balance	$	54,203		$	4,431		$	5,080		$	3,108		$	8	$	66,830
Loans:
Ending balance:
individually evaluated for impairment		170,175			8,697			6,149			970			—		185,991
Ending balance:
collectively evaluated for impairment		910,630			363,506			216,778			66,470			1,913		1,559,387

F-289

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 3—LOANS (Continued)

Impaired loans were as follows:

	2010		2009		2008
Loans with no allowance allocated	$	81,981	$	89,292	$	29,602
Loans with allowance allocated	$	104,010	$	25,946	$	17,613
Amount of allowance allocated		24,834		5,737		2,651
Average impaired loan balance during the year		212,167		125,280		48,347
Interest income not recognized during impairment		1,105		558		619

Impaired loans of $185,991, $115,238 and $47,215, respectively, at 2010, 2009, 2008 are shown net of amounts previously charged off of $36,574, $27,937, and $11,995, respectively. Interest income actually recognized on these loans during 2010, 2009 and 2008 was $7,470, $2,842, and $2,135, respectively.

Impaired loans by class are presented below for 2010:

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Commercial Real Estate:
Speculative 1-4 Family	$	72,138	$	98,141	$	11,830	$	85,487	$	2,292
Construction		56,758		69,355		8,366		63,710		2,565
Owner Occupied		13,590		14,513		851		14,119		644
Non-owner Occupied		25,824		27,561		1,823		28,786		1,375
Other		1,865		2,090		69		2,278		66
Residential Real Estate:
HELOC		2,807		2,894		346		2,603		88
Mortgage-Prime		4,539		4,722		590		4,661		209
Mortgage-Subprime		370		370		57		370		—
Other		981		1,285		34		2,419		47
Commercial		6,149		7,510		722		6,729		171
Consumer:
Prime		217		228		32		252		13
Subprime		228		228		35		228		—
Auto-Subprime		525		525		79		525		—
Other		—		—		—		—		—
Total	$	185,991	$	229,422	$	24,834	$	212,167	$	7,470

The Bank manages the loan portfolio by assigning one of nine credit risk ratings based on an internal assessment of credit risk. The credit risk categories are prime, desirable, satisfactory I or pass, satisfactory II, acceptable with care, management watch, substandard, and loss.

Prime credit risk rating: Assets of this grade are the highest quality credits of the Bank. They exceed substantially all the Bank’s underwriting criteria, and provide superior protection for the Bank through the paying capacity of the borrower and value of the collateral. The Bank’s credit risk is considered to be negligible. Included in this section are well-established borrowers with significant, diversified sources of income and net

F-290

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 3—LOANS (Continued)

worth, or borrowers with ready access to alternative financing and unquestioned ability to meet debt obligations as agreed. A loan secured by cash or other highly liquid collateral, where the Bank holds such collateral, may be assigned this grade.

Desirable credit risk rating: Assets of this grade also exceed substantially all of the Bank’s underwriting criteria; however, they may lack the consistent long-term performance of a Prime rated credit. The credit risk to the Bank is considered minimal on these assets. Paying capacity of the borrower is still very strong with favorable trends and the value of the collateral is considered more than adequate to protect the Bank. Unsecured loans to borrowers with above-average earnings, liquidity and capital may be assigned this grade.

Satisfactory I credit risk rating or pass credit rating: Assets of this grade conform to all of the Bank’s underwriting criteria and evidence a below-average level of credit risk. Borrower’s paying capacity is strong, with stable trends. If the borrower is a company, its earnings, liquidity and capitalization compare favorably to typical companies in its industry. The credit is well structured and serviced. Secondary sources of repayment are considered to be good. Payment history is good, and borrower consistently complies with all major covenants.

Satisfactory II credit risk rating: Assets of this grade conform to substantially all of the Bank’s underwriting criteria and evidence an average level of credit risk. However, such assets display more susceptibility to economic, technological or political changes since they lack the above-average financial strength of credits rated Satisfactory Tier I. Borrower’s repayment capacity is considered to be adequate. Credit is appropriately structured and serviced; payment history is satisfactory.

Acceptable with care credit risk rating: Assets of this grade conform to most of the Bank’s underwriting criteria and evidence an acceptable, though higher than average, level of credit risk. However, these loans have certain risk characteristics that could adversely affect the borrower’s ability to repay, given material adverse trends. Therefore, loans in this category require an above-average level of servicing or show more reliance on collateral and guaranties to preclude a loss to the Bank, should material adverse trends develop. If the borrower is a company, it earnings, liquidity and capitalization are slightly below average, when compared to its peers.

Management watch credit risk rating: Assets included in this category are currently protected but are potentially weak. These assets constitute an undue and unwarranted credit risk but do not presently expose the Bank to a sufficient degree of risk to warrant adverse classification. However, Management Watch assets do possess credit deficiencies deserving management’s close attention. If not corrected, such weaknesses or deficiencies may expose the Bank to an increased risk of loss in the future. Management Watch loans represent assets where the Bank’s ability to substantially affect the outcome has diminished to some degree, and thus it must closely monitor the situation to determine if and when a downgrade is warranted.

Substandard credit risk rating: Substandard assets are inadequately protected by the current net worth and financial capacity of the borrower or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as Substandard.

Loss credit rating: These assets are considered uncollectible and of such little value that their continuance as assets is not warranted. This classification does not mean that an asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off a basically worthless asset even though partial recovery may be affected in the future. Losses should be taken in the period in which they are identified as uncollectible.

F-291

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 3—LOANS (Continued)

Credit quality indicators by class are presented below as of December 31, 2010:

	Speculative 1-4 Family		Construction		Owner Occupied		Non-Owner Occupied		Other
Commercial Real Estate Credit Exposure
Prime	$	—	$	—	$	—	$	—	$	—
Desirable		—		1,573		968		177		—
Satisfactory tier I		2,836		978		38,623		56,221		4,246
Satisfactory tier II		14,010		34,239		102,383		130,850		17,999
Acceptable with care		69,902		47,093		62,198		159,216		45,597
Management Watch		27,383		15,259		5,298		26,415		2,965
Substandard		91,845		61,388		16,289		38,037		6,817
Loss		—		—		—		—		—
Total		205,976		160,530		225,759		410,916		77,624

	Commercial
Commercial Credit Exposure
Prime	$	1,236
Desirable		7,951
Satisfactory tier I		33,859
Satisfactory tier II		91,505
Acceptable with care		72,286
Management Watch		8,511
Substandard		7,579
Loss		—
Total		222,927

	HELOC		Mortgage		Mortgage—Subprime		Other
Consumer Real Estate Credit Exposure
Pass	$	188,086	$	131,845	$	11,692	$	29,833
Management Watch		1,017		317		—		—
Substandard		2,807		5,117		50		1,529
Total		191,910		137,279		11,742		31,362

	Consumer— Prime		Consumer— Subprime		Consumer Auto— Subprime
Consumer Credit Exposure
Pass	$	35,029	$	13,093	$	18,588
Management Watch		—		—		—
Substandard		217		39		474
Total		35,246		13,132		19,062

F-292

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 3—LOANS (Continued)

A substantial portion of commercial real estate loans are secured by real estate in markets in which the Company is located. These loans are often structured with interest reserves to fund interest costs during the construction and development period. Additionally, certain of these loans are structured with interest-only terms. A portion of the consumer mortgage and commercial real estate portfolios originated through the permanent financing of construction, acquisition and development loans. The prolonged economic downturn has negatively impacted many borrowers’ and guarantors’ ability to make payments under the terms of the loans as their liquidity has been depleted. Accordingly, the ultimate collectability of a substantial portion of these loans and the recovery of a substantial portion of the carrying amount of other real estate owned are susceptible to changes in real estate values in these areas. Continued economic distress could negatively impact additional borrowers’ and guarantors’ ability to repay their debt which will make more of the Company’s loans collateral dependent.

Age analysis of past due loans by class are presented below as of December 31, 2010:

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial real estate:
Speculative 1-4 Family	$	22,267	$	1,777	$	30,802	$	54,846	$	151,130	$	205,976	$	1,758
Construction		14,541		—		26,915		41,456		119,074		160,530		—
Owner Occupied		8,114		1,633		4,137		13,884		211,875		225,759		—
Non-owner Occupied		4,014		5,961		8,814		18,789		392,127		410,916		170
Other		116		865		1,491		2,472		75,152		77,624		18
Residential real estate:
HELOC		747		358		644		1,749		190,161		191,910		—
Mortgage-Prime		1,359		915		1,779		4,053		133,226		137,279		8
Mortgage-Subprime		100		51		98		249		11,493		11,742		—
Other		403		176		566		1,145		30,217		31,362		19
Commercial		2,422		593		3,922		6,937		215,990		222,927		92
Consumer:
Prime		315		86		108		509		34,737		35,246		29
Subprime		155		64		6		225		12,907		13,132		—
Auto-Subprime		476		166		101		743		18,319		19,062		18
Other		73		–		–		73		1,840		1,913		—
Total		55,102		12,645		79,383		147,130		1,598,248		1,745,378		2,112

F-293

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 3—LOANS (Continued)

Non-accrual loans by class as of December 31, 2010 are presented below:

Commercial real estate:
Speculative 1-4 Family	$	63,298
Construction		41,789
Owner Occupied		5,511
Non-owner Occupied		18,772
Other		1,865
Residential real estate:
HELOC		1,668
Mortgage-Prime		3,350
Mortgage-Subprime		254
Mortgage-Subprime		957
Other		5,813
Commercial
Consumer:
Prime		130
Subprime		107
Auto-Subprime		193
Other		—
Total		143,707

Nonperforming loans at December 31 were as follows:

	2010		2009
Loans past due days still on accrual	$	2,112	$	147
Nonaccrual loans		143,707		75,411
Total	$	145,819	$	75,558

Nonperforming loans and impaired loans are defined differently. Nonperforming loans are loans that are 90 days past due and still accruing interest and nonaccrual loans. Impaired loans are loans that based upon current information and events it is considered probable that the Company will be unable to collect all amounts of contractual interest and principal as scheduled in the loan agreement. Some loans may be included in both categories, whereas other loans may only be included in one category.

The Company may elect to formally restructure a loan due to the weakening credit status of a borrower so that the restructuring may facilitate a repayment plan that minimizes the potential losses that the Company may have to otherwise incur. At December 31, 2010, the Company had $49,537 of restructured loans of which $9,597 was classified as non-accrual and the remaining were performing. The Company had taken charge-offs of $843 on the restructured non-accrual loans as of December 31, 2010. At December 31, 2009, the Company had $16,061 of restructured loans of which $4,429 was classified as non-accrual and the remaining were performing. The Company had taken charge-offs of $1,743 on the restructured non-accrual loans as of December 31, 2009.

The aggregate amount of loans to executive officers and directors of the Company and their related interests was approximately $7,848 and $4,936 at year-end 2010 and 2009, respectively. During 2010 and 2009, new loans aggregating approximately $22,124 and $10,545, respectively, and amounts collected of approximately $19,212 and $23,964, respectively, were transacted with such parties.

F-294

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 4—FAIR VALUE DISCLOSURES

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Accounting principles generally accepted in the United States of America (“GAAP”), also 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 in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury, other U.S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2

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 for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency mortgage-backed debt securities, corporate debt securities, derivative contracts and residential mortgage loans held-for-sale.

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

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

Investment Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices of like or similar securities, if available and these securities are classified as Level 1 or Level 2. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions and are classified as Level 3.

F-295

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 4—FAIR VALUE DISCLOSURES (Continued)

Loans Held for Sale

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

Impaired Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with GAAP. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2010, substantially all of the impaired loans were evaluated based on either the fair value of the collateral or its liquidation value. In accordance with GAAP, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Other Real Estate

Other real estate, consisting of properties obtained through foreclosure or in satisfaction of loans and requiring subsequent charge-offs, is reported at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. Gains or losses on sale and any subsequent adjustments to the value are recorded as a component of foreclosed real estate expense. Other real estate is included in Level 3 of the valuation hierarchy.

Loan Servicing Rights

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

F-296

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 4—FAIR VALUE DISCLOSURES (Continued)

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Below is a table that presents information about certain assets and liabilities measured at fair value at year-end 2010 and 2009:

	Fair Value Measurement Using						Total Carrying Amount in Balance Sheet		Assets/Liabilities Measured at Fair Value
Description	Level 1		Level 2		Level 3
2010
Securities available for sale
U.S. government agencies	$	—	$	83,299	$	—	$	83,299	$	83,299
States and political subdivisions		—		31,501		—		31,501		31,501
Collateralized mortgage obligations		—		67,575		—		67,575		67,575
Mortgage-backed securities		—		17,964		—		17,964		17,964
Trust preferred securities		—		1,025		638		1,663		1,663
2009
Securities available for sale
U.S. governmental agencies	$	—	$	52,048	$	—	$	52,048	$	52,048
States and political subdivisions		—		32,192		—		32,192		32,192
Collateralized mortgage obligations		—		44,677		—		44,677		44,677
Mortgage-backed securities		—		16,892		—		16,892		16,892
Trust preferred securities		—		1,277		638		1,915		1,915

Level 3 Valuations

Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.

Currently the Company has one trust preferred security that is considered Level 3. For more information on this security please refer to Note 2—Securities.

The following table shows a reconciliation of the beginning and ending balances for assets measured at fair value for the periods ended December 31, 2010 and 2009 on a recurring basis using significant unobservable inputs.

	2010			2009
Beginning balance	$	638		$	—
Total gains or (loss) (realized/unrealized)
Included in earnings		(75	)		(778	)
Included in other comprehensive income		75			(112	)
Paydowns and maturities		—			—
Transfers into Level 3		—			1,528
Ending balance	$	638		$	638

F-297

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 4—FAIR VALUE DISCLOSURES (Continued)

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

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

	Fair Value Measurement Using						Total Carrying Amount in Balance Sheet		Assets/Liabilities Measured at Fair Value
Description	Level 1		Level 2		Level 3
2010
Other real estate	$	—	$	—	$	38,086	$	38,086	$	38,086
Impaired loans		—		—		129,088		129,088		129,088
Total assets at fair value	$	—	$	—	$	167,174	$	167,174	$	167,174
2009
Other real estate	$	—	$	—	$	23,508	$	23,508	$	23,508
Impaired loans		—		—		57,914		57,914		57,914
Total assets at fair value	$	—	$	—	$	81,422	$	81,422	$	81,422

The carrying value and estimated fair value of the Company’s financial instruments are as follows at year-end 2010 and 2009.

	2010				2009
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Cash and cash equivalents	$	294,214	$	294,214	$	221,494	$	221,494
Securities available for sale		202,002		202,002		147,724		147,724
Securities held to maturity		465		467		626		638
Loans held for sale		1,299		1,317		1,533		1,552
Loans, net		1,678,548		1,664,126		1,993,646		1,950,684
FHLB and other stock		12,734		12,734		12,734		12,734
Cash surrender value of life insurance		31,479		31,479		30,277		30,277
Accrued interest receivable		7,845		7,845		9,130		9,130
Financial liabilities:
Deposit accounts	$	1,976,854	$	1,987,105	$	2,084,096	$	2,095,611
Federal funds purchased and repurchase agreements		19,413		19,413		24,449		24,449
FHLB Advances and notes payable		158,653		166,762		171,999		176,602
Subordinated debentures		88,662		64,817		88,662		70,527
Accrued interest payable		2,140		2,140		2,561		2,561

The following methods and assumptions were used to estimate the fair values for financial instruments that are not disclosed previously in this note. The carrying amount is considered to estimate fair value for cash and

F-298

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 4—FAIR VALUE DISCLOSURES (Continued)

short-term instruments, demand deposits, liabilities for repurchase agreements, variable rate loans or deposits that reprice frequently and fully, and accrued interest receivable and payable. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, the fair value is estimated by discounted cash flow analysis using current market rates for the estimated life and credit risk. No adjustment has been made for illiquidity in the market on loans as there is no information from which to reasonably base this estimate. Liabilities for FHLB advances and notes payable are estimated using rates of debt with similar terms and remaining maturities. The fair value of off-balance sheet items is based on the current fees or costs that would be charged to enter into or terminate such arrangements, which is not material. The fair value of commitments to sell loans is based on the difference between the interest rates at which the loans have been committed to sell and the quoted secondary market price for similar loans, which is not material.

NOTE 5—PREMISES AND EQUIPMENT

Year-end premises and equipment follows:

	2010			2009
Land	$	18,372		$	18,372
Premises		62,474			61,809
Leasehold improvements		3,092			3,061
Furniture, fixtures and equipment		28,057			25,222
Automobiles		103			112
Construction in progress		138			2,162
		112,236			110,738
Accumulated depreciation		(33,442	)		(28,920	)
	$	78,794		$	81,818

Annual rent expense for operating leases was $1,013, $1,223, and $1,216, respectively, for the year-end periods 2010, 2009, and 2008, respectively. Rent commitments under noncancelable operating leases were as follows, before considering renewal options that generally are present:

2011	$	1,243
2012		1,251
2013		1,043
2014		793
2015		433
Thereafter		734
Total	$	5,497

F-299

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The change in the amount of goodwill is as follows:

	2010		2009
Beginning of year	$	—	$	143,389
Impairment		—		(143,389	)
End of year	$	—	$	—

In conjunction with significant acquisitions, the Company recognized goodwill impairment in 2009 of $143,389. The Company’s goodwill since the 2009 goodwill impairment remains at $0.

Core deposit and other intangible

The change in core deposit and other intangibles is as follows:

Core deposit intangibles	2010			2009
Gross carrying amount	$	19,796		$	19,796
Accumulated amortization, beginning of year		(10,803	)		(8,304	)
Amortization		(2,495	)		(2,499	)
Accumulated amortization, end of year		(13,298	)		(10,803	)
End of year	$	6,498		$	8,993
Other intangibles	2010			2009
Gross carrying amount	$	745		$	745
Accumulated amortization, beginning of year		(403	)		(152	)
Amortization		(89	)		(251	)
Accumulated amortization, end of year		(492	)		(403	)
End of year	$	253		$	342

Estimated amortization expense for each of the next five years is as follows:

2011	$	2,531
2012		2,401
2013		1,701
2014		118
2015		—
Total	$	6,751

F-300

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 7—DEPOSITS

Deposits at year-end were as follows:

	2010		2009
Noninterest-bearing demand deposits	$	152,752	$	177,602
Interest-bearing demand deposits		939,091		837,268
Savings deposits		101,925		86,166
Brokered deposits		1,399		6,584
Time deposits		781,687		976,476
Total deposits	$	1,976,854	$	2,084,096

Brokered and time deposits of $100 or more were $309,701 and $395,595 at year-end 2010 and 2009, respectively.

Scheduled maturities of brokered and time deposits for the next five years and thereafter were as follows:

2011	$	531,829
2012		139,812
2013		52,931
2014		14,822
2015		40,246
Thereafter		3,446

The aggregate amount of deposits of executive officers and directors of the Company and their related interests was approximately $3,679 and $3,611 at year-end 2010 and 2009, respectively.

NOTE 8—BORROWINGS

Federal funds purchased, securities sold under agreements to repurchase and treasury tax and loan deposits are financing arrangements. Securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. Securities sold under agreements to repurchase consist of short-term excess funds and overnight liabilities to deposit customers arising from a cash management program.

Information concerning securities sold under agreements to repurchase at year-end 2010, 2009 and 2008 is as follows:

	2010			2009			2008
Average balance during the year	$	22,342		$	28,008		$	74,881
Average interest rate during the year		0.10	%		0.10	%		1.57	%
Maximum month-end balance during the year	$	26,161		$	35,935		$	98,925
Weighted average interest rate at year-end		0.10	%		0.10	%		0.10	%

F-301

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 8—BORROWINGS (Continued)

FHLB advances and notes payable consist of the following at year-end:

	2010		2009
Short-term borrowings
Fixed rate FHLB advance, 4.44% Matures December 2011	$	15,000	$	—
Variable rate FHLB advances at 5.00% to 5.31% Matured December 2010		—		12,000
Total short-term borrowings		15,000		12,000
Long-term borrowings
Fixed rate FHLB advances, from 1.50% to 3.36%, Various maturities through June 2023		51,327		50,766
Fixed rate FHLB advances from 4.18% to 6.35%, Various maturities through 2020		92,326		109,233
Total long-term borrowings		143,653		159,999
Total borrowings	$	158,653	$	171,999

Each advance is payable at its maturity date; however, prepayment penalties are required if paid before maturity. The fixed rate advances include $155,000 of advances that are callable by the FHLB under certain circumstances. The advances are collateralized by a required blanket pledge of qualifying mortgage, commercial, agricultural and home equity lines of credit loans and securities totaling $500,354 and $552,721 at year-end 2010 and 2009, respectively.

Scheduled maturities of FHLB advances and notes payable over the next five years and thereafter are as follows:

	Total
2011	$	15,288
2012		65,278
2013		288
2014		10,296
2015		20,309
Thereafter		47,194
	$	158,653

At year-end 2010, the Company had approximately $70,000 of federal funds lines of credit available from correspondent institutions of which $10,000 was secured.

In September 2003, the Company formed Greene County Capital Trust I (“GC Trust I”). GC Trust I issued $10,000 of variable rate trust preferred securities as part of a pooled offering of such securities. The Company issued $10,310 subordinated debentures to the GC Trust I in exchange for the proceeds of the offering, which debentures represent the sole asset of GC Trust I. The debentures pay interest quarterly at the three-month LIBOR plus 2.85% adjusted quarterly (3.14% and 3.13% at year-end 2010 and 2009, respectively). Subject to the limitations on repurchases resulting from the Company’s participation in the CPP, the Company may redeem the subordinated debentures, in whole or in part, at a price of 100% of face value. The subordinated debentures must be redeemed no later than 2033.

F-302

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 8—BORROWINGS (Continued)

In June 2005, the Company formed Greene County Capital Trust II (“GC Trust II”). GC Trust II issued $3,000 of variable rate trust preferred securities as part of a pooled offering of such securities. The Company issued $3,093 subordinated debentures to the GC Trust II in exchange for the proceeds of the offering, which debentures represent the sole asset of GC Trust II. The debentures pay interest quarterly at the three-month LIBOR plus 1.68% adjusted quarterly (1.98% and 1.93% at year-end 2010 and 2009, respectively). Subject to the limitations on repurchases resulting from the Company’s participation in the CPP, the Company may redeem the subordinated debentures, in whole or in part, beginning September 2010 at a price of 100% of face value. The subordinated debentures must be redeemed no later than 2035.

In May 2007, the Company formed GreenBank Capital Trust I (“GB Trust I”). GB Trust I issued $56,000 of variable rate trust preferred securities as part of a pooled offering of such securities. The Company issued $57,732 subordinated debentures to the GB Trust I in exchange for the proceeds of the offering, which debentures represent the sole asset of GB Trust I. The debentures pay interest quarterly at the three-month LIBOR plus 1.65% adjusted quarterly (1.95% and 1.90% at year-end 2010 and 2009). Subject to the limitations on repurchases resulting from the Company’s participation in the CPP, the Company may redeem the subordinated debentures, in whole or in part, beginning June 2012 at a price of 100% of face value. The subordinated debentures must be redeemed no later than 2037.

Also in May 2007, the Company assumed the liability for two trusts affiliated with the acquisition of Franklin, Tennessee-based Civitas Bankgroup, Inc. (“CVBG”) that the Company acquired on May 18, 2007, Civitas Statutory Trust I (“CS Trust I”) and Cumberland Capital Statutory Trust II (“CCS Trust II”).

In December 2005, CS Trust I issued $13,000 of variable rate trust preferred securities as part of a pooled offering of such securities. CVBG issued $13,403 subordinated debentures to the CS Trust I in exchange for the proceeds of the offering, which debentures represent the sole asset of CS Trust I. The debentures pay interest quarterly at the three-month LIBOR plus 1.54% adjusted quarterly (1.84% and 1.79% at year-end 2010 and 2009). Subject to the limitations on repurchases resulting from the Company’s participation in the CPP, the Company may redeem the subordinated debentures, in whole or in part, beginning March 2011 at a price of 100% of face value. The subordinated debentures must be redeemed no later than March 2036.

In July 2001, CCS Trust II issued $4,000 of variable rate trust preferred securities as part of a pooled offering of such securities. CVBG issued $4,124 subordinated debentures to the CCS Trust II in exchange for the proceeds of the offering, which debentures represent the sole asset of CCS Trust II. The debentures pay interest quarterly at the three-month LIBOR plus 3.58% adjusted quarterly (3.87% and 3.86% at year-end 2010 and 2009). Subject to the limitations on repurchases resulting from the Company’s participation in the CPP, the Company may redeem the subordinated debentures, in whole or in part, at a price of 100% of face value. The subordinated debentures must be redeemed no later than July 2031.

Following consultation with the FRB, the Company gave notice on November 9, 2010 to the U.S. Treasury Department that the Company is suspending the payment of regular quarterly cash dividends on the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A issued to the U.S. Treasury. Since the dividends are cumulative, the dividends will be reported for the duration of the deferral period as a preferred dividend requirement that is deducted from net income for financial statement purposes.

Additionally, the Company, following consultation with the FRB, has also exercised its rights to defer regularly scheduled interest payments on all of its issues of junior subordinated debentures having an outstanding principal amount of $88,662, relating to outstanding trust preferred securities (TRUPs). Under the terms of the

F-303

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 8—BORROWINGS (Continued)

trust documents associated with these debentures, the Company may defer payments of interest for up to 20 consecutive quarterly periods without default. During the period that the Company is deferring payments of interest on these debentures, it may not pay dividends on its common or preferred stock. The regular scheduled interest payments will continue to be accrued for payment in the future and reported as an expense for financial statement purposes.

In accordance with ASC 810, GC Trust I, GC Trust II, GB Trust I, CS Trust I and CCS Trust II are not consolidated with the Company. Accordingly, the Company does not report the securities issued by GC Trust I, GC Trust II, GB Trust I, CS Trust I and CCS Trust II as liabilities, and instead reports as liabilities the subordinated debentures issued by the Company and held by each Trust. However, the Company has fully and unconditionally guaranteed the repayment of the variable rate trust preferred securities. These trust preferred securities currently qualify as Tier 1 capital for regulatory capital requirements of the Company, subject to certain limitations and the Company expects that a portion of the trust preferred securities will continue to qualify as Tier 1 capital with the residual qualifying as Tier 2 capital following passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).

NOTE 9—BENEFIT PLANS

The Company has a profit sharing plan which allows employees to contribute from 1% to 20% of their compensation. The Company contributes an additional amount at a discretionary rate established annually by the Board of Directors. Company contributions to the Plan were $0, $409 and $1,535 for 2010, 2009 and 2008, respectively. Effective July 2009, the Company suspended contributions to the profit sharing plan and will reevaluate re-instating these contributions in the future when the Company returns to a sustained level of profitability.

Directors have deferred some of their fees for future payment, including interest. The amount accrued for deferred compensation was $2,274 and $2,637 at year-end 2010 and 2009. Amounts expensed under the Plan were $133, $27 and $207 during 2010, 2009, and 2008, respectively. During 2009, the Company modified the annual earning crediting rate formula as follows; The annual crediting rate will be 100% of the annual return on stockholders’ equity with a 4% floor and a 12% ceiling, for the year then ended, on balances in the Plan until the director experiences a separation from services, and, thereafter, at a earnings crediting rate based on 75% of the Company’s return on average stockholders’ equity for the year then ending with a 3% floor and a 9% ceiling. During 2008, the Company used a formula which provided an annual earnings crediting rate based on 75% of the annual return on average stockholders’ equity, for the year then ended, on balances in the Plan until the director experiences a separation from service, and, thereafter, at an earnings crediting rate of 56.25% of the Company’s return on average stockholders’ equity for the year then ending. The return on annual shareholders’ equity was negative in 2008 and no earnings were credited for 2008. Also certain officers of the Company are participants under a Supplemental Executive Retirement Plan. The amount accrued for future payments under this Plan was $1,568 and $1,409 at year-end 2010 and 2009, respectively. Amounts expensed under the Plan were $259, $312 and $283 during 2010, 2009 and 2008, respectively. Related to these plans, the Company purchased single premium life insurance contracts on the lives of the related participants. The cash surrender value of these contracts is recorded as an asset of the Company.

F-304

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 10—INCOME TAXES

Income tax expense (benefit) is summarized as follows:

	2010			2009			2008
Current—federal	$	(10,054	)	$	(12,906	)	$	(221	)
Current—state		(1,775	)		(2,476	)		(53	)
Deferred—federal		(13,870	)		(1,397	)		(3,649	)
Deferred—state		(2,846	)		(257	)		(725	)
Deferred tax asset—valuation allowance		43,455			—			—
	$	14,910		$	(17,036	)	$	(4,648	)

Deferred income taxes reflect the effect of “temporary differences” between values recorded for assets and liabilities for financial reporting purposes and values utilized for measurement in accordance with tax laws. The tax effects of the primary temporary differences giving rise to the Company’s net deferred tax assets and liabilities are as follows:

	2010					2009
	Assets		Liabilities			Assets		Liabilities
Allowance for loan losses	$	26,214	$	—		$	19,675	$	—
Deferred compensation		2,129		—			1,973		—
REO basis		12,175		—			—		—
Purchase accounting adjustments		—		(1,424	)		672		—
Depreciation		—		(1,998	)		—		(2,129	)
FHLB dividends		—		(1,658	)		—		(1,658	)
Core deposit intangible		2,189		—			—		(4,860	)
Unrealized (gain) loss on securities		—		(645	)		—		(122	)
NOL carry forward		10,192		—			—		(122	)
Other				(1,542	)		49		—
Deferred tax asset—valuation allowance				(43,455	)		—		—
Total deferred income taxes	$	52,899	$	(50,722	)	$	22,369	$	(8,769	)

A valuation allowance is recognized for a net DTA if, based on the weight of available evidence, it is more-likely-than-not that some portion or the entire DTA will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making such judgments, significant weight is given to evidence that can be objectively verified. As a result of the increased credit losses, the Company entered into a three-year cumulative pre-tax loss position (excluding the goodwill impairment charge recognized in the second quarter of 2009) as of June 30, 2010.

A cumulative loss position is considered significant negative evidence in assessing the realizability of a deferred tax asset which is difficult to overcome. The Company’s estimate of the realization of its net DTA was

based on the scheduled reversal of deferred tax liabilities and taxable income available in prior carry back years and tax planning strategies. Based on management’s calculation, a valuation allowance of $43,455, or 95% of the net DTA, was an adequate estimate as of December 31, 2010. This estimate resulted in a valuation allowance for the net DTA in the income statement of $43,455 for the period end 2010.

F-305

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 10—INCOME TAXES (Continued)

A reconciliation of expected income tax expense (benefit) at the statutory federal income tax rate of 35% with the actual effective income tax rates is as follows:

	2010			2009			2008
Statutory federal tax rate		(35.0	%)		(35.0	%)		(35.0	%)
State income tax, net of federal benefit		(4.6	)		(1.1	)		(5.2	)
Tax exempt income		(2.0	)		(0.5	)		(8.0	)
Goodwill impairment		—			26.4			—
Deferred tax asset—valuation allowance		66.1			—			—
Other		(1.8	)		(0.5	)		—
		(22.7	%)		(10.2	%)		(46.4	%)

The Company recognizes accrued interest and penalties related to uncertain tax positions in tax expense.

The Company’s Federal returns are open and subject to examination for the years of 2007, 2008 and 2009. The Company’s State returns are open and subject to examination for the years of 2007, 2008, and 2009.

At December 31, 2010, the Company had gross federal net operating loss carry-forwards of $24,118. The carry-forwards begin to expire in 2031. At December 31, 2010, the Company had gross state net operating loss carry-forwards of $41,433. Of the total $41,433 in carry-forwards, $18,490 begin to expire in 2025 while the remaining $22,943 begin to expire in 2026.

NOTE 11—COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

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 to 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.

Financial instruments with off-balance-sheet risk were as follows at year-end:

	2010		2009
Commitments to make loans—fixed	$	3,827	$	1,202
Commitments to make loans—variable		2,464		4,718
Unused lines of credit		201,973		239,374
Letters of credit		25,674		30,107

The fixed rate loan commitments have interest rates ranging from 5.49% to 8.75% and maturities ranging from one to fifteen years. Letters of credit are considered financial guarantees under ASC 460.

F-306

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 12—CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

Based on the most recent notifications from its regulators, the Bank is well capitalized under the regulatory framework for prompt corrective action. However, the Bank has informally committed to its primary regulators that it will maintain a Tier 1 leverage ratio (Tier 1 Capital to Average Assets) in excess of 10% and a Total risk-based capital ratio (Total Capital to Risk Weighted Assets) in excess of 14%.

During the third quarter of 2010, the Bank was subject to a joint examination by the FDIC and the TDFI. Based on initial findings presented to the Bank’s management, the Bank expects that either the FDIC or the TDFI or both will require the Bank to agree to certain improvements in its operations, particularly in relation to asset quality matters. We also believe that the Bank will be required to agree to maintain or increase capital to levels above those required to be considered well capitalized. We do not know at this time what minimum levels of capital the regulators will require. If the requirement to maintain higher capital levels than those required to be well capitalized under the prompt corrective action provisions of the FDICIA is contained in a formal enforcement action of the FDIC, the Bank may be subject to additional limitations on its operations including its ability to pay interest on deposits above proscribed rates, which could adversely affect the Bank’s liquidity and/or operating results. The terms of any such supervisory action that goes beyond the steps we have already taken may have a significant negative effect on our business, operating flexibility and results of operations. Failure by the Bank to meet applicable capital guidelines or to satisfy certain other regulatory requirements could subject the Bank to a variety of enforcement remedies available to the federal regulatory authorities.

F-307

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 12—CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS (Continued)

As reflected in the table below, the Bank did not satisfy these higher ratio requirements at December 31, 2010. Actual capital levels and minimum required levels (in millions) were as follows. Because the Bank’s capital levels at December 31, 2010 were below those that the Bank had informally committed to its primary regulators that it would maintain, the Bank was required to submit a Capital Action Plan to its primary regulators.

	Actual				Minimum Required for Capital Adequacy Purposes				Minimum Amounts to be Well Capitalized Under Prompt Corrective Action Provisions
	Actual		Ratio (%)		Actual		Ratio (%)		Actual		Ratio (%)
2010
Total Capital (to Risk Weighted Assets)
Consolidated	$	239.7		13.2	$	145.2		8.0	$	181.6		10.0
Bank		239.6		13.2		145.0		8.0		181.3		10.0
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	216.5		11.9	$	72.6		4.0	$	108.9		6.0
Bank		216.4		11.9		72.5		4.0		108.8		6.0
Tier 1 Capital (to Average Assets)
Consolidated	$	216.5		8.9	$	97.6		4.0	$	122.0		5.0
Bank		216.4		8.9		97.5		4.0		121.8		5.0
2009
Total Capital (to Risk Weighted Assets)
Consolidated	$	318.5		14.9	$	171.0		8.0	$	213.8		10.0
Bank		317.4		14.9		170.7		8.0		213.4		10.0
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	291.5		13.6	$	85.5		4.0	$	128.3		6.0
Bank		290.4		13.6		85.4		4.0		128.0		6.0
Tier 1 Capital (to Average Assets)
Consolidated	$	291.5		10.7	$	108.6		4.0	$	135.8		5.0
Bank		290.4		10.7		108.6		4.0		135.7		5.0

The Company’s primary source of funds to pay dividends to shareholders is the dividends it receives from the Bank. Applicable state laws and the regulations of the Federal Reserve Bank and the Federal Deposit Insurance Corporation regulate the payment of dividends. Under the state regulations, the amount of dividends that may be paid by the Bank to the Company without prior approval of the Commissioner of the Tennessee Department of Financial Institutions is limited in any one year to an amount equal to the net income in the calendar year of declaration plus retained net income for the preceding two years; however, future dividends will be dependent on the level of earnings, capital and liquidity requirements and considerations of the Bank and the Company.

In general, the Bank may not declare or pay a dividend to the Company in excess of 100% of its net retained profits for the current year combined with its net retained profits for the preceding two calendar years without prior approval of the Commissioner of the Tennessee Department of Financial Institutions. The Bank’s ability to make capital distributions in the future may require regulatory approval and may be restricted by its regulatory authorities. The Bank’s ability to make any such distributions will also depend on its earnings and ability to meet

F-308

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 12—CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS (Continued)

minimum regulatory capital requirements in effect during future periods. These capital adequacy standards may be higher in the future than existing minimum regulatory capital requirements. The FDIC also has the authority to prohibit the payment of dividends by a bank when it determines such payments would constitute an unsafe and unsound banking practice. In addition, income tax considerations may limit the ability of the Bank to make dividend payments in excess of its current and accumulated tax “earnings and profits” (“E&P”). Annual dividend distributions in excess of E&P could result in a tax liability based on the amount of excess earnings distributed and current tax rates. The Company has informally committed to the FRB-Atlanta that it will not pay dividends on its common or preferred stock (or interest on its subordinated debentures) without the prior approval of the FRB-Atlanta. The Company also informally committed to the FRB-Atlanta that it will not incur any indebtedness without the prior approval of the FRB-Atlanta.

On November 9, 2010, the Company following consultation with the FRB announced that it had suspended preferred stock dividends and interest payments on its junior subordinated debentures associated with its trust preferred securities in order to preserve capital.

On December 23, 2008, the Company entered into a definitive agreement (the “Agreement”) with the U.S. Treasury to participate in the Capital Purchase Program (“CPP”). Pursuant to the Agreement, the Company sold 72,278 shares of Series A preferred stock with an attached warrant to purchase 635,504 shares of our common stock priced at $17.06 per common share, to the U.S. Treasury for an aggregate consideration of $83 million.

NOTE 13—STOCK-BASED COMPENSATION

The Company maintains a 2004 Long-Term Incentive Plan, as amended (the “Plan”), whereby a maximum of 500,000 shares of common stock may be issued to directors and employees of the Company and the Bank. The Plan provides for the issuance of awards in the form of stock options, stock appreciation rights, restricted shares, restricted share units, deferred share units and performance awards. Stock options granted under the Plan are typically granted at exercise prices equal to the fair market value of the Company’s common stock on the date of grant and typically have terms of ten years and vest at an annual rate of 20%. Shares of restricted stock awarded under the Plan have restrictions that expire within the vesting period of the award which range from 12 months to 60 months. At December 31, 2010, 170,324 shares remained available for future grant. The compensation cost related to options that has been charged against income for the Plan was approximately $295, $387 and $456 for the years ended December 31, 2010, 2009 and 2008, respectively. The compensation cost related to restricted stock that has been charged against income for the Plan was approximately $331, $299, and $303 for the years ended December 31, 2010, 2009, and 2008, respectively. As of December 31, 2010, there was $678 of total unrecognized compensation cost related to non-vested share-based compensation arrangements, which is expected to be recognized over a weighted-average period of 2.3 years.

Stock Options

The fair market value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The Company did not grant any incentive stock options for 2010, 2009, or 2008.

F-309

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 13—STOCK-BASED COMPENSATION (Continued)

A summary of stock option activity under the Plan for the three years ended December 31, 2010 is presented below:

	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2008		452,077		$	25.72
Exercised		(9,759	)		12.63
Forfeited		(1,565	)		30.65
Expired		(16,310	)		23.00
Outstanding at December 31, 2008		424,443		$	26.10
Forfeited		(1,374	)		32.05
Expired		(34,875	)		25.58
Outstanding at December 31, 2009		388,194		$	26.14
Exercised		—			—
Forfeited		(6,484	)		33.12
Expired		—			—
Outstanding at December 31, 2010		381,710		$	25.96		3.6 years	$	—
Options exercisable at December 31, 2010		344,029		$	25.17		3.4 years	$	—

During the years-ended December 31, 2010 and 2009, there were no exercised stock options. The total fair value of stock options vesting during the years ended December 31, 2010 and 2009 was $376 and $450, respectively.

Stock options outstanding at year-end 2010 were as follows:

	Outstanding						Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price
$12.41 – $15.00		24,142		1.8	$	12.95		24,142		1.8	$	12.95
$15.01 – $20.00		77,698		1.8	$	17.63		77,698		1.8	$	17.63
$20.01 – $25.00		50,635		3.1	$	23.36		50,635		3.1	$	23.36
$25.01 – $30.00		135,476		4.7	$	28.00		122,137		4.6	$	27.91
$30.01 – $36.32		93,759		4.4	$	34.80		69,417		3.8	$	34.37
Total		381,710						344,029

F-310

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 13—STOCK-BASED COMPENSATION (Continued)

Restricted Stock

A summary of restricted stock activity under the Plan for the year ended December 31, 2010, 2009, and 2008 is presented below.

	Shares			Weighted Average Price Per Share
Balance at January 1, 2008		—		$	—
Granted:
Non-employee Directors		7,852			16.56
Executive officers & management		62,015			19.20
Cancelled:
Non-employee Directors		—			—
Executive officers & management		(8,960	)		19.44
Balance at December 31, 2008		60,907			18.83
Granted:
Non-employee Directors		7,060			7.08
Non-executive officers & management		56,934			7.08
Vested:
Non-employee Directors		(7,852	)		16.56
Executive officers, non-executive officers & management		(10,584	)		19.16
Cancelled:
Non-employee Directors		—			—
Non-executive officers & management		(5,207	)		14.98
Balance at December 31, 2009		101,258		$	11.74
Granted:
Non-employee Directors		6,548			6.11
Executive officers		18,382			8.16
Vested:
Non-employee Directors		(7,060	)		7.08
Executive officers, non-executive officers & management		(20,335	)		12.77
Cancelled:
Executive officers		(1,543	)		16.56
Non-executive officers & management		(5,968	)		11.82
Balance at December 31, 2010		91,282		$	10.67
Weighted-average fair value of nonvested stock awards granted during the year ended December 31,
2010	$	7.62
2009	$	7.08
2008	$	18.90

F-311

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 13—STOCK-BASED COMPENSATION (Continued)

Cash Settled Stock Appreciation Rights

During 2010, only non-employee Directors received cash-settled stock appreciation rights (“SAR’s”). During the years ended December 31, 2009 and 2008, the Company granted SAR’s awards to non-employee Directors, executive officers and select employees. During the year ended December 31, 2007, only select employees received SAR’s. Each award, when granted, provides the participant with the right to receive payment in cash, upon exercise of each SAR, for the difference between the appreciation in market value of a specified number of shares of the Company’s Common Stock over the award’s exercise price. The SAR’s vest over the same period as the stock option awards issued and the restricted stock grants and can only be exercised in tandem with the stock option awards or vesting of the restricted stock grants. The per-share exercise price of an SAR is equal to the closing market price of a share of the Company’s common stock on the date of grant. For the year ended December 31, 2010, the Company recorded an expense of $15 and for the year ended December 31, 2009, the Company recognized a recovery in expense of $24 related to outstanding awarded SAR’s. As of December 31, 2010, there was no unrecognized compensation cost related to SAR’s. The cost is measured at each reporting period until the award is settled. As of December 31, 2010, no cash settled SAR’s had been exercised and as such, no share-based liabilities were paid.

A summary of the SAR activity during years ended December 31, 2010, 2009, and 2008 is presented below.

	SAR’s			Weighted Average Price  Per Share
Balance at January 1, 2008		19,000			34.63
Granted:
Non-employee Directors		7,852			16.56
Executive officers & management		62,015			19.20
Cancelled/Expired:
Non-employee Directors		—			—
Executive officers & management		(8,960	)		19.44
Balance at December 31, 2008		79,907		$	22.58
Granted:
Non-employee Directors		7,060			7.08
Non-executive officers & management		56,934			7.08
Cancelled/Expired:
Non-employee Directors		(7,852	)		16.56
Non-executive officers & management		(15,817	)		17.78
Balance at December 31, 2009		120,232		$	15.36
Granted:
Non-employee Directors		6,548			6.11
Non-executive officers & management		—			—
Cancelled/Expired:
Non-employee Directors		(7,060	)		7.08
Non-executive officers & management		(27,777	)		12.75
Balance at December 31, 2010		91,943		$	16.12

F-312

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 13—STOCK-BASED COMPENSATION (Continued)

Weighted-average fair value of cash-settled SAR’s granted during the year ended December 31,
2010	$	6.11
2009	$	7.08
2008	$	18.93

The following table illustrates the assumptions for the Black-Scholes model used in determining the fair value of the SAR’s at the time of grant for the periods ending December 31.

	2010	2009	2008
Risk-free interest rate	0.307%	0.67% – 1.89%	3.81% – 3.85%
Volatility	57.06%	40.18%	29.46% – 32.81%
Expected life	1 year	1 – 5 years	1 – 5 years
Dividend yield	0.00%	7.34%	3.54%

Cash-settled SAR’s awarded in stock-based payment transactions are accounted for under ASC 718 which classifies these awards as liabilities. Accordingly, the Company records these awards as a component of other non-current liabilities on the balance sheet. For liability awards, the fair value of the award, which determines the measurement of the liability on the balance sheet, is remeasured at each reporting period until the award is settled. Fluctuations in the fair value of the liability award are recorded as increases or decreases in compensation cost, either immediately or over the remaining service period, depending on the vested status of the award.

The risk-free interest rate is based upon a U.S. Treasury instrument with a life that is similar to the expected life of the SAR. Expected volatility is based upon the historical volatility of the Company’s common stock based upon prior year’s trading history. The expected term of the SAR is based upon the average life of previously issued stock options and restricted stock grants. The expected dividend yield is based upon current yield on the date of grant. These SAR’s can only be settled in tandem with the vesting of restricted stock awards and only if the value at settlement date is greater than the value at award date.

F-313

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 14—EARNINGS (LOSS) PER SHARE

A reconciliation of the numerators and denominators of the earnings (loss) per common share and earnings (loss) per common share assuming dilution computations are presented below.

	2010			2009			2008
Basic Earnings (Loss) Per Share
Net income (loss)	$	(80,695	)	$	(150,694	)	$	(5,360	)
Less: preferred stock dividends and accretion of discount on warrants		5,001			4,982			92
Net income (loss) available to common shareholders	$	(85,696	)	$	(155,676	)	$	(5,452	)
Weighted average common shares outstanding		13,093,847			13,068,407			12,932,576
Basic earnings (loss) per share	$	(6.54	)	$	(11.91	)	$	(0.42	)
Diluted Earnings (Loss) Per Share
Net income (loss)	$	(80,695	)	$	(150,694	)	$	(5,360	)
Less: preferred stock dividends and accretion of discount on warrants		5,001			4,982			92
Net income (loss) available to common shareholders	$	(85,696	)	$	(155,676	)	$	(5,452	)
Weighted average common shares outstanding		13,093,847			13,068,407			12,932,576
Add: Dilutive effects of assumed conversions of restricted stock and exercises of stock options and warrants		—			—			58,214
Weighted average common and dilutive potential common shares outstanding(1)(2)		13,093,847			13,068,407			12,990,790
Diluted earnings (loss) per common share(1)(2)	$	(6.54	)	$	(11.91	)	$	(0.42	)

1 Diluted weighted average shares outstanding for 2010 and 2009 excludes 92,979 and 96,971 shares of unvested restricted stock because they are anti-dilutive and is equal to weighted average common shares outstanding.

2 Stock options and warrants of 1,017,645, 1,058,992 and 387,121 were excluded from the 2010, 2009 and 2008 diluted earnings per share because their impact was anti-dilutive.

F-314

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 15—PARENT COMPANY CONDENSED FINANCIAL STATEMENTS

BALANCE SHEETS

Years ended December 31, 2010 and 2009

	2010		2009
ASSETS
Cash and due from financial institutions	$	1,707	$	3,081
Investment in subsidiary		228,590		308,831
Other		4,795		4,692
Total assets	$	235,092	$	316,604
LIABILITIES
Subordinated debentures	$	88,662	$	88,662
Other liabilities		2,533		1,173
Total liabilities		91,195		89,835
Shareholders’ equity		143,897		226,769
Total liabilities and shareholders’ equity	$	235,092	$	316,604

STATEMENTS OF INCOME

Years ended December 31, 2010, 2009, and 2008

	2010			2009			2008
Dividends from subsidiary	$	2,500		$	3,000		$	13,600
Other income		96			180			241
Interest expense		(1,980	)		(2,577	)		(4,555	)
Other expense		(2,002	)		(1,718	)		(2,022	)
Income (loss) before income taxes		(1,386	)		(1,115	)		7,264
Income tax benefit		(743	)		(1,488	)		(2,330	)
Equity in undistributed net income (loss) of subsidiary		(80,052	)		(151,067	)		(14,954	)
Net income (loss)		(80,695	)		(150,694	)		(5,360	)
Preferred stock dividends and accretion of discount on warrants		5,001			4,982			92
Net income (loss) available to common shareholders	$	(85,696	)	$	(155,676	)	$	(5,452	)

F-315

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 15—PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)

STATEMENTS OF CASH FLOWS

Years ended December 31, 2010, 2009, and 2008

	2010			2009			2008
Operating activities
Net income (loss)	$	(80,695	)	$	(150,694	)	$	(5,360	)
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Undistributed (net income) loss of subsidiaries		80,052			151,067			14,954
Stock compensation expense		626			686			759
Change in other assets		104			1,868			(1,413	)
Change in liabilities		1,250			(412	)		(14	)
Net cash provided (used) by operating activities		1,337			2,515			8,926
Investing activities
Capital investment in bank subsidiary		—			—			(77,278	)
Net cash used in investing activities		—			—			(77,278	)
Financing activities
Preferred stock dividends paid		(2,711	)		(3,232	)		—
Common stock dividends paid		—			(1,713	)		(6,779	)
Proceeds from issuance of preferred stock		—			—			72,278
Proceeds from issuance of common stock		—			—			111
Tax benefit resulting from stock options		—			—			5
Net cash provided (used in) financing activities		(2,711	)		(4,945	)		65,615
Net change in cash and cash equivalents		(1,374	)		(2,430	)		(2,737	)
Cash and cash equivalents, beginning of year		3,081			5,511			8,248
Cash and cash equivalents, end of year	$	1,707		$	3,081		$	5,511

NOTE 16—OTHER COMPREHENSIVE INCOME

Other comprehensive income components were as follows.

	2010		2009			2008
Unrealized holding gains and (losses) on securities available for sale, net of tax of $523, $1,105 and ($357), respectively	$	810	$	1,712		$	(553	)
Reclassification adjustment for losses (gains) realized in net income, net of tax of $0, ($555) and ($1,044), respectively		—		(860	)		(1,617	)
Other comprehensive income (loss)	$	810	$	852		$	(2,170	)

F-316

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 17—SEGMENT INFORMATION

The Company’s operating segments include banking, mortgage banking, consumer finance, subprime automobile lending and title insurance. The reportable segments are determined by the products and services offered, and internal reporting. Loans, mortgage banking, investments, and deposits provide the revenues in the banking operation, loans and fees provide the revenues in consumer finance and subprime lending and insurance commissions provide revenues for the title insurance company. Consumer finance, subprime automobile lending and title insurance do not meet the quantitative threshold for disclosure on an individual basis, and are therefore shown below in “other”. All operations are domestic.

The accounting policies used are the same as those described in the summary of significant accounting policies. Segment performance is evaluated using net interest income and noninterest income. Income taxes are allocated based on income before income taxes and indirect expenses (includes management fees) are allocated based on time spent for each segment. Transactions among segments are made at fair value. Information reported internally for performance assessment follows.

2010	Banking			Other Segments		Holding Company			Eliminations			Total Segments
Net interest income	$	77,246		$	8,327	$	(1,980	)	$	—		$	83,593
Provision for loan losses		69,568			1,539		—			—			71,107
Noninterest income		31,467			1,899		96			(918	)		32,544
Noninterest expense		105,088			4,643		2,002			(918	)		110,815
Income tax expense (benefit)		14,068			1,585		(743	)		—			14,910
Segment profit (loss)	$	(80,011	)	$	2,459	$	(3,143	)	$	—		$	(80,695	)
Segment assets	$	2,356,543		$	42,995	$	6,502		$	—		$	2,406,040
2009	Banking			Other Segments		Holding Company			Eliminations			Total Segments
Net interest income	$	74,628		$	8,474	$	(2,577	)	$	—		$	80,525
Provision for loan losses		47,483			2,763		—			—			50,246
Noninterest income		30,258			2,127		180			(987	)		31,578
Noninterest expense		223,989			4,868		1,717			(987	)		229,587
Income tax expense (benefit)		(16,712	)		1,164		(1,488	)		—			(17,036	)
Segment profit (loss)	$	(149,874	)	$	1,806	$	(2,626	)	$	—		$	(150,694	)
Segment assets	$	2,568,926		$	42,251	$	7,962		$	—		$	2,619,139
2008	Banking			Other Segments		Holding Company			Eliminations			Total Segments
Net interest income	$	91,900		$	7,680	$	(4,555	)	$	—		$	95,025
Provision for loan losses		50,074			2,736		—			—			52,810
Noninterest income		32,012			2,231		241			(870	)		33,614
Noninterest expense		79,548			5,137		2,022			(870	)		85,837
Income tax expense (benefit)		(3,118	)		800		(2,330	)		—			(4,648	)
Segment profit (loss)	$	(2,592	)	$	1,238	$	(4,006	)	$	—		$	(5,360	)
Segment assets	$	2,895,163		$	39,846	$	9,662		$	—		$	2,944,671

F-317

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 17—SEGMENT INFORMATION (Continued)

Asset Quality Ratios

As of and for the period ended December 31, 2010	Bank			Other			Total
Nonperforming loans as percentage of total loans, net of unearned income		8.40	%		1.30	%		8.35	%
Nonperforming assets as a percentage of total assets		8.52	%		1.34	%		8.56	%
Allowance for loan losses as a percentage of total loans, net of unearned income		3.68	%		7.33	%		3.83	%
Allowance for loan losses as a percentage of nonperforming loans		43.80	%		562.24	%		45.83	%
Net charge-offs to average total loans, net of unearned income		2.76	%		4.20	%		2.84	%
As of and for the period ended December 31, 2009	Bank			Other			Total
Nonperforming loans as percentage of total loans, net of unearned income		3.69	%		1.50	%		3.70	%
Nonperforming assets as a percentage of total assets		5.04	%		2.02	%		5.07	%
Allowance for loan losses as a percentage of total loans, net of unearned income		2.30	%		8.05	%		2.45	%
Allowance for loan losses as a percentage of nonperforming loans		62.29	%		538.31	%		66.39	%
Net charge-offs to average total loans, net of unearned income		2.15	%		5.88	%		2.25	%

NOTE 18—SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Presented below is a summary of the consolidated quarterly financial data:

	For the three months ended
Summary of Operations	3/31/10		6/30/10		9/30/10			12/31/10
Net interest income	$	21,659	$	21,473	$	20,747		$	19,714
Provision for loan losses		3,889		4,749		36,823			25,646
Noninterest income		7,686		8,771		9,029			7,058
Noninterest expense		20,546		21,274		27,009			41,986
Income tax expense (benefit)		1,714		1,410		1,098			10,688
Net income (loss)	$	3,196	$	2,811	$	(35,154	)	$	(51,548	)
Net income (loss) available to common shareholders	$	1,946	$	1,561	$	(36,405	)	$	(52,798	)
Comprehensive income	$	4,166	$	3,705	$	(34,583	)	$	(53,173	)
Basic earnings (loss) per common share	$	0.15	$	0.12	$	(2.78	)	$	(4.03	)
Diluted earnings (loss) per common share	$	0.15	$	0.12	$	(2.78	)	$	(4.03	)
Dividends per common share	$	0.00	$	0.00	$	0.00		$	0.00
Average common shares outstanding		13,082,347		13,097,611		13,097,611			13,097,611
Average common shares outstanding—diluted		13,172,727		13,192,648		13,097,611			13,097,611

F-318

GREEN BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

December 31, 2010, 2009 and 2008

NOTE 18—SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (Continued)

	For the three months ended
Summary of Operations	3/31/09		6/30/09			9/30/09			12/31/09
Net interest income	$	19,429	$	20,180		$	20,338		$	20,578
Provision for loan losses		985		24,384			18,475			6,402
Noninterest income		6,943		7,541			9,189			8,134
Noninterest expense		17,831		169,143			22,365			20,477
Income tax expense (benefit)		2,776		(15,656	)		(4,815	)		659
Net income (loss)	$	4,780	$	(150,150	)	$	(6,498	)	$	1,174
Net income (loss) available to common shareholders	$	3,548	$	(151,400	)	$	(7,748	)	$	(76	)
Comprehensive income	$	5,668	$	(150,557	)	$	(5,073	)	$	120
Basic earnings (loss) per common share	$	0.27	$	(11.58	)	$	(0.59	)	$	(0.01	)
Diluted earnings (loss) per share	$	0.27	$	(11.58	)	$	(0.59	)	$	(0.01	)
Dividends per common share	$	0.13	$	0.00		$	0.00		$	0.00
Average common shares outstanding		13,062,881		13,070,216			13,070,216			13,070,216
Average common shares outstanding—diluted		13,141,840		13,070,216			13,070,216			13,070,216

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Through and including                     , 2011 (25 days after the date of this prospectus), all dealers that buy, sell or trade our Class A common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Shares

North American Financial Holdings, Inc.

Class A Common Stock

Prospectus

                    , 2011

Credit Suisse BofA Merrill Lynch Goldman, Sachs & Co.

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of the Class A common stock being registered. All amounts, except the SEC registration fee and the FINRA filing fee, are estimates.

SEC registration fee	$	34,830
FINRA filing fee		*
Nasdaq listing fees and expenses		*
Transfer agent and registrar fees and expenses		*
Printing fees and expenses		*
Legal fees and expenses		*
Accounting fees and expenses		*
Blue sky fees and expenses		*
Miscellaneous		*
Total	$	*

* To be furnished by amendment.

Item 14. Indemnification of Directors and Officers.

Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL (regarding, among other things, the payment of unlawful dividends or unlawful stock purchases or redemptions), or (iv) for any transaction from which the director derived an improper personal benefit. Our amended and restated certificate of incorporation to be in effect upon completion of the offering will provide for such limitation of liability.

Section 145(a) of the DGCL empowers a corporation to indemnify any director, officer, employee or agent, or former director, officer, employee or agent, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of such person’s service as a director, officer, employee or agent of the corporation, or such person’s service, at the corporation’s request, as a director, officer, employee or agent of another corporation or enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding; provided that such director or officer acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation; and, with respect to any criminal action or proceeding, provided that such director or officer had no reasonable cause to believe his conduct was unlawful.

Section 145(b) of the DGCL empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit; provided that such director or officer acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which

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such director or officer shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such director or officer is fairly and reasonably entitled to indemnity for such expenses that the court shall deem proper. Notwithstanding the preceding sentence, except as otherwise provided in the by-laws, we shall be required to indemnify any such person in connection with a proceeding (or part thereof) commenced by such person only if the commencement of such proceeding (or part thereof) by any such person was authorized by the Board of Directors.

In addition, our amended and restated certificate of incorporation will provide that we must indemnify our directors and officers to the fullest extent authorized by law. We are also expressly required to advance certain expenses to our directors and officers and carry directors’ and officers’ insurance providing indemnification for our directors and officers for some liabilities. We believe that these indemnification provisions and the directors’ and officers’ insurance are useful to attract and retain qualified directors and executive officers.

Prior to completion of this offering, we intend to enter into separate indemnification agreements with each of our directors and officers. Each indemnification agreement is expected to provide, among other things, for indemnification to the fullest extent permitted by law and our amended and restated certificate of incorporation and by-laws against (i) any and all expenses and liabilities, including judgments, fines, penalties, interest and amounts paid in settlement of any claim with our approval and counsel fees and disbursements, (ii) any liability pursuant to a loan guarantee, or otherwise, for any of our indebtedness and (iii) any liabilities incurred as a result of acting on behalf of us (as a fiduciary or otherwise) in connection with an employee benefit plan. The indemnification agreements will provide for the advancement or payment of expenses to the indemnitee and for reimbursement to us if it is found that such indemnitee is not entitled to such indemnification under applicable law and our amended and restated certificate of incorporation and by-laws. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

The proposed form of Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification of directors and officers of the Registrant by the underwriters against certain liabilities.

Item 15. Recent Sales of Unregistered Securities.

In the three years preceding the filing of this registration statement, we have issued the following securities:

On November 30, 2009, in connection with its incorporation and initial capitalization, North American Financial Holdings, Inc. issued 200,000 shares of our common stock to members of its executive management for $2,000.

On December 22, 2009, we issued an aggregate of 27,706,524 shares of our common stock for net consideration of approximately $526 million in cash. On January 21, 2010, we issued an aggregate of 4,187,716 shares of our common stock pursuant to an over-allotment option for net consideration of approximately $79 million in cash. On July 6, 2010, we issued an aggregate of 13,025,935 shares of our common stock for net consideration of approximately $260 million in cash. The net proceeds of these offerings were used to fund our acquisitions and we continue to hold the remaining proceeds (after deduction for our operating expenses) in cash and cash equivalents.

The issuances of securities described in the preceding paragraphs were made in reliance upon the exemption from registration under Section 4(2) of the Securities Act, including the safe harbors established in Rules 144A and Regulation D, for transactions by an issuer not involving a public offering. We did not offer or sell the securities by any form of general solicitation or general advertising. We informed the purchasers that the

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securities had not been registered under the Securities Act and were subject to restrictions on transfer and made offers only to purchasers, whom we believed had the knowledge and experience in financial and business matters to evaluate the merits and risks of an investment in the securities.

We granted certain of our employees and directors 2,236,251 options to purchase an aggregate of 1,029,823 shares of our common stock under the North American Financial Holdings, Inc. 2010 Equity Incentive Plan. These grants were exempt from the registration requirements of the Securities Act pursuant to Rule 701 promulgated thereunder inasmuch as they were offered and sold under written compensatory benefit plans and otherwise in compliance with the provisions of Rule 701.

Item 16. Exhibits and Financial Statements Schedules.

(a) Exhibits: The list of exhibits is set forth under “Exhibit Index” at the end of this registration statement and is incorporated herein by reference.

(b) Financial Statement Schedules: None.

Item 17. Undertakings.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities Act of 1933, as amended, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for the purpose of determining liability of the registrant under the Securities Act of 1933, as amended, to any purchaser in the initial distribution of the securities:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the

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purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

(b) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue.

(d) The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933, as amended, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this amendment to its registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Miami, Florida on June 23, 2011.

North American Financial Holdings, Inc. (Registrant)
By:	/s/ R. Eugene Taylor
	Name: R. Eugene Taylor
	Title: Chief Executive Officer

Power of Attorney

Each person whose signature appears below hereby constitutes and appoints R. Eugene Taylor and Christopher G. Marshall, and each of them acting individually, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to execute for him and in his name, place and stead, in any and all capacities, any and all amendments (including post-effective amendments) to this registration statement and any registration statement for the same offering covered by this registration statement that is to be effective upon filing pursuant to Rule 462 promulgated under the Securities Act of 1933, as amended, as the attorney-in-fact and to file the same, with all exhibits thereto and any other documents required in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and their substitutes, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to its registration statement has been signed below by the following persons in the capacities and on the dates indicated:

Signature	Title	Date
/s/ R. Eugene Taylor R. Eugene Taylor	Chairman and Chief Executive Officer (Principal Executive Officer)	June 23, 2011
/s/ Christopher G. Marshall Christopher G. Marshall	Chief Financial Officer (Principal Financial and Accounting Officer)	June 23, 2011
/s/ Richard M. DeMartini Richard M. DeMartini	Director	June 23, 2011
/s/ Peter N. Foss Peter N. Foss	Director	June 23, 2011
/s/ William A. Hodges William A. Hodges	Director	June 23, 2011
/s/ Jeffrey E. Kirt Jeffrey E. Kirt	Director	June 23, 2011
/s/ Marc D. Oken Marc D. Oken	Director	June 23, 2011

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Exhibit Index

Exhibit Number	Description
1.1	Form of Underwriting Agreement*
2.1	Purchase and Assumption Agreement, dated as of July 16, 2010, among the Federal Deposit Insurance Corporation, Receiver of First National Bank of the South, Spartanburg, South Carolina, the Federal Deposit Insurance Corporation and NAFH National Bank (Single Family Shared-Loss Agreement and Commercial Shared-Loss Agreement included as Exhibits 4.15A and 4.15B thereto, respectively)*
2.2	Purchase and Assumption Agreement, dated as of July 16, 2010, among the Federal Deposit Insurance Corporation, Receiver of Metro Bank of Dade County, Miami, Florida, the Federal Deposit Insurance Corporation and NAFH National Bank (Single Family Shared-Loss Agreement and Commercial Shared-Loss Agreement included as Exhibits 4.15A and 4.15B thereto, respectively)*
2.3	Purchase and Assumption Agreement, dated as of July 16, 2010, among the Federal Deposit Insurance Corporation, Receiver of Turnberry Bank, Aventura, Florida, the Federal Deposit Insurance Corporation and NAFH National Bank (Single Family Shared-Loss Agreement and Commercial Shared-Loss Agreement included as Exhibits 4.15A and 4.15B thereto, respectively)*
2.4	Agreement of Merger of TIB Bank with and into NAFH National Bank, by and between NAFH National Bank and TIB Bank, dated as of April 27, 2011 (incorporated by reference to Exhibit 2.1 to TIB Financial Corp.’s Current Report on Form 8-K filed with the SEC on May 3, 2011)
3.1	Amended and Restated Certificate of Incorporation*
3.2	Amended and Restated By-Laws*
4.1	Specimen Class A common stock certificate*
4.2	Registration Rights Agreement, dated as of December 22, 2009, by and between North American Financial Holdings, Inc., FBR Capital Markets & Co., Crestview-NAFH, LLC and the other parties thereto*
4.3	Amendment No. 1, dated as of March 23, 2011, to the Registration Rights Agreement, dated as of December 22, 2009, by and between North American Financial Holdings, Inc., FBR Capital Markets & Co., Crestview-NAFH, LLC and the other parties thereto*
4.4	In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K, certain instruments respecting long-term debt of subsidiaries of the registrant have been omitted but will be furnished to the SEC upon request
5.1	Opinion of Wachtell, Lipton, Rosen & Katz*
10.1	Employment Agreement between North American Financial Holdings, Inc. and R. Eugene Taylor*
10.5	North American Financial Holdings, Inc. 2010 Equity Incentive Plan*
10.6	Form of Indemnification Agreement between North American Financial Holdings, Inc. and each of its directors and executive officers*

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Exhibit Number	Description
10.7	Registration Rights Agreement dated September 30, 2010, by and between TIB Financial Corp. and North American Financial Holdings, Inc. (incorporated by reference to Exhibit 10.1 to TIB Financial Corp.’s Current Report on Form 8-K filed with the SEC on October 1, 2010)
10.8	Form of Indemnification Agreement by and between TIB Financial Corp. and its directors and certain officers (incorporated by reference to Exhibit 10.2 to TIB Financial Corp.’s Current Report on Form 8-K filed with the SEC on October 1, 2010)
10.9	Form of Indemnification Agreement by and between TIB Bank and its directors and certain officers (incorporated by reference to Exhibit 10.3 to TIB Financial Corp.’s Current Report on Form 8-K filed with the SEC on October 1, 2010)
10.10	Form of Written Agreement between TIB Financial Corp. and the Federal Reserve Bank of Atlanta (incorporated by reference to Exhibit 10.1 to TIB Financial Corp.’s Current Report on Form 8-K filed with the SEC on September 23, 2010)
10.11	Form of Consent Order between TIB Bank, the Federal Deposit Insurance Corporation and the State of Florida Office of Financial Regulations (incorporated by reference to Exhibit 10.1 to TIB Financial Corp.’s Current Report on Form 8-K filed with the SEC on July 8, 2010)
10.12	Form of Investment Agreement dated as of June 29, 2010, by and among TIB Financial Corp., TIB Bank and North American Financial Holdings, Inc. (incorporated by reference to Exhibit 10.1 to TIB Financial Corp.’s Current Report on Form 8-K filed with the SEC on June 30, 2010)
10.13	Investment Agreement, dated November 3, 2010, among Capital Bank Corporation, Capital Bank and North American Financial Holdings, Inc. (incorporated by reference to Exhibit 10.1 to Capital Bank Corporation’s Current Report on Form 8-K filed with the SEC on November 4, 2010)
10.14	First Amendment to Investment Agreement, dated January 14, 2011, among Capital Bank Corporation, Capital Bank and North American Financial Holdings, Inc. (incorporated by reference to Exhibit 10.1 to Capital Bank Corporation’s Current Report on Form 8-K filed with the SEC on January 14, 2011)
10.15	Contingent Value Rights Agreement dated January 28, 2011, by Capital Bank Corporation (incorporated by reference to Exhibit 10.1 to Capital Bank Corporation’s Current Report on Form 8-K filed with the SEC on January 31, 2011)
10.16	Registration Rights Agreement dated January 28, 2011, by and between Capital Bank Corporation and North American Financial Holdings, Inc. (incorporated by reference to Exhibit 10.2 to Capital Bank Corporation’s Current Report on Form 8-K filed with the SEC on January 31, 2011)
10.17	Form of Indemnification Agreement by and between Capital Bank Corporation and its directors and certain officers (incorporated by reference to Exhibit 10.3 to Capital Bank Corporation’s Current Report on Form 8-K filed with the SEC on January 31, 2011)
10.18	Form of Indemnification Agreement by and between Capital Bank Corporation and its directors and certain officers (incorporated by reference to Exhibit 10.4 to Capital Bank Corporation’s Current Report on Form 8-K filed with the SEC on January 31, 2011)
10.19	Investment Agreement, dated May 5, 2011, among Green Bankshares, Inc., GreenBank and North American Financial Holdings, Inc. (incorporated by reference to Exhibit 10.1 to Green Bankshares’ Current Report on Form 8-K filed with the SEC on May 6, 2011)
10.20	Stock Option Agreement, dated May 5, 2011, between Green Bankshares, Inc. and North American Financial Holdings, Inc. (incorporated by reference to Exhibit 10.2 to Green Bankshares’ Current Report on Form 8-K filed with the SEC on May 6, 2011)

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Exhibit Number	Description
21.1	Subsidiaries of North American Financial Holdings, Inc.*
23.1	Consent of PricewaterhouseCoopers LLP
23.2	Consent of PricewaterhouseCoopers LLP
23.3	Consent of PricewaterhouseCoopers LLP
23.4	Consent of PricewaterhouseCoopers LLP
23.5	Consent of Crowe Horwath LLP
23.6	Consent of Elliott Davis PLLC
23.7	Consent of Grant Thornton LLP
23.8	Consent of Dixon Hughes Goodman LLP (formerly Dixon Hughes PLLC)
23.9	Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 5.1)*
24.1	Power of Attorney (included on signature page)

* To be filed by amendment.

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