UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

TANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2010~~2011

~~⁪TRANSITION~~oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from __________________ to _______________________

Commission File Number 000-21329

TIB FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

FLORIDA		65-0655973
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

599 9th STREET NORTH, SUITE 101, NAPLES, FLORIDA 34102-5624
(Address of principal executive offices) (Zip Code)

	(239) 263-3344
(Registrant’s telephone number, including area code)

Securities Registered pursuant to Section 12(b) of the Act: Common stock, par value $0.10 Securities Registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the issuer is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨o Yes or þ No Indicate by check mark if the issuer is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨o Yes or þ No Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes or ¨o No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). £þ Yes £o No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of issuer’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one): Large accelerated filer £o Accelerated filer £o Non-accelerated filer £o Smaller reporting company þ (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨o Yes or þ No The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, ~~2010~~2011 was approximately $7,165,736,000 based on the $4913.5642 per share closing price on June 30, ~~2010~~2011. The number of shares outstanding of issuer’s class of common stock at ~~March~~February 3129, ~~2011~~2012 was 12,349,935 shares of common stock. Documents Incorporated By Reference: Portions of the Proxy Statement for the ~~2011~~2012 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the Registrant’s ~~2010~~2011 fiscal year end are incorporated by reference into Part III of this report.

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TABLE OF CONTENTS

	PART I	PAGE
ITEM 1	BUSINESS	34
ITEM 1A	RISK FACTORS	1426
ITEM 1B	UNRESOLVED STAFF COMMENTS	1948
ITEM 2	PROPERTIES	2049
ITEM 3	LEGAL PROCEEDINGS	2150
ITEM 4	~~RESERVED~~MINE SAFETY DISCLOUSURES	2150
	PART II
ITEM 5	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITES	2150
ITEM 6	SELECTED FINANCIAL DATA	2453
ITEM 7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2656
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5686
ITEM 8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	5787
ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	~~106~~144
ITEM 9A	CONTROLS AND PROCEDURES	~~106~~144
ITEM 9B	OTHER INFORMATION	~~107~~145
	PART III
ITEM 10	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	~~108~~146
ITEM 11	EXECUTIVE COMPENSATION	~~108~~146
ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS	~~108~~146
ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	~~108~~146
ITEM 14	PRINCIPAL ACCOUNTANT FEES AND SERVICES	~~108~~146
	PART IV
ITEM 15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	~~109~~147

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CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

Certain of the matters discussed under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act and as such may involve known and unknown risk, uncertainties and other factors which may cause the actual results, performance or achievements of TIB Financial Corp. (the “Company”), or Capital Bank, NA (the “Bank”) – the Company’s equity method investee, to be materially different from future results described in such forward-looking statements.

All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, statements about anticipated future operating and financial performance, financial position and liquidity, business prospects, strategic alternatives, business strategies, regulatory and competitive outlook, investment and expenditure plans, capital and financing needs and availability, acquisition and divestiture opportunities, plans and objectives of management for future operations and other similar forecasts and statements of expectation and statements of assumptions underlying any of the foregoing. Words such as “will likely continue,” “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “seeks,” “should,” “will,” and variations of these words and similar expressions are intended to identify these forward-looking statements.

Forward-looking statements are based on the Company and Bank’s current expectations and assumptions regarding its business, the regulatory environment, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. The Company’s actual results may differ materially from those contemplated by the forward-looking statements. The Company cautions you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following:

• ~~any~~changes ~~effects of our recent change of control,~~ in ~~which~~general ~~North~~economic ~~American~~and ~~Financial~~financial ~~Holdings,~~market ~~Inc. acquired a majority ownership of our voting power, including any change in management, strategic direction, business plan or operations~~conditions;

• ~~inability~~any toeffects ~~achieve~~of ~~the~~our ~~higher~~change ~~minimum~~of ~~capital ratios that our subsidiary~~control, ~~TIB~~in ~~Bank~~which ~~(“TIB~~Capital Bank~~”),~~ isFinancial ~~required~~Corp. toacquired ~~maintain~~a ~~pursuant~~majority toownership ~~the~~of ~~Consent~~our ~~Order~~voting ~~issued~~power, byincluding ~~the~~any ~~Federal~~change ~~Deposit~~in ~~Insurance~~management, ~~Corporation~~strategic ~~(the “FDIC”) and the State of Florida Office of Financial Regulation on July 2~~direction, ~~2010~~business ~~(“Consent~~plan ~~Order”)~~or operations;

• the ~~effect~~completion of ~~other~~the ~~requirements~~proposed ofmerger ~~the~~with ~~Consent~~our ~~Order~~controlling ~~and~~shareholder, ~~any~~Capital ~~further~~Bank ~~regulatory actions~~FinancialCorp.;

• management’s ability to effectively execute the ~~Company~~Bank’s business plan;

• inability to receive dividends from ~~TIB~~the Bank and to service debt and satisfy obligations as they become due;

•

costs and effects of legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews;

• changes in capital classification;

•

the impact of current economic conditions and the Company’s results of operations on its ability to borrow additional funds to meet its liquidity needs;

•

local, regional, national and international economic conditions and events and the impact they may have on the Company and its customers;

• changes in the economy affecting real estate values;

• inability to attract and retain deposits;

• changes in the level of non-performing assets and charge-offs;

•

changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;

• changes in the financial performance and/or condition of ~~TIB~~the Bank’s borrowers;

• effect of additional provision for loan losses;

• long-term negative trends in the Company’s market capitalization;

• continued listing of the Company’s common stock on the NASDAQ Capital Market;

•

effects of any changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board;

• inflation, interest rates, cost of funds, securities market and monetary fluctuations;

• political instability;

•

acts of war or terrorism, natural disasters such as earthquakes, hurricanes or fires, or the effects of pandemic flu;

•

the timely development and acceptance of new products and services and perceived overall value of these products and services by users;

• changes ~~changesin~~in consumer spending, borrowings and savings habits;

• technological changes;

• changes in the Company’s or the Bank’s organization, management, compensation and benefit plans;

• competitive ~~competitivepressures~~pressures from other financial institutions;

• continued consolidation in the financial services industry;

• inability to maintain or increase market share and control expenses;

•

impact of reputational risk on such matters as business generation and retention, funding and liquidity;

• rating agency downgrades;

• continued volatility in the credit and equity markets and its effect on the general economy;

• our ability to achieve loan and deposit growth;

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

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

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

•

effect of changes in laws and regulations (including laws concerning banking, taxes and securities) with which the Company and its subsidiaries must comply;

•

effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters;

•

other factors described from time to time in our filings with the Securities and Exchange Commission (“SEC”) and in the risk factors in “Item 1A: Risk Factors” in this report; and

• the Company and Bank’s success at managing the risks involved in the foregoing items.

All forward-looking statements attributable to the Company and the Bank are expressly qualified in their entirety by these cautionary statements. The Company disclaims any intent or obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise. You should, however, review the risk factors we describe in reports we will file from time to time with the Securities and Exchange Commission (“SEC”) after the date of this report.

PART I

As used in this document, the terms “we,” “us,” “our,” “TIB Financial,” and “Company” mean TIB Financial Corp. and its subsidiaries and/or management (unless the context indicates another meaning); the term “Bank” means ~~TIB~~Capital Bank, NA and its subsidiaries (unless the context indicates another meaning). Throughout this document, the banking operations are generally discussed from the perspective of the management of the Company including management of affiliated banks that ultimately merged with and into Capital Bank, NA.

ITEM 1: BUSINESS

~~General~~The Company

WeTIB ~~are~~Financial Corp. is a bank holding company incorporated in 1996 and headquartered in Naples, Florida. Prior to April 29, ~~whose~~2011, ~~business~~TIB isFinancial conducted its business primarily through ~~our~~its wholly-owned subsidiaries, TIB Bank, ~~established~~(which ~~in 1974, and Naples Capital Advisors, Inc. Together~~ we ~~have~~refer ~~twenty-seven~~to ~~full-service~~as ~~banking~~“TIB ~~offices~~Bank” inand, ~~Florida~~together ~~that~~with ~~are~~its ~~located~~successor inentities ~~Monroe,~~following ~~Miami-Dade,~~the ~~Collier,~~Bank ~~Lee,~~Merger ~~and~~(as ~~Sarasota~~defined ~~counties. As of December 31~~below), ~~2010,~~ the ~~Company’s~~“Bank”) ~~SEC~~and ~~Registered Investment Advisory firm,~~ Naples Capital Advisors, ~~managed $193 million for high net worth clients~~Inc. At(which ~~December 31, 2010,~~ we ~~had~~refer ~~approximately~~to ~~$1.76~~as ~~billion~~“Naples inCapital ~~total assets, $1~~Advisors”).~~37 billion in total deposits, $1.00 billion in total loans, and $176.8 million in shareholders’ equity.~~

~~Through~~Effective ~~our~~April ~~subsidiaries~~29, we2011, ~~offer~~TIB ~~a wide range of commercial~~Bank, ~~retail~~merged with and ~~private~~into ~~banking~~NAFH ~~and~~National ~~trust~~Bank, ~~investment~~a ~~management~~national banking association and ~~other~~wholly ~~financial~~owned ~~services~~subsidiary toof ~~businesses,~~Capital ~~individuals~~Bank ~~and~~Financial ~~families~~Corp. ~~Our~~(which ~~deposit~~we ~~account~~refer ~~services~~to ~~include~~as ~~checking~~“CBF”), ~~interest-bearing~~with ~~checking,~~NAFH ~~money~~National ~~market,~~Bank ~~savings,~~as ~~certificates~~the ofsurviving ~~deposit~~entity ~~and~~in ~~individual~~an ~~retirement~~all-stock ~~accounts~~transaction. WeEffective ~~offer~~June ~~all~~30, ~~types of commercial loans~~2011, ~~including:~~Old ~~owner-operated~~Capital ~~commercial real estate; acquisition~~Bank, ~~development~~then ~~and~~a ~~construction;~~wholly ~~income-producing~~owned ~~properties;~~subsidiary ~~short-term~~of ~~working~~an ~~capital;~~affiliate ~~inventory~~of ~~and~~CBF, ~~receivable~~merged ~~facilities;~~with and ~~equipment~~into ~~loans.~~NAFH WeNational ~~also~~Bank, ~~offer~~with aNAFH ~~full~~National ~~complement~~Bank ofas ~~consumer~~the ~~loan~~surviving ~~products~~entity. ~~Our~~In ~~lending~~connection ~~focus~~with isthe onmerger ~~small~~of toOld ~~medium-sized~~Capital ~~business,~~Bank ~~private~~with ~~banking clients~~ and ~~consumer~~into ~~borrowers.~~NAFH ~~Most~~National ~~importantly~~Bank, weNAFH ~~provide~~National ~~our~~Bank ~~customers~~changed ~~with~~its ~~access~~name to ~~local~~Capital ~~bank~~Bank, ~~officers~~N.A. ~~who~~CBF ~~are~~is ~~empowered~~the toowner ~~act~~of ~~with~~approximately ~~flexibility~~94.5% toof ~~meet~~the ~~customers'~~common ~~needs~~stock inof anTIB ~~effort~~Financial. toIn ~~foster~~addition, ~~and~~five ~~develop~~of ~~long-term,~~the ~~multi-service~~seven ~~relationships.~~directors ~~Through~~of ~~Naples~~TIB ~~Capital Advisors~~Financial, ~~Inc.,~~ and TIB ~~Bank,~~Financial’s weChief ~~offer~~Executive ~~wealth management~~Officer, ~~investment~~Chief ~~advisory~~Financial Officer and ~~trust~~Chief ~~services~~Risk Officer are affiliated with CBF.

TIB ~~Bank~~Financial’s ~~has~~assets ~~been~~consist ~~executing~~primarily aof ~~community~~approximately ~~bank~~21% ~~business~~of ~~strategy for individuals and businesses in~~ the ~~Florida~~capital ~~Keys~~stock ~~for~~of 37Capital ~~years.~~Bank It(formerly isknown aas ~~unique~~NAFH ~~market~~National ~~defined largely by its geography~~Bank). ~~From Key Largo to Key West~~Accordingly, ~~the~~CBF ~~Florida~~and ~~Keys~~TIB ~~stretch~~Financial ~~approximately~~own ~~130~~different ~~miles~~percentage ~~through~~interests ain ~~chain~~substantially ofthe ~~islands~~same ~~each less than two miles wide~~business. ~~The~~In ~~islands of the Florida Keys are connected principally by a single highway~~addition, ~~U.S. 1.~~ TIB ~~Bank~~Financial isconducts ~~one~~its ofprivate ~~the~~banking, ~~few~~trust ~~banks~~and ininvestment ~~the~~management ~~Florida~~business ~~Keys~~through ~~operating~~Naples ~~throughout~~Capital ~~the~~Advisors. ~~entire~~The ~~expanse~~business ofNaples ~~the~~Capital ~~market.~~Advisors It is adescribed ~~very~~herein ~~competitive~~under ~~market~~the ~~based~~heading on“Ancillary ~~personal~~Fee-Based ~~attention and service rather than branch locations~~Businesses.”

InPrior ~~2001,~~to ~~TIB Bank expanded into~~ the ~~Southwest~~mergers ~~Florida markets~~ of ~~Collier~~TIB Bank and ~~Lee~~Old ~~County.~~Capital ~~Similar~~Bank towith ~~the~~NAFH ~~strategy~~National ~~honed in the Florida Keys~~Bank, TIB ~~focuses~~Financial onhad ~~small~~a ~~businesses~~total ~~and individuals appreciative~~ of ~~community~~27 ~~bank~~full service~~. These~~ ~~efforts have been bolstered by the recent introduction of private~~ banking ~~and~~offices ~~wealth~~in ~~management~~Florida, ~~services.~~located ~~The~~in ~~private banking team~~Monroe, ~~since January~~Miami-Dade, ~~2008 and as of December 31~~Collier, ~~2010~~Lee ~~had generated $36 million in new client deposits~~ and $8Sarasota ~~million in loans~~counties.

InCBF April, 2007, the Company completed the acquisition of The Bank of Venice. Combined with the two offices of Riverside Bank of the Gulf Coast, purchased in February 2009, TIB Bank is now the largest community banking presence, as measured by deposits in the Venice-Nokomis market.Investment

On ~~December~~September 530, ~~2008~~2010 (the “Transaction Date”), asthe ~~part~~Company ofcompleted the ~~Troubled~~issuance ~~Asset~~and ~~Relief~~sale ~~Program~~to CBF of 7,000,000 shares of Common Stock, 70,000 shares of Series B Preferred Stock and a warrant (the “~~TARP~~Warrant”) ~~Capital~~to ~~Purchase~~purchase ~~Program~~up to 11,666,667 weshares ~~sold~~of toCommon Stock of the ~~U.S.~~Company ~~Department~~(the “Warrant Shares”) for aggregate consideration of $175,000,000 (the ~~Treasury~~“Investment”). The consideration was comprised of approximately $162,840,000 in cash and approximately $12,160,000 in the form of a contribution to the Company of all 37,000 ~~million~~outstanding shares of Series A ~~preferred~~Preferred ~~stock~~Stock previously issued to the United States Department of ~~TIB~~the ~~Financial~~Treasury ~~Corp.,~~under ~~with~~the aTARP 5%Capital ~~cumulative~~Purchase ~~annual~~Program ~~dividend~~and ~~yield~~the ~~for~~related warrant to purchase shares of the ~~first~~Company’s ~~five~~Common ~~years~~Stock, which CBF purchased directly from the Treasury. The Series A Preferred Stock and 9%the ~~thereafter~~related warrant were retired on September 30, 2010 and aare ~~ten~~no ~~year~~longer ~~warrant~~outstanding. toThe ~~purchase~~70,000 upshares toof 11Series B Preferred Stock received by CBF converted into an aggregate of 4,~~064~~666,667 shares of Common Stock following shareholder approval of an amendment to the Company’s ~~voting~~Restated ~~common~~Articles ~~stock,~~of atIncorporation anto ~~exercise~~increase ~~price~~the number of ~~$501~~authorized shares of Common Stock to 50,000,000.63 ~~per~~The ~~share~~Warrant is exercisable, ~~for~~in anwhole ~~aggregate~~or ~~purchase~~in part, and from time to time, from September 30, 2010 to March 30, 2012, at an exercise price of $515.500 ~~million~~per inWarrant ~~cash~~Share.

InAs ~~February~~a ~~2009,~~result ~~TIB~~of ~~Bank~~the ~~assumed~~Investment ~~$317~~and ~~million~~following ofthe ~~deposits~~completion ~~(which~~on ~~excluded~~January ~~brokered~~18, ~~deposits)~~2011 of ~~Riverside~~a ~~Bank~~rights ofoffering, ~~the~~pursuant ~~Gulf~~to ~~Coast~~which ~~from~~shareholders of the ~~FDIC.~~Company ~~Riverside~~as ~~Bank’s~~of ~~nine~~July ~~offices~~12, ~~reopened~~2010 onpurchased ~~February~~533,029 17shares of Common Stock, ~~2009~~CBF asowns ~~branches~~approximately 94.5% of ~~TIB~~the ~~Bank~~issued and outstanding voting power of the Company. ~~The~~Upon ~~assumption~~the completion of the ~~deposits~~Investment, ~~increased~~R. ~~our~~Eugene ~~market~~Taylor ~~presence~~(Chairman), inChristopher ~~Fort~~G. ~~Myers~~Marshall, ~~and~~Peter ~~Venice~~N. Foss, ~~and~~William ~~expanded~~A. ~~our~~Hodges ~~banking~~and ~~operations~~R. ~~into~~Bruce ~~the~~Singletary ~~contiguous~~were ~~market~~named ofto ~~Cape~~board ~~Coral.~~of ~~The~~directors ~~transaction~~of ~~also~~the ~~provided~~Company us(the ~~with~~“Company ~~additional~~Board”). Mr. ~~core~~Howard ~~deposit~~Gutman ~~funding~~and ~~for~~Mr. ~~loan~~Brad ~~growth~~Boaz, existing members of the ~~potential~~Company ~~for~~Board, ~~new~~remained ~~customer~~as ~~relationships~~such ~~and~~following ~~will~~the ~~improve~~closing ~~and~~of ~~increase~~the ~~our~~Investment. ~~brand~~All ~~awareness~~other ~~throughout~~members of the ~~Southwest~~Company ~~Florida~~Board ~~markets~~resigned weeffective ~~serve~~September 30, 2010.

On September 30, 2010, the Company issued and sold to North American Financial Holdings, Inc. (“NAFH”) 7,000,000 shares of Common Stock, 70,000 shares of Series B Preferred Stock and a warrant to purchase up to 11,666,667 shares of Common Stock of the Company for aggregate consideration of $175 million (the “Investment”). The consideration was comprised of approximately $162.8 million in cash and approximately $12.2 million in the form of contribution to the Company of all 37,000 shares of Series A 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. The Series A preferred stock and the related warrant were retired on September 30, 2010 and are no longer outstanding.

Pursuant to the Company’s investment agreement with NAFH, the Company’s 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 533,029 shares of the Company’s common stock were issued in exchange for approximately $7,776,000 upon completion of the Rights Offering on January 18, 2011.

We are subject to examination and regulation by the Board of Governors of the Federal Reserve System, the Florida Office of Financial Regulation, the United States Securities and Exchange Commission (the “SEC”) and the Federal Deposit Insurance Corporation (the “FDIC”). This regulation is intended for the protection of our depositors and clients, not our shareholders.

Business Strategy

Our business strategy is to operate as a profitable, diversified financial services company providing a variety of banking and other financial services, with an emphasis on building multi-service relationships through commercial loans to small and medium-sized businesses, private banking, trust and investment management and consumer and residential mortgage lending and to be the premier community bank in the markets we serve. As a result of the consolidation of locally based small and medium-sized financial institutions and the emergence of large, nationally focused financial institutions, we believe there is a significant opportunity for community based and focused banks to provide a full range of financial services to small and middle-market commercial and retail customers. We emphasize comprehensive retail, private banking, wealth management and business products and responsive, decentralized decision-making which reflect our knowledge of customers and experience in our local markets.

Our business strategy is targeted to:

· To operate a full service retail network with competitive products and outstanding customer service;

· Capture commercial lending opportunities with small to mid-sized businesses which we believe are underserved by our larger competitors;

· Pursue private banking and wealth management opportunities with affluent individuals and families which are underserved or served remotely by our larger competitors, headquartered out of the state of Florida;

· Provide residential mortgage financing on both a mortgage banking basis with conforming loans sold through the secondary market and on a portfolio basis with jumbo and other nonconforming loans originated for customers with an existing relationship;

· Originate consumer loans on a direct and indirect basis to diversify our sources of loans and revenue, concentrating on consumers with prime credit;

· Cross-sell our products and services to our more than 60,000 existing customers to leverage our relationships, grow fee income and enhance profitability; and

· Adhere to safe and sound credit standards as we improve the quality of assets.

~~Banking~~Because ~~services~~of the controlling proportion of voting securities in the Company acquired by CBF, the Investment is considered an acquisition for accounting purposes and requires the application and push down of the acquisition method of accounting. The accounting guidance for acquisition accounting requires that the assets acquired and liabilities assumed be recorded at their respective fair values as of the acquisition date. Any purchase price in excess of the net assets acquired is recorded as goodwill.

~~Commercial~~The ~~Banking.~~most ~~The~~significant ~~Bank~~fair ~~focuses~~value ~~its~~adjustments ~~commercial~~resulting ~~loan~~from ~~originations~~the onapplication ~~established~~of ~~small~~the ~~and~~acquisition ~~mid-sized~~method ~~businesses.~~of ~~These~~accounting were made to loans. Accounting ~~are~~guidance ~~usually~~requires ~~accompanied~~that all loans held by ~~significant~~the ~~related~~Company ~~deposits~~on the Transaction Date be recorded at their fair value. ~~Commercial~~The ~~underwriting~~fair isvalue ~~driven~~of bythese ~~cash~~acquired ~~flow~~loans ~~analysis~~takes ~~supported~~into byaccount ~~collateral~~both ~~analysis~~the differences in loan interest rates and ~~review~~market rates and any deterioration in their credit quality. ~~The~~Because ~~Bank~~concerns ~~offers~~about athe ~~complete~~probability ~~range~~of receiving the full amount of ~~commercial~~the ~~loan~~contractual ~~products~~payments from the borrowers was considered in estimating the fair value of the loans, ~~including~~stating ~~owner-occupied~~the ~~commercial~~loans ~~real~~at ~~estate~~their ~~construction~~fair ~~and~~value ~~term~~results in no allowance for loan loss being provided for these loans; ~~working~~as ~~capital~~of the Transaction Date. As of September 30, 2010, certain loans ~~and~~had ~~lines~~evidence of credit; ~~demand~~deterioration since origination, ~~term~~and it was probable that not all contractually required principal and ~~time~~interest payments would be collected. Such loans; ~~and~~identified ~~equipment~~at the time of the acquisition were accounted for using the measurement provision for purchased credit-impaired (“PCI”) loans, ~~inventory~~according ~~and~~to ~~accounts~~the ~~receivable~~FASB ~~financing~~Accounting Standards Codification (“ASC”) 310-30. WeThe ~~offer~~special aaccounting ~~wide~~for ~~range~~PCI loans not only requires that they are recorded at fair value at the date of ~~cash~~acquisition ~~management~~and ~~services~~that any related allowance for loan and ~~deposit~~lease ~~products~~losses is not permitted to ~~commercial~~be ~~customers~~carried forward past the Transaction Date, but it also governs how interest income will be recognized on these loans and how any further deterioration in credit quality after the Transaction Date will be recognized and reported.

~~Retail~~As ~~Banking.~~a ~~Retail~~result ~~banking~~of ~~activities~~the ~~emphasize~~adjustments ~~providing~~required ~~excellent~~by ~~customer~~the ~~service~~acquisition method of accounting, the Company’s balance sheet and ~~cross~~results ~~selling~~of ~~multiple~~operations ~~services~~from periods prior to ~~our~~the ~~customer~~Transaction ~~base.~~Date Anare ~~extensive~~labeled ~~range~~as Predecessor Company amounts and are not comparable to balances and results of ~~these~~operations ~~services~~from isperiods ~~offered~~subsequent byto the ~~Bank~~Transaction toDate, ~~meet~~which are labeled as Successor Company. The lack of comparability arises from the ~~varied~~assets ~~needs~~and liabilities having new accounting bases as a result of ~~its~~recording ~~customers.~~them Inat ~~addition~~their tofair ~~traditional~~values ~~products~~as ~~and~~of ~~services,~~the Transaction Date rather than at their historical cost basis. As a result of the ~~Bank~~change ~~offers~~in ~~state~~accounting bases, items of income and expense such as the ~~art~~rate ~~Internet~~of ~~banking~~interest ~~services~~income and expense as well as depreciation and rental expense will change. In ~~Consumer~~general, ~~loan~~these ~~products~~changes ~~offered~~in byincome and expense relate to the ~~Bank~~amortization ~~include~~of ~~home~~premiums ~~equity~~or ~~lines~~accretion of ~~credit,~~discounts ~~second~~to ~~mortgages~~arrive at contractual amounts due. To call attention to this lack of comparability, ~~new~~the Company has placed a black line between the Successor Company and ~~used~~Predecessor ~~auto~~Company ~~loans,~~columns ~~new~~in the Consolidated Financial Statements and ~~used~~in ~~boat~~the ~~loans,~~tables ~~overdraft~~in ~~protection,~~the notes to the statements and ~~unsecured~~in ~~personal~~Management’s ~~credit~~Discussion ~~lines~~and Analysis of Financial Condition and Results of Operations.

~~Mortgage~~ TIB ~~Banking. The~~ Bank’s ~~mortgage~~Merger ~~banking~~with ~~business~~Capital is structured to provide a source of fee and interest income. Fees are generated by originating conforming fixed and variable rate loans for sale to the secondary market. To compliment cross sell efforts to Private Banking and affluent customersBank, adjustable rate loans (mostly jumbo) are held in our loan portfolio. Mortgage banking capabilities include conventional and nonconforming mortgage underwriting; and construction and permanent financing.NA

~~Private~~On ~~Banking~~April 29, ~~Trust~~2011 ~~and~~(the ~~Investment~~“Merger ~~Management. A~~Date”), ~~key~~the ~~component~~Company’s ofprimary operating subsidiary, TIB Bank, was merged with and into NAFH National Bank (the ~~overall~~“Bank ~~strategy~~Merger”), isan affiliate institution which had been wholly-owned by the ~~integrated~~Company’s ~~offering~~controlling ofshareholder, ~~private~~CBF, ~~banking~~preceding ~~and~~the ~~wealth~~Bank ~~management~~Merger. ~~The~~ ~~Company~~NAFH isNational ~~targeting~~Bank ~~affluent~~was ~~clients~~formed on July 16, ~~business~~2010 ~~owners~~in connection with the purchase and ~~retirees~~assumption of the operations of three banks – Metro Bank of Dade County (Miami, ~~building~~Florida), ~~new~~Turnberry ~~relationships~~Bank (Aventura, Florida) and ~~expanding~~First ~~existing~~National ~~relationships~~Bank of the South (Spartanburg, South Carolina) – from the Federal Deposit Insurance Corporation (the “FDIC”). Pursuant to ~~grow~~the ~~deposits~~merger agreement dated April 27, ~~loans~~2011, ~~and~~between ~~fiduciary~~NAFH National Bank and ~~investment~~TIB ~~management~~Bank, ~~fee~~the ~~income~~Company exchanged its 100% ownership interest in TIB Bank for an approximately 53% ownership interest in the surviving combined entity, NAFH National Bank. ~~Through~~ ~~private~~Following ~~banking~~the Bank Merger, weCBF ~~offer~~was ~~deposit~~deemed ~~products~~to ~~tailored~~control NAFH National Bank due to ~~meet~~CBF’s 94% ownership interest in the ~~needs~~Company and CBF’s direct ownership of the ~~wealthy,~~remaining ~~along~~47% ~~with~~interest ~~lines~~in NAFH National Bank subsequent to the Bank Merger. In addition, five of ~~credit~~the Company’s seven directors, and ~~traditional~~the ~~mortgage~~Company’s ~~financing~~Chief Executive Officer, Chief Financial Officer and Chief Risk Officer are affiliated with CBF. ~~These~~Accordingly, ~~banking~~subsequent ~~services~~to ~~are~~April ~~typically~~29, ~~integrated~~2011, ~~with~~the ~~professional~~Company ~~investment~~began ~~management~~to ~~and~~account ~~personal~~for ~~trust~~its ~~services~~ownership in NAFH National Bank under the equity method of accounting.

~~Unlike~~On ~~most~~June ~~traditional~~30, ~~community~~2011, ~~banks~~Capital ~~that~~Bank, ~~appeal~~a ~~almost~~wholly-owned ~~exclusively~~subsidiary of Capital Bank Corporation, an affiliated bank holding company in which CBF has an 83% ownership interest, was merged with and into NAFH National Bank, with NAFH National Bank as the surviving entity. In connection with the transaction, NAFH National Bank also changed its name to ~~one~~Capital ~~segment~~Bank, National Association. On September 7, 2011, GreenBank, a wholly-owned subsidiary of Green Bankshares Inc., an affiliated bank holding company in which CBF has a 90% ownership interest, was merged with and into Capital Bank, NA. Subsequently, and as a result of those transactions, the ~~business~~Company’s ~~market~~ownership interest in Capital Bank, NA was reduced to approximately 21%. At December 31, 2011, the Company’s net investment of $200.8 million in Capital Bank, ~~reaches~~NA, ~~out~~was recorded in the Consolidated Balance Sheet as “Equity method investment in Capital Bank, NA” which represented the Company’s pro rata ownership of Capital Bank, NA’s total shareholders’ equity. In periods subsequent to the ~~community~~Merger ~~with~~Date, ~~multiple~~the ~~distribution~~Company ~~channels~~has and will adjust this equity investment balance based on its equity in Capital Bank, ~~including~~NA’s ~~private~~net ~~banking~~income and ~~wealth~~comprehensive ~~management~~income. ~~This~~ ~~approach~~In ~~not~~connection ~~only~~with ~~provides~~the Bank Merger, assets and liabilities of the Bank were de-consolidated from the Company’s balance sheet resulting in a ~~competitive~~significant ~~edge~~decrease ~~relative~~in the total assets and total liabilities of the Company in the second quarter of 2011. Accordingly, as of December 31, 2011, no investments, loans or deposits are reported on the Company’s Consolidated Balance Sheet and subsequent to ~~other~~the ~~community~~Merger ~~banks~~Date, ~~but~~interest ~~also~~income ~~benefits~~and interest expense are the ~~enterprise~~result of cash deposited in Capital Bank, NA and the ~~following~~outstanding ~~ways:~~trust preferred securities issued by the Company, respectively.

· They are services in demand and closely matching to the demographics of the market areas;

· They will generate a scalable, diversified and profitable source of non-interest income; and

· They will serve as an attractive platform from which to continuously attract new clients and new banking professionals.

Lending activities

Loan Portfolio Composition. At December 31, 2010, the Bank’s loan portfolio totaled $1.00 billion, representing approximately 57% of our total assets of $1.76 billion. For a discussion of our loan portfolio, see “Management's Discussion and Analysis of Financial Condition and Results of Operations - Loan Portfolio.”

The composition of the Bank’s loan portfolios at December 31, 2010 and 2009 is indicated below:

	Successor Company					Predecessor Company
(Dollars in thousands)	December 31, 2010		% of Total Loans			December 31, 2009		% of Total Loans
Real estate mortgage loans:
Commercial	$	600,372		60	%	$	680,409		57	%
Residential		225,850		22	%		236,945		20	%
Farmland		12,083		1	%		13,866		1	%
Construction and vacant land		38,956		4	%		97,424		8	%
Commercial and agricultural loans		60,642		6	%		69,246		6	%
Indirect auto loans		28,038		3	%		50,137		4	%
Home equity loans		29,658		3	%		37,947		3	%
Other consumer loans		8,730		1	%		10,190		1	%
Total	$	1,004,329		100	%	$	1,196,164		100	%

~~Commercial~~Capital ~~Real~~Bank, ~~Estate~~NA ~~Mortgage~~was ~~Loans.~~formed Atin ~~December~~connection 31with the July 16, 2010, purchase ~~the~~and ~~Bank’s~~assumption ~~commercial~~of ~~real~~assets ~~estate~~and ~~loan~~deposits ~~portfolio~~and ~~totaled~~other ~~$600.4~~liabilities ~~million.~~of ~~The~~three ~~Bank~~banks ~~also~~(collectively, ~~has~~the ~~$12.1~~“FDIC ~~million~~Banks”) in– ~~loans~~Metro ~~outstanding~~Bank ~~that~~of ~~are~~Dade ~~secured~~County by(Miami, ~~farmland.~~Florida), ~~The~~Turnberry Bank ~~originates~~(Aventura, ~~commercial~~Florida) ~~mortgages~~and ~~primarily~~First ~~secured~~National byBank ~~hotels,~~of ~~guesthouses,~~the ~~restaurants~~South (Spartanburg, ~~retail~~South ~~buildings~~Carolina) (collectively, ~~and~~the ~~general~~“Failed ~~purpose~~Banks”) ~~business~~– ~~space.~~from ~~The~~the ~~Bank~~Federal ~~seeks~~Deposit toInsurance ~~reduce~~Corporation (the ~~risks~~“FDIC”) ~~associated~~and ~~with~~is ~~commercial~~a ~~mortgage~~party ~~lending~~to byloss ~~generally~~sharing ~~lending~~agreements inwith ~~its~~the ~~market~~FDIC ~~area~~covering ~~and~~the ~~obtaining~~large ~~periodic~~majority ~~financial~~of ~~statements~~the ~~and~~loans ~~tax~~it ~~returns~~acquired from ~~borrowers~~the FDIC. ~~Commercial~~As ~~real~~of ~~estate~~December ~~loans~~31, ~~are~~2011, ~~generally~~following ~~underwritten~~the ~~with~~mergers ~~future~~of ~~cash~~TIB ~~flows~~Bank, Capital Bank and GreenBank, as ~~the~~discussed ~~primary~~above, ~~source~~Capital ofBank, ~~repayment~~NA ~~and~~had ~~the~~total ~~pledged~~assets ~~collateral~~of as$6.5 abillion, ~~secondary~~total ~~source~~deposits of ~~repayment~~$5.1 Itbillion isand ~~also~~shareholders’ ~~the~~equity ~~Bank’s~~of ~~general~~$939.8 ~~policy~~million. toAs ~~obtain~~of ~~personal~~December ~~guarantees~~31, ~~from~~2011, following the ~~principals~~mergers of ~~the~~TIB ~~borrowers~~Bank, Capital Bank and ~~assignments~~GreenBank ofas ~~all~~discussed ~~leases~~above, ~~related~~Capital toBank, ~~the~~NA ~~collateral~~operated 143 branches in Florida, North Carolina, South Carolina, Tennessee and Virginia.

~~Commercial~~Potential ~~Loans.~~Merger At December 31, 2010, the Bank’s commercial loan portfolio totaled $60.6 million. The Bank originates secured and unsecured loans for business purposes. Loans are made for acquisition, expansion, and working capital purposes and may be secured by real estate, accounts receivable, inventory, equipment or other assets. The financial condition and cash flow of ~~commercial~~TIB ~~borrowers~~Financial ~~are closely monitored by the submission of corporate financial statements, personal financial statements and income tax returns~~Corp. ~~The~~ ~~frequency of submissions of required financial information depends on the size~~ and ~~complexity of the credit and the collateral that secures the loan~~CBF. ~~It is the Bank’s general policy to obtain personal guarantees from the principals of the commercial loan borrowers.~~

~~Construction~~On ~~and~~September ~~Vacant Land Loans. At December 31~~1, ~~2010~~2011, ~~the Bank’~~CBF's ~~construction~~Board ~~loan~~of Directors approved and ~~vacant~~adopted ~~land~~a ~~portfolio~~plan ~~totaled~~of ~~$39~~merger.0 ~~million.~~ The ~~Bank~~plan of merger provides ~~interim~~for ~~real~~the ~~estate~~merger ~~acquisition~~of ~~development~~TIB ~~and~~Financial ~~construction~~Corp. ~~loans~~with toand ~~builders~~into CBF, ~~developers~~with ~~and~~CBF ~~other~~continuing ~~persons~~as ~~who~~the ~~will~~surviving ~~ultimately~~entity ~~occupy~~ (the ~~building~~“merger”). ~~Real~~In ~~estate~~the ~~development~~merger, ~~and~~each ~~construction~~share ~~loans~~of toTIB ~~provide~~Financial ~~interim~~Corp.’s ~~financing~~common onstock ~~the~~issued ~~property~~and ~~are~~outstanding ~~based~~immediately onprior ~~acceptable~~to ~~percentages~~the completion of the ~~appraised~~merger, ~~value~~except offor ~~the~~shares ~~property~~for ~~securing~~which ~~the~~appraisal ~~loan~~rights inare ~~each~~properly ~~case.~~exercised ~~Real~~and ~~estate~~certain ~~development~~shares ~~and~~held ~~construction~~by ~~loan~~CBF ~~funds~~or ~~are~~TIB ~~disbursed~~Financial ~~periodically~~Corp., atwill ~~pre-specified~~be ~~stages~~converted ofinto ~~completion~~the right to receive 0.7205 ~~Interest~~of ~~rates~~a onshare ~~these~~of ~~loans~~CBF ~~are~~Class ~~generally~~A ~~adjustable~~common stock. ~~The~~No ~~Bank~~fractional ~~carefully~~shares ~~monitors~~of ~~these~~Class ~~loans~~A common stock will be issued in connection with ~~on-site~~the ~~inspections~~merger, and ~~control~~holders of ~~disbursements~~TIB Financial Corp. common stock will be entitled to receive cash in lieu thereof.

~~Development~~Since ~~and~~CBF ~~construction~~currently ~~loans~~owns ~~are~~more ~~secured~~than by90% ~~the~~of ~~properties~~common ~~under~~stock ~~development~~of orTIB ~~construction~~Financial ~~and personal guarantees are typically obtained~~Corp. ~~Further~~, tounder ~~assure~~Delaware ~~that~~and ~~reliance~~Florida islaw, ~~not~~no ~~placed~~vote ~~solely in the value~~ of ~~the~~our ~~underlying~~stockholders ~~property,~~is ~~the~~required ~~Bank~~to ~~considers~~complete the ~~financial~~merger. CBF ~~condition,~~will ~~experience~~determine ~~and~~when ~~reputation of the borrower~~ and ~~any~~if ~~guarantors,~~ the ~~amount~~merger ofwill ~~the~~ultimately ~~borrower’s~~take ~~equity in the project, independent appraisals, costs estimates and pre-construction sale information~~place.

~~Loans~~Consent toOrder individuals for the construction of their primary or secondary residences are secured by the property under construction. The loan to value ratio of construction loans is based on the lesser of the cost to construct or the appraised value of the completed home. Construction loans normally have a maturity of 12-18 months. An independent general contractor is required and ~~funds~~Written are disbursed periodically at pre-specified stages of completion. The Bank carefully monitors these loans with on site inspections and control of disbursements. These construction loans, to individuals, may be converted to permanent loans upon completion of construction.Agreement

~~Residential~~On ~~Real~~July ~~Estate~~2, ~~Mortgage~~2010, ~~Loans.~~TIB AtBank ~~December~~entered 31into a Consent Order, ~~2010~~which is a formal agreement, with the ~~Bank’s~~bank ~~residential~~regulatory ~~loan~~agencies ~~portfolio~~under ~~totaled~~which, ~~$225.9~~among ~~million.~~other ~~The~~things, the Bank ~~originates~~had ~~adjustable~~agreed ~~and~~to ~~fixed-rate~~maintain ~~residential~~a ~~mortgage~~Tier ~~loans~~1 ~~through~~capital ~~its~~ratio ~~mortgage~~of ~~banking~~at ~~operations.~~least ~~These~~8% ~~mortgage~~of ~~loans~~total ~~are~~assets ~~generally~~and ~~originated~~a ~~under~~total ~~terms,~~risk ~~conditions~~based ~~and~~capital ~~documentation~~ratio ~~acceptable~~of toat ~~the~~least ~~secondary~~12% ~~mortgage~~within ~~market~~90 days. ~~Beginning~~The inConsent ~~late~~Order ~~2007~~terminated on April 29, ~~due~~2011 towhen TIB Bank was merged with and into NAFH National Bank. On September 22, 2010 the ~~collapse~~Federal Reserve Bank of Atlanta and the ~~secondary~~Company ~~market~~entered ~~for~~into ~~jumbo~~a ~~residential~~written ~~mortgage~~agreement ~~loans~~where the Company agreed, among other things, that it will not make any payments on the ~~Bank~~outstanding ~~began~~trust topreferred ~~originate~~securities ~~jumbo~~or ~~mortgage~~declare ~~loans~~or ~~for~~pay ~~retention~~any individends ~~our~~without ~~loan~~the ~~portfolio~~prior ~~for~~written ~~customers~~approval ~~with~~of ~~whom~~the weFRB. ~~could~~The ~~develop~~Company submitted a ~~broader~~written ~~banking~~request ~~relationship. This~~to ~~strategy~~the ~~has~~FRB ~~been~~to ~~integrated~~authorize ~~with~~the ~~our~~payment ~~private~~of ~~banking~~deferred and ~~wealth~~current ~~management~~interest ~~business~~payments ~~line~~through the next payment date and isfuture ~~generating~~interest ~~deeper~~payments ~~banking~~when ~~services~~due ~~and~~as ~~customer~~scheduled ~~relationships. These~~on ~~jumbo~~the ~~loans~~three ~~retained~~trust inpreferred ~~our~~securities. ~~loan~~On ~~portfolio~~September ~~are~~28, ~~principally~~2011, pursuant to ~~finance~~receipt ~~owner~~of ~~occupied~~the ~~residences~~FRB’s approval, concurrent interest payments were made for ~~higher~~each ~~net~~of ~~worth~~the ~~individuals~~trust preferred securities and ~~are~~the ~~generally~~Company ~~adjustable~~began ~~rate~~the ~~mortgages~~process ~~with~~of ~~attractive~~exiting ~~yields~~from the deferral period.

Capital Bank’s Business Strategy

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

~~Indirect~~Operating Auto Loans. At December 31, 2010, TIB Bank’s indirect auto loan portfolio totaled $28.0 million. We strive to deliver attractive risk adjusted returns while maintaining credit quality in our indirect lending operations due to a combination of factors including:Strategy

·Our ~~Business~~operating ~~with~~strategy aemphasizes ~~limited~~relationship ~~number~~banking offocused ~~dealers~~on -commercial ~~The~~and ~~dealerships~~consumer welending doand deposit gathering. We have organized operations under a line of business ~~with~~operating ~~are~~model, ~~characterized~~under bywhich ~~being~~we ~~very~~have ~~sound~~appointed ~~financially~~experienced bankers to oversee loan and ~~trade~~deposit ~~predominately~~production in ~~vehicles~~each ~~which~~of ~~retain~~our ~~market~~markets, ~~value~~while ~~reasonably~~centralizing ~~well~~credit, ~~over~~finance, ~~time~~technology and operations functions. WeOur ~~continually~~management ~~monitor~~team ~~dealers~~possesses ~~for~~significant ~~compliance~~executive-level ~~with~~leadership ~~our~~experience ~~lending~~at ~~guidelines~~Fortune 500 financial services companies, and we believe this experience is an important advantage in executing this regional, more focused, bank business model.

·Organic ~~Thorough~~Loan ~~underwriting of applicants - We evaluate credit scores~~ and ~~other~~Deposit pertinent information such as the stability of the applicant's job, home ownership, and the nature of any credit issues which may give us a better indication of creditworthiness than just the credit score.Growth

·The ~~Effective~~primary ~~collections~~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 ~~get~~have toimplemented ~~customers~~a ~~quickly~~sales management system for our branches that is focused on growing loans and ~~more~~core ~~often~~deposits asin ~~payment~~each ~~issues~~of ~~arise~~our markets. We ~~begin~~believe ~~contacting~~that this system holds loan officers and branch managers accountable for achieving loan production goals, which are subject to the ~~customer~~conservative ~~once~~credit ~~their~~standards ~~payment~~and isdisciplined 10underwriting ~~days~~practices ~~past~~that ~~due~~we have implemented as well as compliance, profitability and other standards that we monitor. ~~After~~We analso ~~account~~believe that accountability is 15crucial ~~days~~to ~~past~~our ~~due~~results. Our executive management monitors production, itcredit isquality ~~referred~~and profitability measures on a quarterly, monthly, weekly and, in some cases, daily basis and provides ongoing feedback to our ~~collections~~business ~~department~~unit ~~for~~leaders. ~~resolution~~During ~~including~~2011, ~~field~~the ~~contacts~~Bank asoriginated ~~necessary~~$728.4 million of new commercial and consumer loans. During this period, the Bank also grew its core deposits by $265.4 million (or 29.3% annualized growth) excluding the initial increase in deposits resulting from CBF’s acquisitions of Capital Bank Corp. and Green Bankshares, Inc.

~~Other~~ The ~~Consumer~~current ~~Loans~~market ~~and~~conditions ~~Home~~have ~~Equity~~forced ~~Loans.~~many Atbanks ~~December~~to ~~31,~~focus ~~2010~~internally, ~~the~~which ~~Bank’s~~we ~~consumer~~believe ~~loan~~creates ~~portfolio~~an ~~totaled~~opportunity ~~$8.7~~for ~~million,~~organic ~~and~~growth ~~its~~by ~~home~~strongly ~~equity~~capitalized ~~portfolio~~banks ~~totaled~~such ~~$29.7~~as ~~million~~ourselves. ~~The~~We ~~Bank~~seek ~~offers~~to agrow ~~variety~~our ofloan ~~consumer~~portfolio ~~loans. These loans are typically collateralized~~ by ~~residential~~offering ~~real~~personalized ~~estate~~customer ~~or personal property~~service, ~~including~~local ~~automobiles~~market knowledge and ~~boats.~~a ~~Home equity loans (closed~~long-~~end~~term ~~and~~perspective. ~~lines~~We ofhave ~~credit)~~selectively ~~are~~hired ~~typically~~experienced ~~made up to 75% of the appraised value of the property securing the~~ loan, inofficers ~~each~~with ~~case,~~local ~~less~~market ~~the~~knowledge ~~amount of any existing liens on the property~~ and ~~are made principally to~~ existing ~~customers~~client ~~of the bank~~relationships. ~~Closed-end~~Additionally, ~~loans~~our ~~have~~executive ~~terms~~management ofteam uptakes ~~to 15 years. Lines of credit have~~ an ~~original~~active ~~maturity~~role ofin ~~10 years. The interest rates on closed-end home equity loans are fixed~~soliciting, ~~while~~developing ~~interest~~and ~~rates~~maintaining onclient ~~home equity lines of credit are variable~~relationships.

~~Credit~~Efficiency ~~administration~~and Cost Savings

~~The~~Another ~~Bank’s~~key ~~lending~~element ~~activities~~of ~~are~~our ~~subject~~strategy is to ~~written~~operate ~~policies~~efficiently ~~approved~~ by ~~the~~carefully ~~board~~managing ofour ~~directors~~cost tostructure ~~ensure~~and ~~proper~~taking ~~management~~advantage of ~~credit~~economies ~~risk.~~of ~~Loans~~scale ~~are~~afforded ~~subject~~by our acquisitions to acontrol ~~defined~~operating ~~credit~~costs. ~~process~~We ~~that~~have ~~includes~~been ~~credit~~able ~~evaluation~~to ofreduce ~~borrowers,~~headcount ~~risk-rating~~by ofconsolidating ~~credits,~~duplicative ~~establishment~~operations of ~~lending~~the ~~limits~~acquired banks and ~~application~~streamlining ofmanagement. ~~lending~~In ~~procedures~~addition, ~~including~~we ~~the~~expect ~~holding~~to ofrecognize ~~adequate~~additional ~~collateral~~cost ~~and~~savings ~~the~~now ~~maintenance~~that ofwe ~~compensating~~have ~~balances,~~fully asintegrated ~~well~~Green asBankshares, ~~procedures~~Inc., ~~for~~with ~~on-going~~the ~~identification~~rest ~~and management~~ of ~~credit~~CBF’s ~~deterioration~~business. ~~Regular~~We ~~portfolio~~plan ~~reviews are performed~~ to ~~identify~~further ~~potential~~improve ~~underperforming~~efficiency ~~credits,~~by ~~estimate~~boosting ~~loss~~the ~~exposure,~~productivity ~~and~~of toour ~~ascertain~~sales ~~compliance~~force ~~with~~through ~~the~~our ~~Bank’s~~focus ~~policies. Management~~on ~~review~~accountability ~~consists~~and ofemployee ~~evaluation~~incentives ofand ~~the~~through ~~financial~~selective ~~strengths~~hiring of ~~the~~experienced ~~borrower~~loan ~~and~~officers ~~the~~with ~~guarantor,~~existing ~~the~~books ~~related collateral and the effects~~ of ~~economic conditions~~business.

~~The~~To ~~Bank~~evaluate ~~generally~~and ~~does~~control ~~not~~operating ~~make~~costs, ~~commercial~~we ormonitor ~~consumer~~certain ~~loans~~performance ~~outside~~metrics ~~its~~including ~~market~~our ~~area~~efficiency ~~unless~~ratio, ~~the~~which ~~borrower~~equals ~~has~~total annon-interest ~~established~~expenses ~~relationship~~divided ~~with~~by ~~the~~net ~~Bank~~revenues (net interest income plus non-interest income). Our efficiency ratio has been and ~~conducts~~is ~~its~~expected ~~principal~~to ~~business~~continue ~~operations~~to ~~within~~be ~~the~~significantly impacted by certain costs that follow acquisitions of financial institutions. Capital Bank’s ~~market~~efficiency ~~area.~~ratio ~~Consequently~~for 2011 was 69.9%, which was impacted by $7.6 million of conversion expenses due to integration of the acquired banks. Excluding the impact of these items, Capital Bank’s ~~and~~adjusted ~~borrowers~~efficiency ~~are~~ratio ~~affected~~for by2011 ~~the~~was ~~economic~~66.6%. ~~conditions~~The ~~prevailing~~adjusted efficiency ratio is a non-GAAP measure which we believe provides investors with information useful in understanding our ~~market~~business ~~areas~~and our operating efficiency. Comparison of our adjusted efficiency ratio with those of other companies may not be possible because other companies may calculate the adjusted efficiency ratio differently. The adjusted efficiency ratio, which equals adjusted non-interest expense (non-interest expense less conversion expense) divided by net revenues (net interest income plus non-interest income), for the twelve months ended December 31, 2011 is as follows:

Private Banking, Wealth Management and Trust Services

Capital Bank, NA	Efficiency Ratio for the Twelve Months Ended December 31, 2011
(Dollars in thousands)	Non-adjusted			Adjusted

Non-interest expense	$	163,710		$	163,710
Less: Conversion expense		-			(7,620	)
Non-interest expense, adjusted	$	163,710		$	156,090

Net interest income	$	193,598		$	193,598
Non-interest income		40,660			40,660
Net Revenue	$	234,258		$	234,258

Efficiency Ratio		69.9	%		66.6	%

The Company offers private banking and trust services through credentialed professionals who provide clients customized financial solutions. The Company also delivers sophisticated investment management services to individuals, families, trusts and non-profit organizations through Naples Capital Advisors, Inc. Naples Capital Advisors, Inc. is an SEC registered investment advisory firm and a wholly owned subsidiary of the Company.

As of December 31, 2010, private banking deposits totaled $36 million and private banking loans totaled $8 million at December 31, 2010.

Assets under management by Naples Capital Advisors and TIB Bank’s trust department totaled $193 million as of December 31, 2010.

Employees

As of December 31, 2010, the Bank and Naples Capital Advisors, Inc. employed 374 full-time employees and 17 part-time employees. The Company has one employee, who serves as an officer of TIB Bank. The Company and its subsidiaries are not a party to any collective bargaining agreement, and management believes the Company and its subsidiaries enjoy satisfactory relations with their employees.

Related Party Transactions

At December 31, 2010, we had $1.00 billion in total loans outstanding, of which $195,000 was outstanding to certain of our executive officers and directors and their related business interests. In the ordinary course of business, the Bank makes loans to our directors and their affiliates and to policy-making officers.

~~SUPERVISION~~Capital ~~AND~~Bank’s ~~REGULATION~~Acquisition and Integration Strategy

~~General~~ Acquisition and Integration Strategy

We ~~are~~seek ~~extensively~~acquisition ~~regulated~~opportunities ~~under~~consistent ~~federal~~with ~~and~~our ~~state~~business ~~law.~~strategy ~~Generally,~~that ~~these~~we ~~laws~~believe ~~and~~will ~~regulations~~produce ~~are~~attractive ~~intended~~returns tofor ~~protect~~our ~~depositors, not shareholders~~stockholders. ~~The~~We ~~following~~plan isto apursue ~~summary~~acquisitions ~~description of certain provisions of certain laws~~ that ~~affect~~position ~~the~~us ~~regulation~~in ofsoutheastern ~~bank holding companies and banks~~U.S. ~~The~~markets ~~discussion~~with isattractive ~~qualified~~demographics inand ~~its~~business ~~entirety~~growth bytrends, ~~reference~~expand toour ~~applicable~~branch ~~laws~~network ~~and regulations. Changes~~ in ~~such~~existing ~~laws~~markets, ~~and~~increase ~~regulations~~our ~~may~~earnings ~~have~~power aor ~~material~~enhance ~~effect on~~ our ~~business~~suite ~~and prospects, as well as those~~ of ~~the Bank~~products. ~~Additionally,~~Our ~~the~~future ~~Bank~~acquisitions ~~files~~may ainclude ~~quarterly~~distressed ~~report~~assets ofsold ~~condition~~by ~~and income, commonly referred to as Call Report, with~~ the FDIC. ~~This~~or ~~report~~another isseller ~~made~~where ~~available~~our ~~shortly~~operations, ~~after~~underwriting ~~being~~and ~~filed~~servicing atcapabilities ~~the~~or ~~FDIC’s~~management ~~website,~~experience ~~www.fdic.gov~~give ~~. The~~us ~~Company~~an ~~files~~advantage ~~quarterly~~in ~~reports~~evaluating ~~with~~and ~~the~~resolving ~~Board of Governors of~~ the ~~Federal Reserve System~~assets.

~~Federal~~Our ~~Bank~~acquisition ~~Holding~~process ~~Company~~begins ~~Regulation~~with detailed research of target institutions and ~~Structure~~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.

WeAs ~~are~~part ~~a bank holding company within the meaning~~ of ~~the~~our ~~Bank~~diligence ~~Holding~~process ~~Company~~in ~~Act~~connection ofwith ~~1956,~~potential ~~as amended~~acquisitions, ~~and, as such,~~ we ~~are~~undertake ~~subject~~a todetailed ~~regulation,~~portfolio- ~~supervision,~~ and ~~examination~~loan-level analysis conducted by ~~the~~a ~~Federal~~team ~~Reserve.~~of Weexperienced ~~are~~credit ~~required~~analysts toled ~~file~~by ~~annual~~our ~~and~~Chief ~~quarterly~~Risk ~~reports~~Officer. ~~with~~In ~~the~~addition, ~~Federal~~our ~~Reserve~~executive ~~and~~management toteam ~~provide~~engages the ~~Federal~~target ~~Reserve~~management ~~with~~teams ~~such~~in ~~additional~~active ~~information~~dialogue asand itpersonally ~~may~~conducts ~~require.~~extensive ~~The~~on-site ~~Federal~~diligence ~~Reserve~~at ~~may~~target ~~examine us and our subsidiaries~~branches.

~~With~~Our ~~certain~~executive ~~limited~~management ~~exceptions,~~team wehas ~~are~~demonstrated ~~required~~success tonot ~~obtain~~only ~~prior~~in ~~approval~~acquiring ~~from~~financial ~~the~~institutions ~~Federal~~and ~~Reserve~~combining ~~before~~them ~~acquiring~~onto ~~direct~~a orcommon ~~indirect~~platform, ~~ownership~~but oralso ~~control~~in managing the integration of ~~more~~those ~~than~~financial 5%institutions. ofOur ~~any~~management ~~voting~~team ~~securities~~develops orintegration ~~substantially~~plans ~~all~~prior ofto the ~~assets~~closing of a ~~bank~~given ortransaction ~~bank~~that ~~holding~~allows ~~company,~~us orto ~~before~~(1) ~~merging~~reorganize orthe ~~consolidating~~acquired ~~with~~institution’s ~~another~~management ~~bank~~team ~~holding~~under ~~company.~~our Inline ~~acting~~of onbusiness ~~applications~~model ~~for~~immediately ~~such~~after ~~approval,~~closing; ~~the~~(2) ~~Federal~~implement ~~Reserve~~our ~~must~~credit, ~~consider~~risk ~~various~~and ~~statutory~~interest ~~factors,~~rate ~~including~~risk ~~among others~~management, ~~the~~liquidity ~~effect~~and ofcompliance ~~the~~and ~~proposed~~governance ~~transaction~~policies onand ~~competition~~procedures; inand ~~the~~(3) ~~relevant~~integrate ~~geographical~~our ~~and~~target’s ~~product~~technology ~~markets,~~and ~~each~~processing ~~party’s~~systems ~~financial~~rapidly. ~~condition~~Using ~~and~~our ~~management~~procedures, ~~resources~~we ~~and~~have ~~record~~already ofintegrated ~~performance~~credit ~~under~~and ~~the~~operational ~~Community~~policies ~~Reinvestment~~across ~~Act. Additionally,~~each ~~with~~of ~~certain~~our ~~exceptions,~~acquisitions. ~~any~~We ~~person~~reorganized ~~proposing~~the tomanagement ~~acquire~~of ~~control~~the ~~through~~Failed ~~direct~~Banks orwithin ~~indirect~~three ~~ownership~~months of ~~our~~closing, ~~voting~~and ~~securities~~we ismerged ~~required~~their tocore ~~give~~processing 60systems ~~days~~with TIB Financial’s ~~written~~platform ~~notice~~within ofsix ~~the~~months. ~~acquisition~~We toalso ~~the~~fully ~~Federal~~integrated ~~Reserve,~~legacy ~~which~~Capital ~~may~~Bank ~~prohibit~~in ~~the~~July ~~transaction,~~2011 and toGreenBank ~~publish~~in ~~notice~~February ~~to the public~~2012.

~~Generally,~~Sound aRisk bank holding company may not engage in any activities other than banking, managing or controlling its bank and other authorized subsidiaries, and providing services to these subsidiaries. With prior approval of the Federal Reserve, we may acquire more than 5% of the assets or outstanding shares of a company engaging in non-bank activities determined by the Federal Reserve to be closely related to the business of banking or of managing or controlling banks.Management

~~Subsidiary~~Sound ~~banks~~risk ofmanagement ais ~~bank~~an ~~holding~~important ~~company~~element ~~are~~of ~~subject~~our tocommercial/retail ~~certain~~bank ~~quantitative~~business model and ~~qualitative~~is ~~restrictions~~overseen onby ~~extensions~~our ofChief ~~credit~~Risk toOfficer, ~~the~~Bruce ~~bank holding company or its subsidiaries~~Singletary, ~~investments~~who inhas ~~their~~over ~~securities,~~19 ~~and~~years ~~the use~~ of ~~their~~experience ~~securities~~managing ascredit ~~collateral~~risk. ~~for~~Our ~~loans~~credit torisk ~~any~~policy, ~~borrower.~~which ~~These~~has ~~regulations~~been ~~and~~implemented ~~restrictions~~across ~~may limit~~ our ~~ability~~organization, toestablishes ~~obtain~~prudent ~~funds~~underwriting ~~from~~guidelines, ~~the~~limits ~~Bank~~portfolio ~~for~~concentrations ~~our~~by ~~cash~~geography ~~needs,~~and ~~including~~loan ~~funds~~type ~~for~~and ~~the~~incorporates ~~payment~~an ofindependent ~~dividends,~~loan ~~interest~~review ~~and~~function. ~~operating expenses~~Mr. ~~Further,~~Singletary ahas ~~bank~~created ~~holding~~a ~~company~~special ~~and~~assets ~~its~~division ~~subsidiaries~~with ~~are~~35 ~~prohibited~~employees ~~from~~to ~~engaging~~work inout ~~certain~~or ~~tie-in~~dispose ~~arrangements~~of inlegacy ~~connection~~problem ~~with~~assets ~~any~~using ~~extension~~a ofdetailed ~~credit,~~process ~~lease~~taking orinto ~~sale~~account ofa ~~property~~borrower’s orrepayment ~~furnishing~~capacity, ofavailable ~~services.~~guarantees, ~~For~~collateral ~~example~~value, ~~the~~interest ~~Bank~~accrual ~~may~~and ~~not~~other ~~generally~~factors. ~~require~~We abelieve ~~customer~~our torisk ~~obtain~~management ~~other~~policies ~~services~~establish ~~from~~conservative ~~themselves~~regulatory orcapital usratios, ~~and~~robust ~~may~~liquidity ~~not~~(including ~~require~~contingency ~~that~~planning), alimitations ~~customer~~on ~~promise~~wholesale ~~not~~funding to(including ~~obtain~~brokered ~~other~~CDs, ~~services~~holding ~~from~~company adebt ~~competitor~~and asadvances afrom ~~condition~~the toFHLB), anand ~~extension~~restrictions ofon ~~credit~~interest torate ~~the customer~~risk.

Under Federal Reserve policy, a bank holding company is expected to act as a source of financial strength to its subsidiary banks and to make capital injections into a troubled subsidiary bank, and the Federal Reserve may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank when required. A required capital injection may be called for at a time when the holding company does not have the resources to provide it. In addition, depository institutions insured by the FDIC can be held liable for any losses incurred by, or reasonably anticipated to be incurred by, the FDIC in connection with the default of, or assistance provided to, a commonly controlled FDIC-insured depository institution.

Enacted in 1999, the Graham-Leach-Bliley Act reformed and modernized certain areas of financial services regulations and repealed the affiliation provisions of the federal Glass-Steagall Act of 1933, which, taken together, limited the securities, insurance and other non-banking activities of any company that controls a FDIC insured financial institution. The law provides that a financial holding company may engage in a full range of financial activities, including insurance and securities sales and underwriting activities, real estate development, and, with certain exceptions, merchant banking activities, with expedited notice procedures. The law also permits certain qualified national banks to form “financial subsidiaries,” which have broad authority to engage in all financial activities except insurance underwriting, insurance investments, real estate investment or development, and merchant banking, and expands the potential financial activities of subsidiaries of state banks, subject to applicable state law. The range of activities in which bank holding companies and their subsidiaries may engage is not as broad. The law also includes substantive requirements for maintenance of customer financial privacy.

~~Emergency~~Our ~~Economic~~Competitive ~~Stabilization Act of 2008~~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 ~~Emergency~~executive ~~Economic~~management ~~Stabilization~~team ~~Act~~has extensive experience overseeing commercial and consumer banking, mergers and acquisitions, systems integrations, technology, operations, credit and regulatory compliance. Many members of ~~2008~~our ~~(“EESA”)~~executive ~~was~~management ~~enacted~~team are from the southeastern region of the United States and have an extensive network of contacts with banking executives, existing and potential customers, and business and civic leaders throughout the region. We believe our executive management team’s reputation and track record give us an advantage in negotiating acquisitions and hiring and retaining experienced bankers. ● Growth-Oriented Business Model. Our executive management team seeks to foster a strong sales culture with a focus on ~~October~~developing 3key client relationships, ~~2008~~including direct participation in sales calls, and through regular reporting and accountability while emphasizing risk management. ~~EESA~~Our ~~authorized~~executive ~~the~~management ~~Treasury~~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 ~~purchase~~credit orquality, ~~guarantee~~compliance upand 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 the Bank’s $~~700~~728.4 ~~billion~~million of commercial and consumer loan originations and $265.4 million in ~~troubled~~total ~~assets~~deposit growth for 2011, excluding the initial increase in deposits resulting from CBF’s acquisitions of Capital Bank Corporation and Green Bankshares, Inc. ● Highly Skilled and Disciplined Acquirer. CBF has executed six acquisitions in just 14 months. CBF integrated its first four investments into a common core processing platform within six months, the fifth in July 2011 and the sixth in February 2012. We believe our track record of completing and integrating transactions quickly has helped us negotiate transactions on more economically favorable terms. CBF has conducted due diligence on more than 82 financial institutions, ~~under~~many ~~the~~of ~~Troubled~~which ~~Asset~~its ~~Relief~~diligence ~~Program~~process indicated would not meet its strategic objectives. ~~Pursuant~~● Reduced-Risk Legacy Portfolio. Our acquired loan portfolios have been marked-to-market ~~authority~~with ~~granted~~the ~~under~~application ~~EESA~~of the acquisition method of accounting, meaning that the ~~Treasury~~carrying ~~created~~value of these assets at the ~~TARP~~time of their acquisitions reflected our estimate of lifetime credit losses. In addition, as of December 31, 2011, approximately 13% 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 ~~Purchase~~and ~~Program~~Liquidity. ~~under~~As ~~which~~a result of its private placements and the ~~Treasury~~disciplined ~~was~~deployment ~~authorized~~of capital, CBF has ample capital with which to ~~invest~~make upacquisitions. As of December 31, 2011, CBF had a 13.2% tangible common equity ratio1 (which is a non-GAAP measure used by certain regulators, financial analysts and others to measure core capital strength) and a 12.5% Tier 1 leverage ratio, which provides CBF with $~~250~~161.7 ~~billion~~million in ~~senior~~excess ~~preferred~~capital ~~stock~~relative to the 10% Tier 1 leverage standard required under Capital Bank’s operating agreement with the OCC. As of December 31, 2011, Capital Bank had a 10.4% Tier 1 leverage ratio, a 15.7% Tier 1 risk-based ratio and a 16.7% total risk-based capital ratio. As of December 31, 2011, Capital Bank had cash and securities equal to 21.6% of total assets, representing $427.3 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. ~~banks~~agency-guaranteed ~~and~~mortgage-backed ~~savings~~securities, ~~associations~~which have limited credit or ~~their~~liquidity ~~holding~~risk. ~~companies~~See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for a discussion of the use of the tangible common equity ratio in our business and the reconciliation of tangible common equity ratio.

~~Institutions~~1 ~~participating~~The intangible ~~the~~common ~~TARP~~equity orratio ~~CPP~~is ~~were~~calculated ~~required~~as totangible ~~issue warrants for~~ common orequity ~~preferred~~divided ~~stock~~by ortangible ~~senior debt to the Treasury~~assets. IfTangible ancommon ~~institution~~equity ~~participates~~is incalculated ~~the~~as ~~CPP~~total orshareholders’ ~~if the Treasury acquires a meaningful~~ equity orless ~~debt~~preferred ~~position~~stock inand ~~the~~less ~~institution~~goodwill asand aother ~~result~~intangible ~~of TARP participation~~assets, ~~the~~net ~~institution is required to meet certain standards for executive compensation~~ and ~~corporate~~tangible ~~governance,~~assets ~~including~~are atotal ~~prohibition~~assets ~~against~~less ~~incentives~~goodwill ~~to take unnecessary~~ and ~~excessive risks, recovery of bonuses paid to senior executives based on materially inaccurate earnings or~~ other ~~statements~~intangible ~~and~~assets, ~~a prohibition against agreements for the payment of golden parachutes~~net.

American Recovery and Reinvestment Act

The American Recovery and Reinvestment Act (the “ARRA”) became law on February 17, 2009. Among its many provisions, the ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients that are in addition to those previously announced by the Treasury. These limits are effective until the institution has repaid the Treasury, which is now permitted under the ARRA without penalty and without the need to raise new capital, subject to the Treasury’s consultation with the recipient’s appropriate regulatory agency.

Dodd-Frank Act

In July 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act contains provisions that will, among other things, establish a Bureau of Consumer Financial Protection, establish a systemic risk regulator, consolidate certain federal bank regulators and impose increased corporate governance and executive compensation requirements. The Dodd-Frank Act requires various federal agencies to adopt a broad range of rules and regulations and the impact of the Dodd-Frank Act are not known yet.

~~Federal~~● Scalable Back-Office Systems. All of CBF’s acquired institutions operate on a single information processing system. Our systems are designed to accommodate all of our projected future growth and ~~State~~allow ~~Bank~~us ~~Regulation~~to offer our customers virtually all of the services currently offered by the nation’s largest financial institutions, including state-of-the-art online banking. Enhancements made to our systems are included to improve our commercial and consumer loan origination, electronic banking and direct response marketing processes, as well as enhance cash management, streamlined reporting, reconciliation support and sales support.

~~The~~Our ~~Bank~~Market is a Florida state-chartered bank, with all the powers of a commercial bank regulated and examined by the Florida Office of Financial Regulation and the FDIC. The FDIC and the Florida Office of Financial Regulation have extensive enforcement authority over the institutions they regulate to prohibit or correct activities that violate law, regulation or written agreement with the FDIC and the Office of Financial Regulation. Enforcement powers also regulate activities that are deemed to constitute unsafe or unsound practices. Enforcement actions may include the appointment of a conservator or receiver, the issuance of a cease and desist order, the termination of deposit insurance, the imposition of civil money penalties on the institution, its directors, officers, employees and institution-affiliated parties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the removal of or restrictions on directors, officers, employees and institution-affiliated parties, and the enforcement of any such mechanisms through restraining orders or other court actions.Area

OnWe ~~July~~view 2,our ~~2009,~~market ~~the~~area ~~Bank~~as ~~entered~~the ~~into~~southeastern aregion ~~Memorandum~~ of ~~Understanding,~~the ~~which~~United isStates. anOur ~~informal~~six ~~agreement,~~acquisitions ~~with~~have ~~bank~~established ~~regulatory~~a ~~agencies~~footprint ~~that~~defined ~~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~~Miami-Raleigh-Nashville ~~entered into a Consent Order~~triangle, which isincludes ~~a formal agreement, with~~ the ~~bank regulatory agencies under which~~Carolinas, ~~among~~Southwest ~~other~~Florida ~~things,~~(Naples) ~~the~~and ~~Bank~~Southeast ~~has~~Florida ~~agreed~~(Miami-Dade ~~to maintain a Tier 1 capital ratio of at least 8% of total assets~~ and athe ~~total risk based capital ratio of at least 12% within 90 days~~Keys). AtThese ~~December~~markets ~~31,~~include ~~2010 the Bank achieved~~ a ~~Tier~~combination ~~1 capital ratio~~ of ~~8.1%~~large and ~~a total risk~~fast-~~based~~growing ~~capital~~metropolitan ~~ratio~~areas ~~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 itwe ~~reduce~~believe ~~the~~will ~~balance~~offer ofus ~~assets~~opportunities ~~classified~~for ~~substandard~~organic ~~and~~loan ~~doubtful by at least 70% over a two-year period,~~ and ~~not~~deposit ~~undertake asset~~ growth. ofApproximately 547% orof ~~more~~our ~~per~~current ~~year~~branches ~~without~~are ~~prior~~located ~~approval~~in ~~from~~our ~~the~~target ~~regulatory agencies~~MSAs. ~~The Consent Order supersedes the Memorandum of Understanding.~~

InProducts ~~its lending activities, the maximum legal rate of interest, fees~~ and charges that a financial institution may charge on a particular loan depends on a variety of factors such as the type of borrower, the purpose of the loan, the amount of the loan and the date the loan is made. Other laws tie the maximum amount that may be loaned to any one customer and its related interest to capital levels. The Bank is also subject to certain restrictions on extensions of credit to executive officers, directors, principal shareholders or any related interest of such persons which generally require that such credit extensions be made on substantially the same terms as are available to third persons dealing with the Bank and not involve more than the normal risk of repayment. The Bank is also subject to federal laws establishing certain record keeping, customer identification and reporting requirements with respect to certain large cash transactions, sales of travelers’ checks or other monetary instruments, and international transportation of cash or monetary instruments. Further, under the USA Patriot Act of 2001, financial institutions, including the Bank, are required to implement additional policies and procedures with respect to, or additional measures designed to address, any or all of the following matters, among others: money laundering, suspicious activities and currency transaction reporting, and currency crimes.Services

~~The~~Banking ~~Community~~Services Reinvestment Act requires that, in connection with the examination of financial institutions within their jurisdictions, the FDIC evaluates the record of the financial institution in meeting the credit needs in its communities including low and moderate income neighborhoods, consistent with the safe and sound operation of those banks. These factors are also considered by ~~all~~Business regulatory agencies in evaluating mergers, acquisitions and applications to open a branch or facility. As of the date of their most recent examination reports, the Bank has a Community Reinvestment Act rating of “Satisfactory.”Line

~~Under~~Capital ~~the~~Bank ~~Federal~~has ~~Deposit~~integrated ~~Insurance~~each ~~Corporation~~of ~~Improvement~~CBF’s ~~Act~~six ofacquisitions ~~1991,~~under ~~each~~a ~~federal~~single ~~banking~~line ~~agency~~of isbusiness ~~required~~operating tomodel. ~~prescribe,~~Under bythis ~~regulation~~model, ~~noncapital~~we ~~safety~~have ~~and~~appointed ~~soundness~~experienced ~~standards~~bankers ~~for~~to ~~institutions~~oversee ~~under~~loan ~~its~~and ~~authority. The~~deposit ~~federal~~growth ~~banking~~in ~~agencies,~~each ~~including~~of ~~the~~our ~~FDIC~~markets, ~~have~~while ~~adopted~~we ~~standards~~have ~~covering~~centralized ~~internal~~other ~~controls~~functions, ~~information~~including ~~systems and internal audit systems, loan documentation,~~ credit ~~underwriting~~, ~~interest rate exposure~~finance, ~~asset growth~~operations, ~~and compensation~~marketing, ~~fees~~human ~~and~~resources ~~benefits. An institution that fails to meet those standards may be subject to regulatory sanctions~~ and~~/or~~ beinformation ~~required by the agency to develop a plan acceptable to the agency, specifying the steps that the institution will take to meet the standards~~technology. ~~We believe that we substantially meet all standards that have been adopted. This law also imposes capital standards on insured depository institutions. See “Capital Requirements” below.~~

The ~~Federal~~Commercial Deposit Insurance Corporation Improvement Act of 1991 also provides for, among other things, (i) publicly available annual financial condition and management reports for financial institutions, including audits by independent accountants, (ii) the establishment of uniform accounting standards by federal banking agencies, (iii) the establishment of a “prompt corrective action” system of regulatory supervision and intervention, based on capitalization levels with more scrutiny and restrictions placed on depository institutions with lower levels of capital, (iv) additional grounds for the appointment of a conservator or receiver, and (v) restrictions or prohibitions on accepting brokered deposits, except for institutions which significantly exceed minimum capital requirements. FDICIA also provides for increased funding of the FDIC insurance funds and the implementation of risked-based premiums.Bank

Our commercial bank business consists of teams of commercial loan officers operating under the leadership of commercial banking executives in Florida, the Carolinas and Tennessee markets. The commercial banking executives are responsible for production goals for loans, deposits and fees. They work with senior credit officers to ensure that loan production is consistent with our loan policies and with financial officers to ensure that loan pricing is consistent with our profitability goals. We focus our commercial bank business on loan originations for established small and middle-market businesses with whom we develop personal relationships that we believe give us a competitive advantage and differentiates us from larger banking institutions. In addition, our commercial lending teams coordinate with personnel in our consumer bank business to provide personal loans and other services to the owners and managers and employees of the bank’s commercial clients. At December 31, 2011, commercial loans totaled $2.9 billion (or 67.0% 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 2011, Capital Bank originated $561.8 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 Capital Bank’s retail banking branches and associated businesses. Similar to our commercial bank business, we have organized the consumer bank by geographical market, with divisions consisting of our Florida, Carolina and Tennessee branches. Each division reports to a consumer banking executive responsible for achieving core deposit and consumer loan growth goals. 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.

~~Deposit~~We ~~Insurance~~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:

As• home aequity ~~FDIC~~lines ~~member institution, deposits~~ of ~~the Bank are currently insured to the current maximum allowed by law through the Bank Insurance Fund, which is administered by the FDIC.~~credit;

~~Limits~~• residential onfirst ~~Dividends~~lien ~~and Other Payments~~mortgages;

~~The~~• second ~~Company~~lien received a request from the Federal Reserve Bank of Atlanta for the Company’s Board of Directors to adopt a resolution that it will not declare or pay any dividends on its outstanding common or preferred stock, nor will it make any payments or distributions on the outstanding trust preferred securities or corresponding subordinated debentures without the prior written approval of the Reserve Bank. The Board adopted this resolution on October 5, 2009.mortgages;

~~Additionally,~~• new weand ~~have~~used ~~issued~~auto junior subordinated debentures to special purpose trusts which are senior to our common stock. As a result, we must make payments on the junior subordinated debentures before any dividends can be paid on our preferred or common stock. We have elected to defer interest payments on the Trust Preferred securities since October 2009. We expect that these future payments due will be deferred for the foreseeable future.loans;

~~Our~~• new ~~ability to pay dividends is largely dependent upon the receipt of dividends from the Bank. Both federal~~ and ~~state~~used ~~laws~~boat impose restrictions on the ability of the Bank to pay dividends. Federal law prohibits the payment of a dividend by an insured depository institution if the depository institution is considered “undercapitalized” or if the payment of the dividend would make the institution “undercapitalized.” See “Capital Requirements" below. The Federal Reserve has issued a policy statement that provides that bank holding companies should pay dividends only out of the prior year’s net income, and then only if their prospective rate of earnings retention appears consistent with their capital needs, asset quality, and overall financial condition. For a Florida state-chartered bank, dividends may be paid out of the bank’s aggregate net profits for the current year combined with its retained earnings for the preceding two years as the board deems appropriate. No dividends may be paid at a time when a bank’s net income from the preceding two years is a loss or which would cause the capital accounts of the bank to fall below the minimum amount required by law. In addition to these specific restrictions, bank regulatory agencies also have the ability to prohibit proposed dividends by a financial institution that would otherwise be permitted under applicable regulations if the regulatory body determines that such distribution would constitute an unsafe or unsound practice. Based on the level of losses of TIB Bank for the prior two years, declaration of dividends by TIB Bank during 2010 would require regulatory approval.loans;

~~Capital~~• overdraft ~~Requirements~~protection; and

~~The~~• unsecured ~~Federal~~personal Reserve and FDIC have adopted certain risk-based capital guidelines to assist in the assessment of the capital adequacy of a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit ~~and recourse arrangements which are recorded as off balance sheet items~~lines. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 200% for assets with relatively high credit risk, such as asset-backed and mortgage-backed securities that are rated below investment grade.

ABranch ~~banking~~managers ~~organization’s~~and ~~risk-based~~their ~~capital~~staff ~~ratio~~are ischarged ~~obtained~~with bygrowing ~~dividing~~core ~~its~~deposits ~~qualifying~~with ~~capital~~a byspecial ~~its~~focus ~~total~~on ~~risk~~new ~~adjusted~~demand ~~assets.~~deposit ~~The~~accounts ~~regulators~~and ~~measure~~expected ~~risk-adjusted~~to ~~assets,~~conduct ~~which~~outbound ~~include~~telephone ~~off~~campaigns, ~~balance~~generate ~~sheet~~qualified ~~items~~referrals, ~~against~~collaborate ~~both~~with ~~total~~business ~~qualifying~~partners ~~capital~~in (the ~~sum~~commercial oflending ~~Tier~~teams 1and ~~capital~~evaluate, and ~~limited~~make ~~amounts~~informed ofdecisions ~~Tier~~with 2respect ~~capital)~~to, existing and ~~Tier~~prospective ~~1 capital~~customers. ~~“Tier~~In 12011,” orthe ~~core~~Bank ~~capital~~generated ~~includes~~organic ~~common~~core ~~equity,~~deposit ~~perpetual~~growth ~~preferred~~of ~~stock~~$265.4 million (~~excluding~~or ~~auction~~29.3% ~~rate~~annualized ~~issues~~growth), ~~trust~~excluding ~~preferred~~the ~~securities~~initial ~~(subject~~increase toin ~~certain~~deposits ~~limitations),~~resulting ~~and~~from ~~minority~~the ~~interest~~acquisitions ~~in equity accounts~~ of ~~consolidated~~Capital ~~subsidiaries~~Bank ~~(less~~Corporation ~~goodwill~~ and ~~other~~Green ~~intangibles)~~Bankshares, ~~subject to certain exceptions~~Inc. ~~“Tier~~As ~~2,”~~of orDecember ~~supplementary capital~~31, ~~includes~~2011, ~~among~~consumer ~~other~~loans ~~things~~totaled ~~limited-life~~$1.4 ~~preferred~~billion. ~~stock,~~During ~~hybrid capital instruments~~2011, ~~mandatory convertible securities and trust preferred securities, qualifying and subordinated debt, and~~ the ~~allowance~~Bank ~~for~~originated ~~loan and lease losses, subject to certain limitations and less required deductions~~$166.6 ~~The~~million ~~inclusion~~ of ~~elements~~new ofconsumer ~~Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies~~loans.

Ancillary Fee-Based Businesses

Mortgage Banking

Through our newly established mortgage banking business, we aim to originate high-quality loans for customers who are willing to establish a deposit relationship with us. The mortgage loans in our portfolio that do not meet this criteria are sold into 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 affiliate, Naples Capital Advisors, which is a registered investment advisor with approximately $102 million in assets under management as of December 31, 2011.

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 December 31, 2011, loans related to real estate totaled $3.7 billion (or 86% 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 December 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 21%, 21%, 19% and 11%, respectively, of our $4.3 billion loan portfolio.

~~The~~We ~~federal~~use ~~banking~~a ~~agencies~~centralized ~~are~~risk ~~required~~management process to ~~take~~ensure ~~“prompt~~uniform ~~corrective~~credit ~~action”~~underwriting ~~with~~that ~~respect~~adheres to ~~depository~~our ~~institutions~~loan ~~that~~policies doas ~~not~~approved ~~meet~~annually ~~minimum~~by ~~capital~~CBF’s ~~requirements~~Board of Directors. As Lending policies are reviewed on a ~~result,~~regular ~~the~~basis ~~federal~~to ~~bank~~confirm ~~regulatory~~that ~~authorities~~we ~~have~~are ~~adopted~~prudent ~~regulations~~in setting ~~forth~~underwriting acriteria. ~~five~~Credit ~~tiered~~risk ~~system~~is ~~for~~managed ~~measuring~~through ~~the~~a ~~capital~~number ~~adequacy~~ of ~~the~~methods, ~~depository~~including ~~institutions~~a loan approval process that ~~they~~establishes ~~supervise.~~consistent ~~Under~~procedures ~~these~~for ~~regulations,~~the aprocessing ~~depository~~and ~~institution~~approval isof ~~classified~~loan inrequests, ~~one~~risk grading of ~~the~~all ~~following~~commercial ~~capital~~loans ~~categories:~~and ~~“well~~certain ~~capitalized,”~~consumer ~~“adequately~~loans ~~capitalized,”~~and ~~“undercapitalized,”~~coding ~~“significantly~~of ~~undercapitalized~~all loans by purpose,” class and ~~“critically~~collateral ~~undercapitalized~~type.” AnWe ~~institution~~seek ~~may~~to befocus ~~deemed~~on underwriting loans that enhance a balanced, diversified portfolio. Management analyzes our commercial real estate concentrations by ~~the~~market ~~regulators~~and toregion beon a regular basis in aan ~~capitalization~~attempt ~~category~~to ~~that~~prevent isoverexposure ~~lower~~to ~~than~~any isone ~~indicated~~type byof ~~its~~commercial ~~actual~~real ~~capital~~estate ~~position~~loan ifand incorporates third-party real estate and market analysis to monitor market conditions. As of December 31, ~~among~~2011, ~~other~~the ~~things~~carrying value of our commercial real estate loans in North Carolina, itSouth ~~receives~~Carolina, anFlorida, ~~unsatisfactory~~Tennessee ~~examination~~and ~~rating~~Virginia ~~with~~totaled ~~respect~~$699.2 tomillion, ~~asset~~$303.6 ~~quality~~million, ~~management~~$794.4 million, ~~earnings~~$596.0 ormillion ~~liquidity~~and $15. As8 ofmillion, respectively. At December 31, ~~2010~~2011, ~~the~~commercial ~~Bank~~real estate loans in all regions totaled $2.4 billion (21% of which was ~~classified~~owner asoccupied ancommercial ~~“adequately~~real ~~capitalized”~~estate). ~~institution~~We have recently tightened underwriting and pricing standards for indirect auto and residential mortgage lending and de-emphasized originations of commercial real estate mortgages.

AWe ~~depository~~believe ~~institution~~that ~~generally~~early isdetection ~~prohibited from making any capital distribution (including payment~~ of apotential ~~cash~~credit ~~dividend)~~problems orthrough ~~paying~~regular ~~any~~contact ~~management~~with ~~fees~~our toclients, ~~its~~coupled ~~holding~~with ~~company~~consistent ifreviews of the ~~depository~~borrowers’ ~~institution~~financial ~~would~~condition, ~~thereafter be undercapitalized. Undercapitalized depository institutions~~ are ~~subject~~important tofactors ~~growth~~in ~~limitations~~overall ~~and~~credit ~~are~~risk ~~required to submit capital restoration plans~~management. IfOur aapproach ~~depository institution fails~~ to ~~submit~~proactively anmanage ~~acceptable~~credit ~~plan,~~quality it is ~~treated~~to asaggressively ifwork itwith iscustomers ~~significantly~~for ~~undercapitalized.~~whom ~~Significantly undercapitalized depository institutions may be subject to~~ a ~~number~~problem ofloan ~~other~~has ~~requirements~~been ~~and~~identified ~~restrictions including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets~~ and ~~stop~~assist ~~accepting~~in ~~deposits~~resolving ~~from~~issues ~~correspondent~~before ~~banks. Critically undercapitalized institutions are subject to the appointment of~~ a ~~receiver~~default ~~or conservator; generally within 90 days of the date such institution is determined to be critically undercapitalized~~occurs.

~~The~~A ~~federal~~key ~~banking~~component ~~agencies~~of ~~also~~our ~~have~~growth ~~significantly~~strategy ~~expanded~~is ~~powers~~ to ~~take~~grow ~~enforcement~~our ~~action~~loan ~~against~~portfolio ~~institutions~~by ~~that~~originating ~~fail~~high-quality tocommercial ~~comply~~and ~~with~~consumer ~~capital~~loans, or other ~~standards.~~than ~~Such~~non-owner ~~action~~occupied ~~may~~real ~~include~~estate ~~limitations~~loans, onthat ~~the~~comply ~~right~~with toour ~~pay~~conservative ~~dividends,~~credit ~~the~~policies ~~issuance~~and bythat ~~the~~produce ~~applicable~~revenues ~~regulatory~~consistent ~~authority~~with ofour afinancial ~~capital~~objectives. ~~directive~~From toDecember ~~increase capital and~~31, in2010 ~~the~~to ~~case~~December of31, ~~depository institutions~~2011, the ~~termination~~Bank’s ofloan ~~deposit~~portfolio ~~insurance~~grew organically by ~~the~~$107.9 ~~FDIC~~million (or 6. ~~The~~2% ~~circumstances~~annualized ~~under~~growth), ~~which~~excluding the ~~FDIC~~initial isincrease ~~permitted~~in todeposits ~~provide~~resulting ~~financial~~from ~~assistance~~the toacquisitions anof ~~insured~~Capital ~~institution~~Bank ~~before~~Corporation ~~appointment~~and ofGreen aBankshares, ~~conservator~~Inc., orwith ~~receiver~~$728.4 ~~also~~million isin ~~limited~~new ~~under~~originations ~~law. In~~partially ~~addition~~offset by pay-downs, ~~future~~dispositions ~~changes~~and incharge-offs. ~~regulations~~Additionally, orwe ~~practices~~are ~~could~~working ~~further~~to reduce ~~the~~excessive ~~amount~~concentrations ofin ~~capital~~commercial ~~recognized~~real ~~for~~estate, ~~purposes~~which ofcharacterized ~~capital~~our ~~adequacy. Such~~acquisitions’ alegacy ~~change~~portfolios, ~~could~~in ~~affect~~order ~~the~~to ~~ability~~achieve ofa ~~the~~more ~~Bank~~diversified toportfolio. ~~grow~~It ~~and~~is ~~could~~our ~~restrict~~long-term ~~the~~goal ~~amount~~to ofreduce ~~profits,~~the ifcommercial ~~any,~~real ~~available~~estate ~~for~~concentration ~~the~~to ~~payment~~approximately 20% of ~~dividends~~our tototal usloan portfolio.

~~Interstate~~In ~~Banking~~addition, ~~Legislation~~we operate an indirect auto lending business which originates loans for new and used cars through relationships with dealers in Southwest Florida, Southeast Florida, the Florida Keys and Tennessee. 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 December 31, 2011, we had $87.2 million of indirect auto loans.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (“Riegle-Neal”), subject to certain restrictions, allows adequately capitalized and managed bank holding companies to acquire existing banks across state lines, regardless of state statutes that would prohibit acquisitions by out-of-state institutions. Further, a bank holding company may consolidate interstate bank subsidiaries into branches and a bank may merge with an unaffiliated bank across state lines to the extent that the applicable states authorize such transactions. Florida has a law which permits interstate branching through merger transactions under the federal interstate laws. Under the Florida law, with the prior approval of the Florida Office of Financial Regulation, a Florida bank may establish, maintain and operate one or more branches in a state other than the State of Florida pursuant to a merger transaction in which the Florida bank is the resulting bank. In addition, Florida law provides that one or more Florida banks may enter into a merger transaction with one or more out-of-state banks, and an out-of-state bank resulting from such transaction may maintain and operate branches of a Florida bank that participated in such merger.

Sarbanes-Oxley Act

In 2002, the Sarbanes-Oxley Act was enacted which imposes a myriad of corporate governance and accounting measures designed so that shareholders have full and accurate information about the public companies in which they invest. All public companies are affected by the Act. Some of the principal provisions of the Act include:

· The creation of an independent accounting oversight board to oversee the audit of public companies and auditors who perform such audits;

· Auditor independence provisions which restrict non-audit services that independent accountants may provide to their audit clients;

· Additional corporate governance and responsibility measures which (a) require the chief executive officer and chief financial officer to certify financial statements and to forfeit salary and bonuses in certain situations, and (b) protect whistleblowers and informants;

· Expansion of the authority and responsibilities of the company’s audit, nominating and compensation committees;

· Mandatory disclosure by analysts of potential conflicts of interest; and

· Enhanced penalties for fraud and other violations.

Other Legislative Considerations

The United States Congress and the Florida Legislature periodically consider and may adopt legislation that results in additional deregulation, among other matters, of banks and other financial institutions. Such legislation could modify or eliminate current prohibitions with other financial institutions, including mutual funds, securities, brokerage firms, insurance companies, banks from other states, and investment banking firms. The effect of any such legislation on our business or that of the Bank cannot be accurately predicted. We cannot predict what legislation might be enacted or what other implementing regulations might be adopted, and if enacted or adopted, the effect on us.

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 December 31, 2011, total deposits were $5.1 billion of which $5.0 billion (or 97%) were non-brokered deposits and $143.1 million (or 3%) were brokered deposits. At December 31, 2011, our core deposits (total deposits less time deposits) consisted of $683.3 million of non-interest checking accounts, $1.1 billion of negotiable order of withdrawal accounts, $296.4 million of savings accounts and $868.4 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.

Investing Activities

Investment securities represent a significant portion of Capital Bank, NA’s assets. The Bank invests in securities as allowable under bank regulations. These securities include 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 the Bank’s Asset-Liability Committee (“ALCO”), which meets regularly to review the economic environment and establish investment strategies.

Investment strategies are reviewed by ALCO based on the interest rate environment, balance sheet mix, actual and anticipated loan demand, funding opportunities and the overall interest rate sensitivity of the Bank. In general, the investment portfolio is managed in a manner appropriate to the attainment of the following goals: (i) to provide a sufficient margin of liquid assets to meet unanticipated deposit and loan fluctuations and overall funds management objectives; (ii) to provide eligible securities to secure public funds and other borrowings; and (iii) to earn the maximum return on funds invested that is commensurate with meeting the requirements of (i) and (ii).

Marketing

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

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

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

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

•	provide customers with access to our local executives;

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

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


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

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

•	adhere to safe and sound credit standards.

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.

Competition

The ~~banking business is highly competitive. Banks generally compete with other~~ financial ~~institutions~~services ~~through~~industry ~~the~~in ~~banking~~general ~~products~~ and ~~services~~our ~~offered,~~primary ~~the~~markets ~~pricing~~ of ~~services,~~South ~~the level of service provided~~Florida, ~~the~~Tennessee ~~convenience~~ and ~~availability of services, and~~ the ~~degree~~Carolinas ~~of expertise and the personal manner in which services~~ are ~~offered~~highly competitive. ~~The~~ ~~Bank~~We ~~encounters~~compete ~~strong~~actively ~~competition~~with ~~from~~national, ~~most~~regional ofand ~~the~~local financial ~~institutions~~services inproviders, ~~the~~including ~~Bank’s~~banks, ~~primary service areas. In the conduct of certain areas of its banking business~~thrifts, ~~the Bank also competes with~~ credit unions, ~~consumer~~mortgage ~~finance~~bankers ~~companies,~~and ~~insurance~~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 ~~the Bank~~us. ~~Many~~ ofOur ~~these~~largest competitors ~~have~~include ~~substantially~~Bank ~~greater~~of ~~resources~~America, ~~and~~Wells ~~lending~~Fargo, ~~limits~~BB&T, ~~than~~First ~~the~~Citizens, Royal Bank ~~currently~~of ~~has. Management~~Canada, ~~believes~~SunTrust, ~~that~~Regions, ~~personalized~~FNB ~~service~~United ~~and~~Corp., ~~competitive~~Toronto-Dominion, ~~pricing~~Synovus, isFirst aFinancial, ~~sustainable~~SCBT, ~~competitive~~JPMorgan ~~advantage~~Chase, ~~that~~Citigroup, ~~will~~EverBank, ~~provide~~Fifth usThird ~~with~~Bancorp, aFirst ~~method~~Horizon, toPinnacle ~~compete~~Financial, ~~effectively~~First inSouth ~~our~~and ~~primary~~U.S. ~~service areas~~Bancorp.

~~Monetary~~Competition ~~Policy~~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.

Our earnings are affected by domestic and foreign economic conditions, particularly by the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve has an important impact on the operating results of banks and other financial institutions through its power to implement national monetary policy. The methods used by the Federal Reserve include setting the reserve requirements of banks, establishing the discount rate on bank borrowings and conducting open market transactions in United States Government securities.Employees

~~FDIC~~At ~~Insurance~~December ~~Assessments~~31, 2011, Capital Bank had over 1,375 full-time employees and 165 part-time employees. None of our employees are parties to a collective bargaining agreement. We consider our relationship with our employees to be adequate.

~~The~~Facilities FDIC insures the deposits of the Bank up to prescribed limits for each depositor. The amount of FDIC assessments paid by each Bank Insurance Fund (BIF) member institution is based on its relative risks of default as measured by regulatory capital ratios and ~~other~~Real factors. Specifically, the assessment rate is based on the institution’s capitalization risk category and supervisory subgroup category. An institution’s capitalization risk category is based on the FDIC’s determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. An institution’s supervisory subgroup category is based on the FDIC’s assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required. The FDIC may terminate insurance of deposits upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. As a result of the Federal Deposit Insurance Reform Act of 2005, the Bank was assessed risk-based deposit insurance premiums on a quarterly basis beginning January 1, 2007. Insurance assessments paid per $100.00 in deposits are listed below by quarter:Estate

	Successor Company		Predeccessor Company
	2010		2010		2009		2008
Quarter one	$	N/A	$	0.06	$	0.04	$	0.02
Quarter two		N/A		0.10		0.05		0.02
Quarter three		N/A		0.08		0.06		0.02
Quarter four		0.08		N/A		0.06		0.02

Capital Bank currently leases approximately 351,000 square feet of office and operations space in North Carolina, Florida and South Carolina. We operate 35 branches in Florida, 32 in North Carolina, 12 in South Carolina, 63 in Tennessee and one in Virginia. Of these branches, 42 were leased and the rest were owned. In addition, the Company owns approximately 130,000 and leases approximately 138,000 square feet of non-branch office space. Management believes the terms of the various leases are consistent with market standards and were arrived at through arm’s-length bargaining.

~~The~~Related ~~FDIC~~Party adopted a revised risk-based deposit insurance assessment schedule on February 27, 2009, which raised deposit insurance premiums effective April 1, 2009. On May 22, 2009, the FDIC also implemented a five basis point special assessment of each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009, but no more than 10 basis points times the institution’s assessment base for the second quarter of 2009, collected on September 30, 2009. This amount was approximately $800,000. The FDIC approved collecting a prepayment of insurance premiums for the next three years (for 2010, 2011 and 2012) plus fourth quarter 2009’s premium in December 2009. This prepayment was approximately $10.9 million, of which $6.6 million remains as a prepaid asset for the Bank as of December 31, 2010.Transaction

WeCertain ~~participated~~of in the ~~FDIC’s~~directors ~~Temporary~~and ~~Liquidity~~executive ~~Guarantee~~officers ~~Program~~of ~~(“TLG”)~~Capital ~~for~~Bank, ~~noninterest-bearing~~NA, ~~transaction~~members ~~deposit~~of ~~accounts.~~their ~~Banks~~immediate ~~that~~families ~~participated~~and inentities ~~the~~with ~~TLG’s~~which ~~noninterest-bearing~~they ~~transaction~~are ~~account~~involved ~~guarantee~~are ~~paid~~customers ~~the~~of ~~FDIC~~and anborrowers ~~annual~~from ~~assessment~~the ofBank. 10As ~~basis~~of ~~points, through~~ December 31, ~~2009~~2011, ontotal ~~the~~loans ~~amounts~~outstanding into ~~such~~directors ~~accounts~~and ~~above~~executive officers of the ~~amounts~~Bank, ~~covered~~and bytheir ~~FDIC~~associates ~~insurance~~as a group, equaled approximately $13.1 ~~Subsequent~~million. toAll ~~December~~outstanding ~~31,~~loans ~~2009,~~and ~~the~~commitments ~~annual~~included ~~assessment~~in ~~increased~~such totransactions awere ~~range~~made in the ordinary course of 15business, toon 25substantially ~~basis~~the ~~points. During~~same ~~2010~~terms, weincluding ~~paid~~interest 20rates ~~basis~~and ~~points~~collateral, ~~during~~as those prevailing at the ~~first~~time ~~quarter~~in ~~and~~comparable 25transactions ~~basis~~with ~~points~~persons ~~through~~not related to the ~~expiration~~Bank, ofand did not involve more than the ~~TLG~~normal ~~program~~risk onof ~~December~~collectability ~~31,~~or ~~2010~~present other unfavorable features.

Effective April 1, 2011, the FDIC is implementing changes to the calculation of deposit insurance premiums. The assessment base will be equal to average total assets less Tier 1 capital. Assessment rates will initially range between an annualized 2.5 and 45 basis points. Assessment rates will decrease if the FDIC’s reserve ratio increases to certain thresholds.14

Due to the Bank Merger, the Company reported no loans or deposits on its Consolidated Balance Sheet as of December 31, 2011.

SUPERVISION AND REGULATION

The U.S. banking industry is highly regulated under federal and state law. These regulations affect the operations of the Company and its subsidiaries. Investors should understand that the primary objectives of the U.S. bank regulatory regime are the protection of depositors and consumers and maintaining the stability of the U.S. financial system, and not the protection of stockholders.

As a bank holding company, we are subject to supervision and regulation by the Federal Reserve. Our national bank subsidiary (which will be our sole bank subsidiary following the reorganization) is subject to supervision and regulation by the OCC, the Consumer Financial Protection Bureau (which we refer to as the “CFPB”) and the FDIC. In addition, we expect that the additional businesses that we may invest in or acquire will be regulated by various state and/or federal regulators, including the OCC, the Federal Reserve, the CFPB and the FDIC.

The description below summarizes certain elements of the applicable bank regulatory framework. This description is not intended to describe all laws and regulations applicable to us and our subsidiaries. Banking statutes, regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory agencies and changes in them, including changes in how they are interpreted or implemented, could have material effects on our business. In addition to laws and regulations, state and federal bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance applicable to us and our subsidiaries. These issuances also may affect the conduct of our business or impose additional regulatory obligations. The description is qualified in its entirety by reference to the full text of the statutes, regulations, policies, interpretive letters and other written guidance that are described.

Bank Holding Company Regulations

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. As a bank holding company, we are subject to regulation under the BHCA and to examination, supervision and enforcement by the Federal Reserve. While subjecting us to supervision and regulation, we believe that being a bank holding company (as opposed to a non-controlling investor) broadens the investment opportunities available to us among public and private financial institutions, failing and distressed financial institutions, seized assets and deposits and FDIC auctions. Federal Reserve jurisdiction also extends to any company that is directly or indirectly controlled by a bank holding company, such as subsidiaries and other companies in which the bank holding company makes a controlling investment.

Statutes, regulations and policies could restrict our ability to diversify into other areas of financial services, acquire depository institutions and make distributions or pay dividends on our equity securities. They may also require us to provide financial support to any bank that we control, maintain capital balances in excess of those desired by management and pay higher deposit insurance premiums as a result of a general deterioration in the financial condition of Capital Bank or other depository institutions we control. They may also limit the fees and prices Capital Bank charges for its consumer services.

Capital Bank, N.A. as a National Bank

Capital Bank is a national bank and is subject to supervision (including regular examination) by its primary banking regulator, the OCC. Retail operations of the bank are also subject to supervision and regulation by the CFPB. Capital Bank’s deposits are insured by the FDIC through the DIF up to applicable limits in the manner and extent provided by law. Capital Bank is subject to the Federal Deposit Insurance Act, as amended (which we refer to as the “FDI Act”), and FDIC regulations relating to deposit insurance and may also be subject to supervision by the FDIC under certain circumstances.

OCC Operating Agreement and FDIC Order

Capital Bank is subject to specific requirements pursuant to the OCC Operating Agreement, which it entered into with the OCC in connection with our acquisition of the Failed Banks. The OCC Operating Agreement requires, among other things, that Capital Bank maintain various financial and capital ratios and provide notice to, and obtain consent from, the OCC with respect to any additional failed bank acquisitions from the FDIC or the appointment of any new director or senior executive officer of Capital Bank.

Capital Bank (and, with respect to certain provisions, CBF) is also subject to the FDIC Order issued in connection with the FDIC’s approval of our applications for deposit insurance for the Failed Banks. The FDIC Order requires, among other things, that during the first three years following our acquisition of the Failed Banks, Capital Bank must obtain the FDIC’s approval before implementing certain compensation plans and submit updated business plans and reports of material deviations from those plans to the FDIC. Additionally, the FDIC Order requires that Capital Bank maintain Tier 1 common equity (a non-GAAP measure) to total assets of at least 10% during such three-year period and after such three-year period to remain “well capitalized.”

A failure by CBF or Capital Bank to comply with the requirements of the OCC Operating Agreement or the FDIC Order could subject CBF to regulatory sanctions; and failure to comply, or the objection, or imposition of additional conditions by the OCC or the FDIC, in connection with any materials or information submitted thereunder, could prevent CBF from executing its business strategy and negatively impact its business, financial condition, liquidity and results of operations. As of December 31, 2011, Capital Bank was in compliance with all of the material terms of the OCC Operating Agreement and FDIC Order.

Regulatory Notice and Approval Requirements for Acquisitions of Control

We must generally receive federal regulatory approval before we can acquire an institution or business. Specifically, a bank holding company must obtain prior approval of the Federal Reserve in connection with any acquisition that results in the bank holding company owning or controlling more than 5% of any class of voting securities of a bank or another bank holding company. In acting on such applications of approval, the Federal Reserve considers, among other factors: the effect of the acquisition on competition; the financial condition and future prospects of the applicant and the banks involved; the managerial resources of the applicant and the banks involved; the convenience and needs of the community, including the record of performance under the CRA; the effect of the acquisition on the stability of the United States banking or financial system; 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. We may also be required to sell branches as a condition to receiving regulatory approval, which 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.

Broad Supervision and Enforcement Powers

The Federal Reserve, the OCC and the FDIC have broad supervisory and enforcement authority with regard to bank holding companies and banks, including the power to conduct examinations and investigations, issue cease and desist orders, impose fines and other civil and criminal penalties, terminate deposit insurance and appoint a conservator or receiver. The CFPB similarly has broad regulatory supervision and enforcement authority with regard to consumer protection matters affecting us or our subsidiaries. Bank regulators regularly examine the operations of banks and bank holding companies. In addition, banks and bank holding companies are subject to periodic reporting and filing requirements.

Bank regulators have various remedies available if they determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of a banking organization’s operations are unsatisfactory. The regulators may also take action if they determine that the banking organization or its management is violating or has violated any law or regulation. The regulators have the power to, among other things: enjoin “unsafe or unsound” practices, require affirmative actions to correct any violation or practice, issue administrative orders that can be judicially enforced, direct increases in capital, direct the sale of subsidiaries or other assets, limit dividends and distributions, restrict growth, assess civil monetary penalties, remove officers and directors and terminate deposit insurance.

Engaging in unsafe or unsound practices or failing to comply with applicable laws, regulations and supervisory agreements could subject the Company, its subsidiaries and their respective officers, directors and institution-affiliated parties to the remedies described above and other sanctions. In addition, the FDIC may terminate a bank’s depository insurance upon a finding that the bank’s financial condition is unsafe or unsound or that the bank has engaged in unsafe or unsound practices or has violated an applicable rule, regulation, order or condition enacted or imposed by the bank’s regulatory agency.

Interstate Banking

Interstate Banking for State and National Banks

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act (which we refer to as the “Riegle-Neal Act”), a bank holding company may acquire banks in states other than its home state, subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company not control, prior to or following the proposed acquisition, more than 10% of the total amount of deposits of insured depository institutions nationwide or, unless the acquisition is the bank holding company’s initial entry into the state, more than 30% of such deposits in the state (or such lesser or greater amount set by the state). The Riegle-Neal Act also authorizes banks to merge across state lines, thereby creating interstate branches. The Dodd-Frank Act permits a national or state bank, with the approval of its regulator, to open a branch in any state if the law of the state in which the branch is located would permit the establishment of the branch if the bank were a bank chartered in that state. National banks may provide trust services in any state to the same extent as a trust company chartered by that state.

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.

Bank Holding Companies as a Source of Strength

Federal Reserve law requires that a bank holding company serve as a source of financial and managerial strength to each bank that it controls and, under appropriate circumstances, to commit resources to support each such controlled bank.

Under the prompt corrective action provisions, if a controlled bank is undercapitalized, then the regulators could require the bank holding company to guarantee the bank’s capital restoration plan. In addition, if the Federal Reserve believes that a bank holding company’s activities, assets or affiliates represent a significant risk to the financial safety, soundness or stability of a controlled bank, then the Federal Reserve could require the bank holding company to terminate the activities, liquidate the assets or divest the affiliates. The regulators may require these and other actions in support of controlled banks even if such actions are not in the best interests of the bank holding company or its stockholders. Because we are a bank holding company, we (and our consolidated assets) are viewed as a source of financial and managerial strength for any controlled depository institutions, such as Capital Bank.

The Dodd-Frank Act also directs federal bank regulators to require that all companies that directly or indirectly control an insured depository institution serve as sources of financial strength for the institution. The term “source of financial strength” is defined under the Dodd-Frank Act as the ability of a company to provide financial assistance to its insured depository institution subsidiaries in the event of financial distress. The appropriate federal banking agency for such a depository institution may require reports from companies that control the insured depository institution to assess their abilities to serve as sources of strength and to enforce compliance with the source-of-strength requirements. The appropriate federal banking agency may also require a holding company to provide financial assistance to a bank with impaired capital. The Dodd-Frank Act requires that federal banking regulators propose implementing regulations no later than July 21, 2011. Under this requirement, in the future we could be required to provide financial assistance to Capital Bank should it experience financial distress. Based on our ownership of a national bank subsidiary, the OCC could assess us if the capital of Capital Bank were to become impaired. If we failed to pay the assessment within three months, the OCC could order the sale of our stock in Capital Bank to cover the deficiency.

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

Depositor Preference

The FDI Act provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims of depositors of the institution (including the claims of the FDIC as subrogee of insured 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.

Regulatory Capital Requirements

In General

Bank regulators view capital levels as important indicators of an institution’s financial soundness. FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. The final supervisory judgment on an institution’s capital adequacy is based on the regulator’s individualized assessment of numerous factors.

As a bank holding company, we are subject to various regulatory capital adequacy requirements administered by the Federal Reserve. In addition, the OCC imposes capital adequacy requirements on our subsidiary bank. The FDIC also may impose these requirements on Capital Bank and other depository institution subsidiaries that we may acquire or control in the future. The FDI Act requires that the federal regulatory agencies adopt regulations defining five capital tiers for banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial condition.

Quantitative measures, established by the regulators to ensure capital adequacy, require that a bank holding company maintain minimum ratios of capital to risk-weighted assets. There are three categories of capital under the guidelines. With the implementation of the Dodd-Frank Act, certain changes have been made as to the type of capital that falls under each of these categories. For us, as a bank holding company, Tier 1 capital includes common shareholders’ equity, qualifying preferred stock and trust preferred securities issued before May 19, 2010, less goodwill and certain other deductions (including a portion of servicing assets and the unrealized net gains and losses, after taxes, on securities available for sale). Tier 2 capital includes preferred stock and trust preferred securities not qualifying as Tier 1 capital, subordinated debt, the allowance for credit losses and net unrealized gains on marketable equity securities, subject to limitations by the guidelines. Tier 2 capital is limited to the amount of Tier 1 capital (i.e., at least half of the total capital must be in the form of Tier 1 capital). Tier 3 capital includes certain qualifying unsecured subordinated debt. See “—Changes in Laws, Regulations or Policies and the Dodd-Frank Act.”

Under the guidelines, capital is compared with the relative risk related to the balance sheet. To derive the risk included in the balance sheet, a risk weighting is applied to each balance sheet asset and off-balance sheet item, primarily based on the relative credit risk of the asset or counterparty. For example, claims guaranteed by the U.S. government or one of its agencies are risk-weighted at 0% and certain real estate-related loans risk-weighted at 50%. Off-balance sheet items, such as loan commitments and derivatives, are also applied a risk weight after calculating balance sheet equivalent amounts. A credit conversion factor is assigned to loan commitments based on the likelihood of the off-balance sheet item becoming an asset. For example, certain loan commitments are converted at 50% and then risk-weighted at 100%. Derivatives are converted to balance sheet equivalents based on notional values, replacement costs and remaining contractual terms. For certain recourse obligations, direct credit substitutes, residual interests in asset securitization and other securitized transactions that expose institutions primarily to credit risk, the capital amounts and classification under the guidelines are subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Banks and bank holding companies currently are required to maintain Tier 1 capital and the sum of Tier 1 and Tier 2 capital equal to at least 6% and 10%, respectively, of their total risk-weighted assets (including certain off-balance sheet items, such as standby letters of credit) to be deemed “well capitalized.” The federal bank regulatory agencies may, however, set higher capital requirements for an individual bank or when a bank’s particular circumstances warrant. At this time, the bank regulatory agencies are more inclined to impose higher capital requirements in order to meet well-capitalized standards, and future regulatory change could impose higher capital standards as a routine matter.

The Federal Reserve may also set higher capital requirements for holding companies whose circumstances warrant it. For example, holding companies experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. Also, the Federal Reserve considers a “tangible Tier 1 leverage ratio” (deducting all intangibles) and other indications of capital strength in evaluating proposals for expansion or engaging in new activities. In addition, the federal bank regulatory agencies have established minimum leverage (Tier 1 capital to adjusted average total assets) guidelines for banks within their regulatory jurisdictions. These guidelines provide for a minimum leverage ratio of 5% for banks to be deemed “well capitalized.” Our regulatory capital ratios and those of Capital Bank are in excess of the levels established for “well-capitalized” institutions.

As an additional means to identify problems in the financial management of depository institutions, the FDI Act requires federal bank regulatory agencies to establish certain non-capital safety and soundness standards for institutions for which they are the primary federal regulator. The standards relate generally to operations and management, asset quality, interest rate exposure and executive compensation. The agencies are authorized to take action against institutions that fail to meet such standards.

In addition, the Dodd-Frank Act requires the federal banking agencies to adopt capital requirements that address the risks that the activities of an institution pose to the institution and the public and private stakeholders, including risks arising from certain enumerated activities. The federal banking agencies may change existing capital guidelines or adopt new capital guidelines in the future pursuant to the Dodd-Frank Act, the implementation of Basel III (described below) or other regulatory or supervisory changes. We cannot be certain what the impact of changes to existing capital guidelines will have on us or Capital Bank.

Basel I, Basel II and Basel III Accords

The current risk-based capital guidelines that apply to us and our subsidiary bank are based on the 1988 capital accord, referred to as Basel I, of the International Basel Committee on Banking Supervision (which we refer to as the “Basel Committee”), a committee of central banks and bank supervisors, as implemented by federal bank regulators. In 2008, the bank regulatory agencies began to phase in capital standards based on a second capital accord issued by the Basel Committee, referred to as Basel II, for large or “core” international banks and bank holding companies (generally defined for U.S. purposes as having total assets of $250 billion or more or consolidated foreign exposures of $10 billion or more). Because we do not anticipate controlling any large or “core” international bank in the foreseeable future, Basel II will not apply to us.

On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee, announced agreement on the calibration and phase in arrangements for a strengthened set of capital requirements, known as Basel III. While the timing and scope of any U.S. implementation of Basel III remains uncertain, the following items provide a brief description of the relevant provisions of Basel III and their potential impact on our capital levels if applied to us and Capital Bank.

New Minimum Capital Requirements. Subject to implementation by the U.S. federal banking agencies, Basel III would be expected, among other things, to increase required capital ratios of banking institutions to which it applies, as follows:

●

Minimum Common Equity. The minimum requirement for common equity, the highest form of loss absorbing capital, would be raised from the current 2.0% level, before the application of regulatory adjustments, to 3.5% as of January 11, 2013 and 4.5% by January 1, 2015 after the application of stricter adjustments. The “capital conversion buffer,” discussed below, would cause required total common equity to rise to 7.0% by January 1, 2019 (4.5% attributable to the minimum required common equity plus 2.5% attributable to the “capital conservation buffer”).


●	Minimum Tier 1 Capital. The minimum Tier 1 capital requirement, which includes common equity and other qualifying financial instruments based on stricter criteria, would increase from 4.0% to 4.5% by January 1, 2013, and 6.0% by January 1, 2015. Total Tier 1 capital would rise to 8.5% by January 1, 2019 (6.0% attributable to the minimum required Tier 1 capital ratio plus 2.5% attributable to the capital conservation buffer, as discussed below).

●	Minimum Total Capital. The minimum Total Capital (Tier 1 and Tier 2 capital) requirement would increase to 8.0% (10.5% by January 1, 2019, including the capital conservation buffer).

●	Capital Conservation Buffer. The capital conservation buffer would add 2.5% to the regulatory minimum common equity requirement (adding 0.625% during each of the three years beginning in January 1, 2016 through January 1, 2019). The buffer would be added to common equity, after the application of deductions. The purpose of the conservation buffer is to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. It is expected that, while banks would be allowed to draw on the buffer during such periods of stress, the closer their regulatory capital ratios approach the minimum requirement, the greater the constraints that would be applied to earnings distributions.

●	Countercyclical Buffer. Basel III expects regulators to require, as appropriate to national circumstances, a “countercyclical buffer” within a range of 0% to 2.5% of common equity or other fully loss-absorbing capital. The purpose of the countercyclical buffer is to achieve the broader goal of protecting the banking sector from periods of excess aggregate credit growth. For any given country, it is expected that this buffer would only be applied when there is excess credit growth that is resulting in a perceived system-wide buildup of risk. The countercyclical buffer, when in effect, would be introduced as an extension of the capital conservation buffer range.

●	Regulatory Deductions from Common Equity. The regulatory adjustments (i.e., deductions and prudential filters), including minority interests in financial institutions, mortgage-servicing rights, and deferred tax assets from timing differences, would be deducted in increasing percentages beginning January 1, 2014, and would be fully deducted from common equity by January 1, 2018. Certain instruments that no longer qualify as Tier 1 capital, such as trust preferred securities, also would be subject to phaseout over a 10-year period beginning January 1, 2013.

●	Non-Risk-Based Leverage Ratios. These capital requirements are supplemented by a non-risk-based leverage ratio that will serve as a backstop to the risk-based measures described above. In July 2010, the Governors and Heads of Supervision agreed to test a minimum Tier 1 leverage ratio of 3.0% during the parallel run period. Based on the results of the parallel run period, any final adjustments would be carried out in the first half of 2017 with a view to adopting the 3.0% leverage ratio on January 1, 2018, based on appropriate review and calibration.

Basel III also introduces a non-risk adjusted Tier 1 leverage ratio of 3%, based on a measure of total exposure that includes balance sheet assets, net of provisions and valuation adjustments, as well as potential future exposure to off-balance sheet items, such as derivatives. Basel III also includes both short- and long-term liquidity standards. The phase-in of the new rules is to commence on January 1, 2013, with the phase-in of the capital conservation buffer commencing on January 1, 2016 and the rules to be fully phased in by January 1, 2019.

In November 2010, Basel III was endorsed by the Group of Twenty (G-20) Finance Ministers and Central Bank Governors and will be subject to individual adoption by member nations, including the United States. On December 16, 2010, the Basel Committee issued the text of the Basel III rules, which presents the details of global regulatory standards on bank capital adequacy and liquidity agreed by the Basel Committee and endorsed by the G-20 leaders. In January 2011, the Basel Committee issued further guidance on the qualification criteria for inclusion in Tier 1 capital. The federal banking agencies will likely implement changes to the current capital adequacy standards applicable to us and our bank subsidiary in light of Basel III. If adopted by federal banking agencies, Basel III could lead to higher capital requirements, including a restrictive leverage ratio and new liquidity ratios. The ultimate impact of the new capital and liquidity standards on us and our bank subsidiary is currently being reviewed and will depend on a number of factors, including the rule-making and implementation by the U.S. banking regulators.

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 non-interest-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.

On February 7, 2011, the FDIC approved a final rule on Assessments, Dividends, Assessment Base and Large Bank Pricing. The final rule, mandated by the Dodd-Frank Act, changes the deposit insurance assessment system from one that is based on domestic deposits to one that is based on average consolidated total assets minus average tangible equity. Because the new assessment base under the Dodd-Frank Act is larger than the current assessment base, the final rule’s assessment rates are lower than the current rates, which achieves the FDIC’s goal of not significantly altering the total amount of revenue collected from the industry. In addition, the final rule adopts a “scorecard” assessment scheme for larger banks and suspends dividend payments if the DIF reserve ratio exceeds 1.5% but provides for decreasing assessment rates when the DIF reserve ratio reaches certain thresholds. The final rule also determines how the effect of the higher reserve ratio will be offset for institutions with less than $10 billion of consolidated assets.

Continued action by the FDIC to replenish the DIF as well as changes contained in the Dodd-Frank Act may result in higher assessment rates. Capital Bank may be able to pass part or all of this cost on to its customers, including in the form of lower interest rates on deposits, or fees to some depositors, depending on market conditions.

The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution’s regulatory agency. If deposit insurance for a banking business we invest in or acquire were to be terminated, that would have a material adverse effect on that banking business and potentially on the Company as a whole.

Permitted Activities and Investments by Bank Holding Companies

The BHCA generally prohibits a bank holding company from engaging in activities other than banking or managing or controlling banks except for activities determined by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Provisions of the Gramm-Leach-Bliley Financial Modernization Act of 1999 (which we refer to as the “GLB Act”) expanded the permissible activities of a bank holding company that qualifies as a financial holding company. Under the regulations implementing the GLB Act, a financial holding company may engage in additional activities that are financial in nature or incidental or complementary to financial activity. Those activities include, among other activities, certain insurance and securities activities. We have not yet determined whether it would be appropriate or advisable in the future to become a financial holding company.

Privacy Provisions of the GLB Act and Restrictions on Cross-Selling

Federal banking regulators, as required under the GLB Act, have adopted rules limiting the ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated third parties. The rules require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to nonaffiliated third parties. The privacy provisions of the GLB Act affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors.

Federal financial regulators have issued regulations under the Fair and Accurate Credit Transactions Act, which have the effect of increasing the length of the waiting period, after privacy disclosures are provided to new customers, before information can be shared among different companies that we own or may come to own for the purpose of cross-selling products and services among companies we own. A number of states have adopted their own statutes concerning financial privacy and requiring notification of security breaches.

Anti-Money Laundering Requirements

Under federal law, including the Bank Secrecy Act, the PATRIOT Act and the International Money Laundering Abatement and Anti-Terrorist Financing Act, certain types of financial institutions, including insured depository institutions, must maintain anti-money laundering programs that include established internal policies, procedures and controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function. Among other things, these laws are intended to strengthen the ability of U.S. law enforcement agencies and intelligence communities to work together to combat terrorism on a variety of fronts. Financial institutions are prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and customer identification in their dealings with non-U.S. financial institutions and non-U.S. customers. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious information maintained by financial institutions. Bank regulators routinely examine institutions for compliance with these obligations and they must consider an institution’s compliance in connection with the regulatory review of applications, including applications for banking mergers and acquisitions. The regulatory authorities have imposed “cease and desist” orders and civil money penalty sanctions against institutions found to be violating these obligations.

The OFAC is responsible for helping to insure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress. OFAC publishes lists of persons, organizations and countries suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons. If we or Capital Bank find a name on any transaction, account or wire transfer that is on an OFAC list, we or Capital Bank must freeze or block such account or transaction, file a suspicious activity report and notify the appropriate authorities.

Consumer Laws and Regulations

Banks and other financial institutions are subject to numerous laws and regulations intended to protect consumers in their transactions with banks. These laws include, among others, laws regarding unfair and deceptive acts and practices and usury laws, as well as the following consumer protection statutes: Truth in Lending Act, Truth in Savings Act, Electronic Funds Transfer Act, Expedited Funds Availability Act, Equal Credit Opportunity Act, Fair and Accurate Credit Transactions Act, Fair Housing Act, Fair Credit Reporting Act, Fair Debt Collection Act, GLB Act, Home Mortgage Disclosure Act, Right to Financial Privacy Act and Real Estate Settlement Procedures Act.

Many states and local jurisdictions have consumer protection laws analogous, and in addition, to those listed above. These federal, state and local laws regulate the manner in which financial institutions deal with customers when taking deposits, making loans or conducting other types of transactions. Failure to comply with these laws and regulations could give rise to regulatory sanctions, customer rescission rights, action by state and local attorneys general and civil or criminal liability.

The Dodd-Frank Act creates the CFPB, a new independent bureau that will have broad authority to regulate, supervise and enforce retail financial services activities of banks and various non-bank providers. The CFPB will have authority to promulgate regulations, issue orders, guidance and policy statements, conduct examinations and bring enforcement actions with regard to consumer financial products and services. In general, banks with assets of $10 billion or less, such as Capital Bank, will be subject to regulation of the CFPB but will continue to be examined for consumer compliance by their bank regulator. However, given our growth and bank acquisition strategy, if our total assets were to exceed $10 billion, then we will become subject to the CFPB’s exclusive examination authority and primary enforcement authority.

The Community Reinvestment Act

The CRA is intended to encourage banks to help meet the credit needs of their service areas, including low-and moderate-income neighborhoods, consistent with safe and sound operations. The regulators examine banks and assign each bank a public CRA rating. A bank’s record of fair lending compliance is part of the resulting CRA examination report. The CRA then requires bank regulators to take into account the bank’s record in meeting the needs of its service area when considering an application by a bank to establish a branch or to conduct certain mergers or acquisitions. The Federal Reserve is required to consider the CRA records of a bank holding company’s controlled banks when considering an application by the bank holding company to acquire a bank or to merge with another bank holding company.

When we apply for regulatory approval to make certain investments, the regulators will consider the CRA record of the target institution and our depository institution subsidiary. An unsatisfactory CRA record could substantially delay approval or result in denial of an application.

Changes in Laws, Regulations or Policies and the Dodd-Frank Act

Various federal, state and local legislators introduce from time to time measures or take actions that would modify the regulatory requirements or the examination or supervision of banks or bank holding companies. Such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks and other financial institutions, all of which could affect our investment opportunities and our assessment of how attractive such opportunities may be. We cannot predict whether potential legislation will be enacted and, if enacted, the effect that it or any implementing regulations would have on our business, results of operations or financial condition.

The Dodd-Frank Act, which was signed into law on July 21, 2010, will have a broad impact on the financial services industry, imposing significant regulatory and compliance changes, increased capital, leverage and liquidity requirements and numerous other provisions designed to improve supervision and oversight of the financial services sector. The following items briefly describe some of the key provisions of the Dodd-Frank Act:

●	Source of Strength. The Dodd-Frank Act requires all companies that directly or indirectly control a depository institution to serve as a source of strength for the institution.

●	Limitation on Federal Preemption. The Dodd-Frank Act may limit the ability of national banks to rely upon federal preemption of state consumer financial laws. Under the Dodd-Frank Act, the OCC will have the ability to make preemption determinations only if certain conditions are met and on a case-by-case basis. The Dodd-Frank Act also eliminates the extension of preemption to operating subsidiaries of national banks. However, the Dodd-Frank Act preserves certain preemption standards articulated by the U.S. Supreme Court and existing interpretations thereunder, as well as express preemption provisions in other federal laws (such as the Equal Credit Opportunity Act and the Truth in Lending Act) that specifically address the application of state law in relation to that federal law. The Dodd-Frank Act authorizes state enforcement authorities to bring lawsuits under state law against national banks and authorizes suits by state attorney generals against national banks to enforce rules issued by the CFPB. With this broad grant of enforcement authority to states, institutions, including national banks, could be subject to varying and potentially conflicting interpretations of federal law by various state attorney generals, state regulators and the courts.

●	Mortgage Loan Origination and Risk Retention. The Dodd-Frank Act imposes new standards for mortgage loan originations on all lenders, including banks, in an effort to require steps to verify a borrower’s ability to repay. The Dodd-Frank Act also generally requires lenders or securitizers to retain an economic interest in the credit risk relating to loans the lender sells or mortgages and other asset-backed securities that the securitizer issues. The risk retention requirement generally will be 5%, but could be increased or decreased by regulation.

●	Consumer Financial Protection Bureau. The Dodd-Frank Act creates the CFPB within the Federal Reserve. The CFPB 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 CFPB has rulemaking authority over many of the statutes governing products and services offered to bank customers. For banking organizations with assets of more than $10 billion, the CFPB has exclusive rule-making 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 CFPB.

●	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 noninterest-bearing transaction accounts until January 1, 2013. Amendments to the FDI Act also revise the assessment base against which an insured depository institution’s deposit insurance premiums paid to the DIF will be calculated. Under these amendments, the assessment base will no longer be the institution’s deposit base, but rather its average consolidated total assets less its average tangible equity. Additionally, the Dodd-Frank Act makes changes to the minimum designated reserve ratio of the DIF, increasing the minimum from 1.15% to 1.35% of the estimated amount of total insured deposits and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds.

●	Transactions with Affiliates and Insiders. The Dodd-Frank Act generally enhances the restrictions on transactions with affiliates under Sections 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered credit transactions must be satisfied. Insider transaction limitations are expanded through the strengthening of loan restrictions to insiders and the expansion of the types of transactions subject to the various limits, including derivatives transactions, repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution’s board of directors.


●	Corporate Governance. The Dodd-Frank Act addresses many investor protection, corporate governance and executive compensation matters that will affect most U.S. publicly traded companies, including the Company. The Dodd-Frank Act (1) grants stockholders of U.S. publicly traded companies an advisory vote on executive compensation; (2) enhances independence requirements for compensation committee members; (3) requires companies listed on national securities exchanges to adopt incentive-based compensation clawback policies for executive officers; and (4) provides the SEC with authority to adopt proxy access rules that would allow stockholders of publicly traded companies to nominate candidates for election as a director and have those nominees included in a company’s proxy materials.

●	Interchange Fees. Under the so-called Durbin Amendment of the Dodd-Frank Act, interchange transaction fees that a card issuer receives or charges for an electronic debit transaction must be “reasonable and proportional” to the cost incurred by the card issuer in processing the transaction. Banks that have less than $10 billion in assets are exempt from the interchange transaction fee limitation. On June 29, 2011, the Federal Reserve issued a final rule establishing standards for determining whether the amount of any interchange transaction fee is reasonable and proportional, taking into consideration fraud prevention costs, and prescribing regulations to ensure that network fees are not used, directly or indirectly, to compensate card issuers with respect to electronic debit transactions or to circumvent or evade the restrictions that interchange transaction fees be reasonable and proportional. Under the final rule, the maximum permissible interchange fee that an issuer may receive for an electronic debit will be the sum of $0.21 per transaction and five basis points multiplied by the value of the transaction. The Federal Board also approved on June 29, 2011 an interim final rule that allows for an upward adjustment of no more than $0.01 to an issuer’s debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards set out in the interim final rule. The Dodd-Frank Act also bans card issuers and payment card networks from entering into exclusivity arrangements for debit card processing and prohibits card issuers and payment networks from inhibiting the ability of merchants to direct the routing of debit card transactions over networks of their choice. Finally, merchants will be able to set minimum dollar amounts for the use of a credit card and provide discounts to consumers who pay with various payment methods, such as cash.

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.

Statistical Information

Certain statistical information is found in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K.

ITEM 1A: RISK FACTORS

RISK FACTORS

Our business is subject to a variety of risks, including the risks described below as well as adverse business conditions and changes in regulations and the local, regional and national economic environment. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not known to us or not described below which we have not determined to be material may also impair our business operations. You should carefully consider the risks described below, together with all other information in this report, including information contained in the “Business,” “Management’s Discussion and Analysis ofofFinancial Condition and Results of Operations ~~and Financial Condition~~,” and “Quantitative and Qualitative Disclosures about Market Risk” sections. This report contains forward-looking statements that involve risks and uncertainties, including statements about our future plans, objectives, intentions and expectations. Many factors, including those described below, could cause actual results to differ materially from those discussed in forward-looking statements. If any of the following risks actually occur, our business, financial condition and results of operations could be adversely affected, and we may not be able to achieve our goals. Such events may cause actual results to differ materially from expected and historical results, and the trading price of our common stock could decline.

Risks ~~Related~~Relating to ~~Our~~the ~~Business~~Potential Merger of TIB Financial Corp. and CBF

The ~~Bank~~potential merger has ~~entered~~been ~~into~~approved awithout ~~Consent~~your ~~Order and a Written Agreement with bank regulatory agencies and certain terms of that order may not be met~~vote.

OnCBF ~~July~~owns 2,over ~~2010, TIB Bank entered into a Consent Order, a formal agreement, with bank regulatory agencies under which, among other things, the Bank has agreed to maintain a Tier 1 capital ratio of at least 8~~94% of ~~total~~the ~~assets~~common ~~and~~stock ~~a total risk based capital ratio~~ of atthe ~~least 12%~~Company. AtAccordingly, ~~December~~under ~~31,~~Florida ~~2010~~law, ~~the~~no ~~Bank~~vote ~~was in compliance with these elevated capital ratios. The Consent Order also governs certain aspects~~ of the ~~Bank~~Company’s ~~operations~~Board ~~including a requirement that it reduce the balance~~ of ~~assets~~Directors ~~classified~~or ~~substandard~~shareholders ~~and~~is ~~doubtful~~required byto atcomplete ~~least~~the ~~70%~~merger. ~~over~~As a ~~two-year period~~result, ~~and~~the ~~not~~merger ~~undertake~~may ~~asset~~be ~~growth~~completed ofeven 5%if oropposed ~~more~~by ~~per~~all ~~year~~of ~~without prior approval from~~ the ~~regulatory~~Company’s ~~agencies.~~shareholders ~~The~~unaffiliated ~~Consent Order supersedes the Memorandum of Understanding entered into~~ with ~~regulatory agencies on July 2, 2009~~CBF.

~~While~~Neither ~~the~~CBF ~~Company~~nor ~~and~~ the ~~Bank intend to take such actions as may be necessary to comply with the requirements of the Written Agreement and Consent Order, there can be no assurance that the~~ Company ~~will~~has behired ~~able~~anyone to ~~comply~~represent ~~fully~~you ~~with the provisions of the Written Agreement or that the Bank will be able to comply fully with the provisions of the Consent Order, that compliance with the Written Agreement~~ and ~~Consent~~CBF ~~Order~~has ~~will~~a ~~not~~conflict be more time consuming or more expensive than anticipated, that compliance with the Written Agreement and Consent Order will enable the Company and the Bank to continue profitable operations, or that efforts to comply with the Written Agreement and Consent Order will not have adverse effects on the operations and financial condition of ~~the~~interest ~~Company~~in or the ~~Bank~~merger.

~~Even~~CBF ~~though~~and the Company ~~has~~have ~~completed~~not (1) negotiated the ~~NAFH~~merger ~~Investment,~~at itarm’s ~~cannot~~length ~~assure~~or ~~you~~(2) ~~whether~~hired orindependent ~~when~~persons to negotiate the ~~Written~~terms ~~Agreement~~of the merger for you. Since CBF initiated and ~~Consent~~structured ~~Order~~the ~~will~~merger bewithout ~~lifted~~negotiating with the Company or ~~terminated. Even~~any ifindependent ~~they~~person ~~are~~and ~~lifted~~CBF orhas ~~terminated~~an interest in ~~whole~~acquiring oryour inshares ~~part,~~at the ~~Company~~lowest ~~may~~possible ~~still~~price, beif ~~subject~~independent topersons ~~supervisory~~had ~~enforcement~~been ~~actions~~hired, ~~that~~the ~~restrict~~terms ~~its~~of ~~activities~~the merger may have been more favorable to you.

~~Recently~~Because ~~enacted~~there ~~regulatory~~is ~~reforms~~currently ~~could~~no ~~have~~market afor ~~significant~~CBF’s ~~impact~~Class onA ~~the~~common ~~Company~~stock and a market for CBF’s ~~business~~Class A common stock may not develop, ~~financial~~you ~~condition~~cannot ~~and~~be ~~results~~sure of ~~operations~~the market value of the merger consideration you will receive.

OnUpon ~~July~~completion ~~21,~~of ~~2010~~the merger, ~~President~~each ~~Obama~~share ~~signed~~of the Company’s common stock will be converted into ~~law~~merger ~~the~~consideration ~~Dodd-Frank~~consisting ~~Wall~~of ~~Street~~0.7205 ~~Reform~~of ~~and~~a ~~Consumer~~share ~~Protection~~of ~~Act~~CBF’s (Class A common stock. Prior to the ~~“Act”)~~initial public offering of CBF’s Class A common stock, which is ~~perhaps~~expected ~~the~~to ~~most~~be ~~significant~~completed ~~financial~~substantially ~~reform~~concurrently ~~since~~with the ~~Great~~merger, ~~Depression~~there ~~and~~has ~~contains~~been ~~numerous~~no ~~and~~established ~~wide-ranging~~public ~~reforms~~market tofor ~~the~~CBF’s ~~United~~Class ~~States~~A ~~financial~~common ~~system~~stock. ~~The~~ ~~Act~~An ~~contains~~active, ~~many~~liquid ~~provisions~~trading ~~which~~market ~~will~~for ~~affect~~CBF’s ~~institutions~~Class ~~such~~A ascommon ~~the~~stock ~~Company~~may ~~and~~not ~~the~~develop ~~Bank~~or inbe ~~substantial~~sustained ~~and~~following ~~unpredictable~~the ~~ways~~initial public offering. ~~Consequently,~~ ~~compliance~~If ~~with~~an ~~the~~active ~~Act’s~~trading ~~provisions~~market ~~may~~does ~~reduce~~not ~~the~~develop, ~~Company~~holders of CBF’s ~~and~~Class ~~the~~A ~~Bank’s~~common ~~revenue~~stock ~~opportunities~~may ~~increase~~have difficulty selling their ~~operating~~shares ~~costs,~~at ~~require~~an ~~them~~attractive toprice, ~~hold~~or ~~higher~~at ~~levels~~all. ofCBF ~~regulatory~~has ~~capital~~applied ~~and/or~~to ~~liquidity~~have ~~and~~its ~~otherwise~~Class ~~adversely~~A ~~affect~~common ~~their~~stock ~~business~~listed oron ~~financial~~Nasdaq, ~~results~~but inits ~~the~~application ~~future. The~~may ~~Company’s~~not ~~management~~be isapproved. ~~actively~~In ~~reviewing~~addition, the ~~provisions~~liquidity of ~~the~~any ~~Act~~market ~~and~~that ~~assessing~~may ~~its~~develop ~~probable~~or ~~impact~~the onprice ~~the~~that ~~Company~~CBF’s ~~business,~~stockholders ~~financial~~may ~~condition,~~obtain ~~and~~for ~~result~~their shares of ~~operations~~Class A common stock cannot be predicted. ~~However,~~ ~~because~~The ~~many~~initial ~~aspects~~public ofoffering ~~the~~price ~~Act~~for ~~are~~CBF’s ~~subject~~Class toA ~~future~~common ~~rulemaking~~stock will be determined by negotiations between CBF, itits isstockholders ~~difficult~~who choose to ~~precisely~~sell ~~anticipate~~their ~~its~~shares ~~overall~~in ~~impact,~~the ~~financially~~initial public offering and ~~otherwise,~~the onrepresentative of the ~~Company~~underwriters and may not be indicative of prices that will prevail in the ~~Bank~~open atmarket ~~this~~following ~~time~~the offering.

We are not paying dividends on our common stock and are deferring distributions on our trust preferred securities, and we are restricted in otherwise paying cash dividends on our common stock. The failure to resume paying dividends on our trust preferred securities may adversely affect us.26

WeThe ~~historically~~outcome ~~paid~~of ~~cash~~CBF’s ~~dividends~~initial ~~before~~public weoffering ~~began~~will ~~making~~affect ~~quarterly~~the 1%market ~~stock~~value ~~dividends in lieu~~ of ~~cash~~the ~~dividend~~consideration ~~payments~~the onCompany’s ~~our~~shareholders ~~common~~will ~~stock~~receive ~~from~~upon ~~the~~completion ~~second quarter~~ of ~~2008 through~~ the ~~third quarter of 2009~~merger. ~~During the third quarter of 2009~~Accordingly, weyou ~~began~~will ~~deferring~~not ~~dividend~~know ~~payments~~or onbe ~~our~~able ~~trust~~to ~~preferred~~calculate ~~securities~~the ~~and~~market ~~our~~value ~~preferred~~of ~~stock pursuant to~~ the ~~adoption~~merger ofconsideration ayou ~~board~~would ~~resolution~~receive ~~requiring~~upon 30completion ~~day~~of ~~advance notice to and written approval from~~ the ~~Federal Reserve Bank prior to making any dividend payments~~merger. There ~~is no assurance that we~~ will ~~receive~~be ~~approval~~no adjustment to ~~resume~~the ~~paying~~exchange ~~cash~~ratio ~~dividends.~~for ~~All~~changes ~~dividends~~in ~~are declared and paid at~~ the ~~discretion~~anticipated ofoutcome ~~our board~~ of ~~directors~~CBF’s ~~and~~initial ~~are~~public ~~dependent~~offering ~~upon~~or ~~our~~changes ~~liquidity,~~in ~~financial~~the ~~condition,~~market ~~results~~price of ~~operations,~~the ~~regulatory~~Company’s ~~capital~~common ~~requirements and such other factors as our board of directors may deem relevant~~stock.

~~Further~~If CBF completes the merger without completing its initial public offering, ~~distributions~~the onsize ~~our~~of ~~trust~~the ~~preferred~~outstanding ~~securities~~public ~~are~~float ~~cumulative~~of ~~and~~CBF’s ~~therefore~~Class ~~unpaid~~A ~~distributions~~common stock will ~~accrue~~be low and ~~compound~~the onvalue ~~each~~and ~~subsequent~~liquidity ~~dividend~~of ~~payment~~CBF’s ~~date~~common stock may be adversely affected.

~~Higher~~While ~~FDIC~~the ~~deposit~~merger ~~insurance~~is ~~premiums~~expected to be completed substantially concurrently with CBF’s initial public offering, CBF controls when the merger will take place and ~~assessments~~there ~~could~~can ~~adversely~~be ~~affect~~no ~~our~~guarantee ~~financial~~that ~~condition~~CBF’s initial public offering will occur substantially concurrently with the merger or at all. If the merger is completed and CBF’s initial public offering is delayed or does not occur, there will be fewer publicly traded shares of CBF’s Class A common stock outstanding than if the initial public offering is completed as anticipated and, as a result, the value and liquidity of CBF’s shares of Class A common stock that you receive in the merger may be adversely affected.

~~FDIC insurance premiums increased substantially in 2009 as market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits.~~ The ~~FDIC~~shares adopted a revised risk-based deposit insurance assessment schedule on February 27, 2009, which raised deposit insurance premiums. On May 22, 2009, the FDIC also implemented a five basis point special assessment of ~~each insured depository institution~~CBF’s ~~assets~~Class ~~minus~~A ~~Tier~~common 1stock ~~capital~~to asbe ofreceived ~~June~~by ~~30, 2009, but no more than 10 basis points times~~ the ~~institution~~Company’s ~~assessment~~shareholders ~~base~~as ~~for~~a ~~the~~result ~~second quarter~~ of ~~2009,~~the ~~collected~~merger onwill ~~September~~have ~~30,~~different ~~2009.~~rights ~~Additional~~than ~~special assessments may be imposed by~~ the ~~FDIC~~shares ~~for future periods. The FDIC collected a prepayment~~ of ~~insurance premiums for 2010, 2011 and 2012 plus~~ the ~~fourth quarter 2009~~Company’s ~~premium~~common ~~in December 2009~~stock. ~~The prepayment was $10.9 million.~~

~~Effective~~The ~~April~~rights 1,associated ~~2011~~with the Company’s common stock are different from the rights associated with CBF’s Class A common stock. For example, the ~~FDIC~~Company’s Board of Directors is ~~implementing~~divided ~~changes~~into totwo classes, with the ~~calculation~~term of ~~deposit~~office ~~insurance~~of ~~premiums~~one class expiring each year. ~~The~~ ~~assessment~~CBF’s ~~base~~Board of Directors will not be ~~equal~~classified at the time of the merger. In addition, as a Florida corporation, the Company is subject to ~~average~~provisions ~~total~~of ~~assets~~Florida ~~less~~law ~~Tier~~that 1require ~~capital~~a vote of at least two thirds of the Company’s shareholders to approve business combinations with certain large shareholders (these provisions do not apply to the merger because CBF owns more than 90% of the Company’s common stock). ~~Assessment~~ ~~rates~~These ~~will~~provisions ~~initially~~do ~~range~~not ~~between~~apply anto ~~annualized~~CBF 2because it is a Delaware corporation.5 ~~and~~In 45addition, ~~basis~~the ~~points~~Company’s shareholders are permitted to act by written consent without a meeting, whereas CBF shareholders cannot act by written consent. ~~Assessment~~ ~~rates~~Also, ~~will~~holders ~~decrease~~of ifat least 50% of the ~~FDIC~~Company’s ~~reserve~~common ~~ratio~~stock ~~increases~~may tocall ~~certain~~a ~~thresholds~~special meeting of TIB Financial Corp.’s shareholders, whereas special meetings of CBF shareholders can only be called by CBF’s Chairman, Chief Executive Officer or its Board of Directors

14Risks Relating to the Company’s Banking Operations

~~Our~~Continued ~~loan~~or ~~portfolio~~worsening ~~includes~~general ~~commercial~~business and ~~real~~economic ~~estate~~conditions ~~loans~~could ~~that~~ have ~~higher~~a ~~risks~~material adverse effect on our business, financial position, results of operations and cash flows.

~~The~~Our ~~Bank’s~~business ~~commercial, commercial real estate~~ and ~~construction~~operations ~~and~~are ~~vacant~~sensitive ~~land~~to ~~loans~~general atbusiness ~~December~~and ~~31,~~economic ~~2010,~~conditions ~~were~~in ~~$60.6~~the ~~million,~~United ~~$612~~States.5 ~~million~~If ~~and~~the ~~$39~~U.0S. ~~million,~~economy ~~respectively,~~is orunable ~~6%,~~to ~~61%~~steadily ~~and~~emerge 4%from ofthe ~~total~~recent ~~loans. Commercial,~~recession ~~commercial~~that ~~real~~began ~~estate~~in ~~and~~2007 ~~construction~~or ~~and~~CBF ~~vacant~~experiences ~~land~~worsening ~~loans~~economic ~~generally~~conditions, ~~carry~~such ~~larger~~as ~~loan balances and can involve~~ a ~~greater~~so-called ~~degree~~“double-dip” ofrecession, ~~financial~~CBF’s growth and ~~credit~~profitability ~~risk~~could ~~than~~be ~~other~~adversely ~~loans~~affected. ~~Any~~ ~~significant~~Weak ~~failure~~economic toconditions ~~pay~~may onbe ~~time~~characterized by ~~the~~deflation, ~~Bank’s~~fluctuations ~~customers~~in ~~would~~debt ~~hurt our earnings. The increased financial~~ and ~~credit~~equity ~~risk~~capital ~~associated with these types of loans are a result of several factors~~markets, including ~~the concentration of principal in~~ a ~~limited~~lack ~~number~~ of ~~loans~~liquidity and/or ~~borrowers,~~depressed ~~the~~prices ~~size~~in ofthe ~~loan~~secondary ~~balances,~~market ~~the~~for ~~effects~~mortgage ofloans, ~~general~~increased ~~economic~~delinquencies ~~conditions~~ on ~~income-producing~~mortgage, ~~properties~~consumer and ~~the~~commercial ~~increased~~loans, ~~difficulty~~residential ~~of evaluating~~ and ~~monitoring~~commercial ~~these~~real ~~types~~estate ofprice ~~loans. In~~declines ~~addition,~~and ~~when~~lower ~~underwriting~~home asales and commercial oractivity. ~~industrial~~All ~~loan,~~of ~~the~~these ~~Bank~~factors ~~may~~would ~~take~~be adetrimental ~~security~~to ~~interest~~our inbusiness. ~~commercial~~On ~~real~~August ~~estate~~5, ~~and~~2011, inStandard ~~some~~& ~~instances~~Poor’s ~~upon~~lowered athe ~~default~~long-term bysovereign ~~the~~credit ~~borrower,~~rating weof ~~may~~U.S. ~~foreclose~~Government ondebt ~~and~~obligations ~~take~~from ~~title~~AAA to ~~the~~AA+. ~~property,~~On ~~which~~August ~~may~~8, ~~lead~~2011, toS&P ~~potential~~also ~~financial~~downgraded ~~risks~~the ~~for~~long-term uscredit ~~under~~ratings ~~applicable~~of ~~environmental laws~~U. IfS. ~~hazardous~~government-sponsored ~~substances~~enterprises. ~~were~~These ~~discovered~~actions oninitially ~~any~~have ofhad ~~these~~an ~~properties,~~adverse weeffect ~~may~~on befinancial ~~liable~~markets toand ~~governmental~~although ~~agencies~~we orare ~~third~~unable ~~parties~~to ~~for~~predict the ~~costs~~longer-term ofimpact ~~remediation~~on ofsuch ~~the~~markets ~~hazard, as well as for personal injury~~ and ~~property damage. Many environmental laws can impose liability regardless of whether~~ the ~~Bank~~participants ~~knew of~~therein, orit ~~was~~may ~~responsible~~be ~~for,~~material ~~the~~and ~~contamination~~adverse.

~~During~~In ~~2006~~addition, ~~the~~significant ~~federal~~concern ~~bank~~regarding ~~regulatory agencies released guidance on “Concentrations in Commercial Real Estate Lending” (~~the ~~“Guidance”). The~~creditworthiness ~~Guidance~~of ~~defines~~some commercial real estate loans as exposures secured by raw land, land development and construction (including 1-4 family residential construction), multi-family property, and non-farm nonresidential property where the primary or a significant source of ~~repayment is derived from rental income associated with~~ the ~~property~~governments ~~(that~~in isEurope, ~~loans~~most ~~for~~notably ~~which~~Greece, ~~50%~~has orcontributed ~~more~~to ofvolatility ~~the~~in ~~source~~financial ofmarkets ~~repayment~~in ~~comes~~Europe ~~from~~and ~~third party~~globally, ~~non-affiliated,~~and ~~rental~~to ~~income)~~funding orpressures ~~the~~on ~~proceeds~~some ofglobally ~~the~~active ~~sale,~~European ~~refinancing~~banks, orleading ~~permanent financing of the property. The Guidance requires that appropriate processes be in place~~ to ~~identify,~~greater ~~monitor~~investor and ~~control~~economic ~~risks~~uncertainty ~~associated with real estate lending concentrations~~worldwide. ~~This~~ ~~could~~A ~~include~~failure ~~enhanced~~to ~~strategic~~adequately ~~planning,~~address ~~underwriting~~sovereign ~~policies,~~debt ~~risk~~concerns ~~management,~~in ~~internal~~Europe ~~controls,~~could ~~portfolio~~hamper ~~stress~~economic ~~testing~~recovery ~~and~~or ~~risk~~contribute ~~exposure~~to ~~limits~~a asreturn ~~well~~to asrecessionary ~~appropriately~~economic ~~designed~~conditions ~~compensation~~ and ~~incentive~~severe ~~programs. Higher~~stress ~~allowances~~in ~~for~~the ~~loan~~financial ~~losses~~markets, ~~and~~including ~~capital~~in ~~levels~~the ~~may~~United ~~also be required~~States. ~~The Guidance is triggered when commercial real estate loan concentrations exceed either:~~

~~• total reported loans for construction, land development, and other land of 100% or more of a bank’s total capital; or~~27

•Our ~~total~~business ~~reported~~is ~~loans~~also ~~secured~~significantly affected by ~~multifamily~~monetary and ~~nonfarm~~related ~~nonresidential~~policies ~~properties~~of ~~and~~the ~~loans~~U.S. ~~for~~federal ~~construction~~government, ~~land~~its ~~development,~~agencies and ~~other~~government-sponsored ~~land~~entities. Changes in any of ~~300%~~these orpolicies ~~more~~are ofinfluenced by macroeconomic conditions and other factors that are beyond our control, are difficult to predict and could have a ~~bank’s~~material ~~total~~adverse ~~capital~~effect on our business, financial position, results of operations and cash flows.

~~Furthermore,~~The ~~the~~geographic ~~repayment~~concentration of ~~loans~~our ~~secured~~markets byin ~~commercial real estate is typically dependent upon~~ the ~~successful~~southeastern ~~operation~~region ~~or resale~~ of the ~~related~~United ~~real~~States ~~estate~~makes orour ~~commercial~~business ~~project. If~~highly ~~the~~susceptible ~~cash flows from the project are reduced, a borrower’s ability~~ to ~~repay~~downturns ~~the loan may be impaired. This cash flow shortage may result~~ in the ~~failure~~local toeconomies ~~make loan payments. In such cases, the Bank may be compelled to modify the terms of the loan. In addition, the nature of these loans is such that they are generally less predictable~~ and ~~more~~depressed ~~difficult~~banking ~~to evaluate and monitor. As a result~~markets, ~~repayment~~which ofcould ~~these loans may, to a greater extent than residential loans,~~ be ~~subject~~detrimental to ~~adverse~~our ~~conditions~~financial ~~in the real estate market or economy~~condition.

~~Our~~Unlike ~~business~~larger financial institutions that are more geographically diversified, our national bank subsidiary, Capital Bank is ~~subject~~a toregional banking franchise concentrated in the ~~success~~southeastern region of the United States. Capital Bank operates branches located in Florida, North Carolina, South Carolina, Tennessee and Virginia. As of December 31, 2011, 32% of Capital Bank’s loans were in Florida, 26% were in North Carolina, 12% were in South Carolina, 29% were in Tennessee and 1% was in Virginia. A deterioration in local ~~economies~~economic ~~where~~conditions wein ~~operate~~the loan market or in the residential, commercial or industrial real estate market could have a material adverse effect on the quality of Capital Bank’s portfolio, the demand for its products and services, the ability of borrowers to timely repay loans and the value of the collateral securing loans. In addition, if the population or income growth in the region is slower than projected, income levels, deposits and real estate development could be adversely affected and could result in the curtailment of our expansion, growth and profitability. If any of these developments were to result in losses that materially and adversely affected Capital Bank’s capital, CBF, the Company and Capital Bank might be subject to regulatory restrictions on operations and growth and to a requirement to raise additional capital.

~~Our~~We ~~success~~depend ~~significantly~~on ~~depends~~our ~~upon~~executive ~~the~~officers ~~growth in population, income levels, deposits~~ and ~~housing~~key ~~starts~~personnel into our primary and secondary markets. Over the past 36 months, each of these four factors has decreased. If the communities in which we operate do not grow or if prevailing economic conditions locally or nationally continue ~~to remain challenged, our business may be adversely affected. Our specific market areas have recently experienced economic contraction, which has affected~~ the ~~ability~~implementation of our ~~customers~~long-term tobusiness ~~repay~~strategy ~~their loans to us~~ and ~~generally~~could ~~affected~~be ~~our~~harmed ~~financial~~by ~~condition and results of operations. We are less able than a larger institution to spread~~ the ~~risks~~loss of ~~unfavorable~~their ~~local economic conditions across a large number of diversified markets and economies~~services. ~~Moreover, we cannot give any assurance we will benefit from any market growth or favorable economic conditions in our primary market areas if they do occur.~~

We believe that our continued growth and future success will depend in large part on the skills of our management team and its 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 its 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. Leadership changes will occur from time to time and we cannot predict whether significant resignations will occur or whether we or CBF 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 CBF and it is expected that, prior to the completion of the initial public offering, Christopher G. Marshall, R. Bruce Singletary and Kenneth A. Posner will have entered into employment agreements with CBF, it is possible that they may ~~face~~not ~~risks~~complete the term of their employment agreements or renew them upon expiration. Our success also depends on the experience of Capital Bank’s branch managers and lending officers and on their relationships with ~~respect~~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, ~~expansion~~could have an adverse effect on our business, financial condition or ~~acquisitions~~operating results.

WeCapital ~~may~~Bank’s ~~acquire~~loss ~~other~~sharing ~~financial~~agreements ~~institutions~~impose orrestrictions ~~parts~~on ~~of those institutions in~~ the ~~future~~operation ~~and~~of weits ~~may~~business; ~~engage~~failure into ~~additional~~comply dewith ~~novo~~the ~~branch~~terms ~~expansion.~~of Wethe ~~may~~loss ~~also~~sharing ~~consider~~agreements ~~and~~with ~~enter~~the ~~into~~FDIC ~~new lines of business~~ or ~~offer~~other ~~new~~regulatory ~~products~~agreements or ~~services.~~orders ~~We also~~ may ~~receive~~result ~~future~~in ~~inquiries~~significant ~~and~~losses ~~have~~or ~~discussions~~regulatory ~~with~~sanctions, ~~potential acquirers of us. Acquisitions~~ and ~~mergers~~Capital ~~involve~~Bank ais ~~number~~exposed ofto ~~risks,~~unrecoverable ~~including,~~losses ~~but~~on ~~not~~the ~~limited~~Failed toBanks’ ~~valuation~~assets ~~risk,~~that ~~integration~~it ~~risk and management resources~~acquired.

OnIn ~~March~~July 112010, ~~2011~~Capital Bank purchased substantially all of the assets and assumed all of the deposits and certain other liabilities of the Failed Banks in FDIC-assisted transactions, ~~NAFH~~and ~~disclosed~~a ~~that~~material itportion of its revenue is ~~seeking~~derived ~~regulatory~~from ~~approval~~such toassets. ~~combine~~Certain ~~its~~of ~~three~~the ~~banks,~~purchased ~~Capital~~assets ~~Bank,~~are ~~TIB~~covered ~~Bank~~by ~~and~~the ~~NAFH~~loss ~~National~~sharing ~~Bank~~agreements ~~and~~with the FDIC, which provide that itthe ~~may~~FDIC ~~also~~will ~~seek~~bear to80% ~~combine~~of ~~its~~losses ~~holding~~on ~~companies~~the (covered loan assets acquired in the ~~Company,~~acquisition ~~NAFH,~~of ~~and~~the Failed Banks. Capital Bank ~~Corporation). No~~is ~~assurances~~subject ~~can~~to beaudit ~~given~~by ~~that~~the ~~applicable~~FDIC ~~regulatory~~at ~~approvals~~its ~~will~~discretion beto ~~obtained,~~ensure ~~that~~it is in compliance with the ~~transactions~~terms ~~described~~of ~~above~~these ~~will~~agreements. beCapital ~~consummated,~~Bank ormay ifexperience ~~consummated,~~difficulties asin tocomplying with the ~~timing,~~requirements ~~price,~~of ~~structure~~the orloss ~~other~~sharing agreements, the terms of which are extensive and failure to comply with any of the ~~transactions~~terms could result in a specific asset or group of assets losing their loss sharing coverage.

We may incur substantial costs to expand, and we can give no assurance such expansion will result in the levels of profits we seek. There can be no assurance integration efforts for any future mergers or acquisitions will be successful. Also, we may issue equity securities, including common stock and securities convertible into shares of our common stock in connection with future acquisitions, which could cause ownership and economic dilution to our current shareholders. There is no assurance that, following any future mergers or acquisitions, our integration efforts will be successful or our company, after giving effect to the acquisition, will achieve profits comparable to or better than our historical experience.28

15The FDIC has the right to refuse or delay payment partially or in full for such loan losses if Capital Bank fails to comply with the terms of the loss sharing agreements, which are extensive. Additionally, the loss sharing agreements are limited in duration. Therefore, any losses that Capital Bank experiences after the terms of the loss sharing agreements have ended will not be recoverable from the FDIC, and would negatively impact net income.

~~Changes~~Capital Bank’s loss sharing agreements also impose limitations on how it manages loans covered by loss sharing. For example, under the loss sharing agreements, Capital Bank is not permitted to sell a covered loan even if in ~~interest~~the ~~rates~~ordinary ~~may~~course ~~negatively~~of ~~affect~~business ~~our~~it ~~earnings~~is determined that taking such action would be advantageous. These restrictions could impair Capital Bank’s ability to manage problem loans and extend the ~~value~~amount of ~~our~~time ~~assets~~that such loans remain on its balance sheet and could negatively impact Capital Bank’s business, financial condition, liquidity and results of operations.

~~Our~~In ~~earnings~~addition ~~and~~to ~~cash flows are largely dependent upon our net interest income. Net interest income is~~ the ~~difference~~loss ~~between~~sharing ~~interest income earned on interest-earnings assets~~agreements, ~~such~~in asAugust ~~loans and investment securities~~2010, ~~and~~Capital ~~interest~~Bank ~~expense~~entered ~~paid~~into onan ~~interest-bearing~~Operating ~~liabilities,~~Agreement ~~such~~with asthe ~~deposits~~OCC ~~and~~(which ~~borrowed~~we ~~funds. Interest~~refer ~~rates are sensitive~~ to ~~many~~as ~~factors~~the ~~that~~“OCC ~~are~~Operating ~~beyond our control~~Agreement”), ~~including~~in ~~general~~connection ~~economic~~with ~~conditions,~~the ~~competition~~acquisition ~~and policies~~ of ~~various~~the ~~governmental~~Failed ~~and~~Banks. ~~regulatory~~Capital ~~agencies~~Bank (and, inwith ~~particular,~~respect ~~the~~to ~~policies~~certain ofprovisions, the ~~Board~~Company ofand ~~Governors~~CBF) ofis ~~the~~also ~~Federal~~subject ~~Reserve. Changes~~to inan ~~monetary~~Order ~~policy,~~of ~~including~~the ~~changes~~FDIC, indated ~~interest~~July ~~rates~~16, ~~could~~2010 ~~influence~~(which ~~not~~we ~~only~~refer ~~the~~to ~~interest~~as ~~our~~the ~~Bank~~“FDIC ~~receives~~Order”) onissued ~~loans~~in ~~and~~connection ~~investment~~with ~~securities and~~ the ~~amount~~FDIC’s approval of ~~interest~~CBF’s itdeposit ~~pays~~insurance onapplications ~~deposits~~for ~~and~~the ~~borrowings,~~Failed ~~but~~Banks. ~~such~~The ~~changes~~OCC ~~could~~Operating ~~also~~Agreement ~~affect~~and ~~(i)~~ the ~~Bank’s~~FDIC ~~ability~~Order torequire ~~originate~~that ~~loans~~Capital ~~and~~Bank ~~obtain~~maintain ~~deposits,~~various ~~(ii) the fair value of our~~ financial ~~assets~~ and ~~liabilities,~~capital ~~including~~ratios ~~the~~and ~~available~~require ~~for~~prior ~~sale~~regulatory ~~securities~~notice ~~portfolio,~~ and ~~(iii)~~consent ~~the~~to ~~average~~take ~~duration~~certain ofactions ~~our~~in ~~interest-earning~~connection ~~assets. This~~with ~~also~~operating ~~includes~~ the ~~risk~~business ~~that~~and ~~interest-earning~~they ~~assets~~restrict ~~may~~Capital beBank’s ~~more~~ability ~~responsive~~ to ~~changes~~pay individends ~~interest~~to ~~rates~~CBF ~~than~~and ~~interest-bearing~~the ~~liabilities,~~Company orand ~~vice~~to ~~versa~~make ~~(repricing~~changes ~~risk),~~to ~~the~~its ~~risk~~capital ~~that~~structure. ~~the~~A ~~individual~~failure ~~interest~~by ~~rates~~CBF or ~~rates~~Capital ~~indices~~Bank ~~underlying~~to ~~various~~comply ~~interest-earning~~with ~~assets~~the ~~and~~requirements ~~interest-bearing~~of ~~liabilities~~the ~~may~~OCC ~~not~~Operating ~~change~~Agreement inor the ~~same~~FDIC ~~degree~~Order ~~over~~could asubject ~~given~~CBF ~~time~~to ~~period~~regulatory ~~(basis~~sanctions; ~~risk),~~ and ~~the~~failure ~~risk~~to ofcomply, ~~changing~~or ~~interest~~the ~~rate~~objection, ~~relationships~~or ~~across~~imposition ~~the spectrum~~ of ~~interest-earning~~additional ~~asset~~conditions, ~~and~~by ~~interest-bearing~~the ~~liability~~OCC ~~maturities~~or ~~(yield~~the ~~curve risk)~~FDIC, ~~including~~in aconnection ~~prolonged~~with ~~flat~~any materials or ~~inverted~~information ~~yield~~submitted ~~curve environment. Any substantial~~thereunder, ~~unexpected,~~could ~~prolonged~~prevent ~~change~~CBF infrom ~~market~~executing ~~interest~~its ~~rates~~business ~~could~~strategy ~~have~~and anegatively ~~material~~impact ~~adverse affect on~~ our business, financial condition, liquidity and results of operations.

~~Our~~Any ~~cost~~requested ofor ~~funds~~required ~~may~~changes ~~increase~~in ashow ~~a result of general economic conditions, interest rates and competitive pressures. We have traditionally obtained funds principally through local deposits and~~ we ~~have~~determine athe ~~base~~impact of ~~lower~~loss ~~cost~~share ~~transaction~~accounting ~~deposits.~~on Generally, we believe local deposits are a less expensive and more stable source of funds than other borrowings because interest rates paid for local deposits are typically lower than interest rates charged for borrowings from other institutional lenders and reflect a mix of transaction and time deposits. Our costs of funds and our ~~profitability~~financial ~~and~~information ~~liquidity~~could ~~are likely to be adversely affected, if and to the extent we~~ have toa ~~rely~~material ~~upon~~adverse ~~higher~~effect ~~cost~~on ~~borrowings from other institutional lenders to fund loan demand or liquidity needs, and changes in~~ our ~~deposit~~reported ~~mix and growth could adversely affect our profitability and the ability to expand our loan portfolio~~results.

~~Competition~~A ~~from~~material portion of our financial ~~institutions~~results is based on loss share accounting, which is subject to assumptions and ~~other~~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 the accountants or the regulatory agencies to whom we report require that management change or modify these assumptions, such change or modification could have a material adverse effect on our financial ~~service~~condition, ~~providers~~operations ~~may~~or ~~adversely~~previously ~~affect~~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 ~~profitability~~results of operations and our previously reported results.

~~The~~Our ~~banking~~financial ~~business~~information isreflects ~~highly~~the ~~competitive~~application ~~and~~of wethe ~~experience~~acquisition ~~competition~~method ~~in each~~ of ~~our markets from many other financial institutions~~accounting. WeAny ~~compete~~change ~~with~~in ~~commercial~~the ~~banks,~~assumptions ~~credit~~used ~~unions,~~in ~~savings~~such ~~and~~methodology ~~loan~~could ~~associations,~~have ~~mortgage~~an ~~banking~~adverse ~~firms,~~effect ~~consumer~~on finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other super-regional, national and international financial institutions that operate offices in our ~~primary~~results ~~market~~of ~~areas and elsewhere~~operations.

WeAs ~~compete~~a ~~with~~result ~~these~~of ~~institutions~~CBF’s ~~both~~recent inacquisition ~~attracting~~of ~~deposits~~us, ~~and~~our ~~assets~~financial ~~under~~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 inliabilities ~~making~~assumed ~~loans~~to determine their fair market value. InCapital ~~addition~~Bank’s interest income, weinterest ~~have~~expense toand ~~attract~~net ~~our~~interest ~~customer~~margin ~~base~~(which ~~from~~were ~~other~~equal ~~existing~~to ~~financial~~$226.4 ~~institutions~~million, ~~and~~$32.8 ~~from~~million ~~new~~and ~~residents~~3.41%, ~~Many~~respectively, for the year ended December 31, 2011) reflect the impact of ~~our~~accretion ~~competitors~~of ~~are~~the ~~well-established,~~fair ~~larger~~value ~~financial~~adjustments ~~institutions.~~made ~~While~~to wethe ~~believe~~carrying weamounts ~~can~~of interest earning assets and dointerest ~~successfully~~bearing ~~compete~~liabilities ~~with~~and ~~these~~Capital ~~other~~Bank’s ~~financial~~non-interest ~~institutions~~income in(which ~~our~~totaled ~~primary~~$40.7 ~~markets~~million as of December 31, we2011) ~~may~~for ~~face~~periods asubsequent ~~competitive~~to ~~disadvantage~~the asacquisitions aincludes ~~result~~the effects of ~~our~~discount ~~smaller~~accretion ~~size,~~and ~~regulatory~~amortization ~~scrutiny~~of the FDIC indemnification asset. In addition, ~~lack~~the balances of ~~geographic~~non-performing ~~diversification~~assets ~~and~~were ~~inability~~significantly reduced by the adjustments to ~~spread~~fair ~~our~~value ~~marketing~~recorded ~~costs~~in ~~across~~conjunction awith ~~broader~~the ~~market~~relevant acquisition. ~~Although~~If weour ~~compete~~assumptions byare ~~concentrating~~incorrect ~~our~~or ~~marketing~~the ~~efforts~~regulatory inagencies ~~our~~to ~~primary~~whom ~~markets~~we ~~with~~report ~~local~~require ~~advertisements,~~that ~~personal~~we ~~contacts~~change or modify assumptions, ~~and~~such ~~greater~~change ~~flexibility~~or ~~and~~modification ~~responsiveness~~could inhave ~~working~~a ~~with~~material ~~local~~adverse ~~customers,~~effect weon ~~can~~our ~~give~~financial nocondition ~~assurance~~or ~~this~~results ~~strategy~~of ~~will~~operations beor ~~successful~~our previously reported results.

~~The soundness of other financial institutions could adversely affect us.~~29

Our ~~ability~~business tois ~~engage~~highly insusceptible routine funding and other transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. Defaults by, or even rumors or questions about, one or more financial institutions, or the financial services industry generally, may lead to ~~market-wide~~credit ~~liquidity problems and losses of depositor, creditor and counterparty confidence and could lead to losses or defaults by us or by other institutions~~risk.

WeAs ~~are~~a ~~dependent~~lender, ~~upon~~Capital Bank is exposed to the ~~services~~risk that its customers will be unable to repay their loans according to their terms and that the collateral (if any) securing the payment of ~~our~~their ~~management~~loans ~~team~~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 Capital Bank has established for borrowers may not prevent the incurrence of substantial credit losses.

~~Our~~Although ~~future~~Capital ~~success~~Bank ~~and~~does ~~profitability~~not ishave ~~substantially~~a ~~dependent~~long ~~upon~~enough ~~the~~operating ~~management~~history ~~and~~to ~~banking~~have ~~abilities~~restructured many of ~~our~~its ~~senior~~loans ~~executives. We~~for ~~believe~~borrowers ~~that~~in ~~our~~financial difficulty, in the future, ~~results~~it ~~will~~may ~~also~~restructure ~~depend~~originated inor ~~part~~acquired ~~upon~~loans ~~our~~if ~~attracting~~Capital ~~and~~Bank ~~retaining~~believes ~~highly~~the ~~skilled~~borrowers ~~and~~have ~~qualified~~a ~~management~~viable ~~and~~business ~~sales~~plan ~~and~~to ~~marketing~~fully ~~personnel~~pay off all obligations. ~~Competition~~ However, for ~~such~~its ~~personnel~~originated ~~is intense~~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 wea ~~cannot~~concession ~~assure~~is ~~you~~granted, ~~that~~Capital weBank ~~will~~may be ~~successful~~required into ~~retaining~~classify such ~~personnel. We~~action ~~also~~as ~~cannot~~a ~~guarantee~~troubled ~~that~~debt ~~members~~restructuring of(which ~~our~~we ~~executive~~refer ~~management~~to ~~team~~as ~~will~~a ~~remain~~“TDR”). ~~with~~Capital ~~us. Changes~~Bank inwould ~~key~~classify ~~personnel~~loans as TDRs when certain modifications are made to the loan terms and concessions are granted to the borrowers due to their ~~responsibilities~~financial ~~may~~difficulty. Generally, these loans would be ~~disruptive~~restructured to ~~our~~provide the borrower additional time to execute its business ~~and~~plan. ~~could~~With ~~have~~respect to restructured loans, Capital Bank 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 ~~material~~stated ~~adverse~~interest ~~effect~~rate onlower ~~our~~than ~~business,~~the ~~financial~~current ~~condition~~market rate for new debt with similar risk. In situations where a TDR is unsuccessful and ~~results~~the borrower is unable to satisfy the terms of ~~operations~~the restructured agreement, the loan would be placed on nonaccrual status and written down to the underlying collateral value.

16Recent economic and market developments and the potential for continued economic disruption present considerable risks to CBF 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 CBF’s business in general. Any failure to manage such credit risks may materially adversely affect CBF’s business and its consolidated results of operations and financial condition.

A ~~substantial~~significant ~~decline~~portion inof ~~the~~Capital ~~value~~Bank’s ofloan ~~our~~portfolio ~~Federal~~is ~~Home~~secured ~~Loan~~by ~~Bank~~real ofestate, ~~Atlanta~~and ~~common~~events ~~stock~~that ~~may~~negatively ~~result~~impact inthe anreal ~~other~~estate ~~than~~market ~~temporary~~could ~~impairment~~hurt ~~charge~~its business.

WeA ~~are~~significant aportion ~~member~~ of ~~the~~Capital ~~Federal~~Bank’s ~~Home~~loan ~~Loan~~portfolio ~~Bank~~is secured by real estate. As of ~~Atlanta~~December 31, ~~or FHLB~~2011, ~~which~~approximately ~~enables~~84% usof toCapital ~~borrow~~Bank’s ~~funds~~loans ~~under~~had ~~the~~real ~~Federal~~estate ~~Home~~as ~~Loan~~a ~~Bank~~primary ~~advance~~or ~~program~~secondary component of collateral. As aThe ~~FHLB~~real ~~member,~~estate wecollateral ~~are~~in ~~required~~each tocase ~~own~~provides ~~FHLB~~an ~~common~~alternate ~~stock,~~source of repayment in the ~~amount~~event of ~~which~~default ~~increases~~by ~~with~~ the ~~level~~borrower ofand ~~our~~may ~~FHLB~~deteriorate ~~borrowings. Due~~in tovalue ~~weak~~during ~~financial~~the ~~results,~~time the ~~FHLB~~credit ~~has~~is ~~substantially~~extended. ~~reduced~~A ~~the~~continued ~~payment~~weakening of ~~dividends.~~the ~~The~~real ~~FHLB~~estate ~~has~~market ~~also~~in ~~suspended~~Capital ~~daily~~Bank’s ~~repurchases~~primary ofmarket ~~FHLB~~areas ~~common~~could ~~stock,~~continue ~~which~~to ~~adversely~~result ~~affects~~in an increase in the ~~liquidity~~number of ~~these~~borrowers ~~shares. The~~who ~~carrying~~default ~~value~~on their loans and ~~fair~~a ~~market~~reduction in the value of ~~our~~the ~~FHLB~~collateral ~~common~~securing ~~stock~~their ~~was~~loans, ~~$9.3~~which ~~million~~in asturn ofcould ~~December~~have ~~31,~~an ~~2010~~adverse effect on Capital Bank’s profitability and asset quality. ~~Consequently,~~ ~~there~~If Capital Bank is required to liquidate the collateral securing a ~~risk~~loan ~~that~~to ~~our~~satisfy ~~investment~~the ~~could~~debt beduring ~~deemed~~a ~~other~~period ~~than~~of ~~temporarily~~reduced ~~impaired~~real atestate ~~some~~values, ~~time~~its inearnings ~~the~~and ~~future~~shareholders’ equity could be adversely affected.

~~Hurricanes~~Additionally, orrecent ~~other~~weakness in the secondary market for residential lending could have an adverse ~~weather~~impact ~~events~~on ~~would~~Capital ~~negatively~~Bank’s ~~affect~~profitability. ~~our~~Significant ~~local~~ongoing ~~economies~~disruptions orin ~~disrupt~~the ~~our~~secondary ~~operations~~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, ~~which~~combined ~~would~~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 anfurther adverse ~~effect~~effects on ~~our~~borrowers ~~business~~that orresult in higher delinquencies and charge-offs in future periods, which could adversely affect Capital Bank’s financial position and results of operations.

Our market areas in Florida are susceptible to hurricanes and tropical storms and related flooding and wind damage. 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 will affect our operations or the economies in our current or future market areas, but such weather events could result in a decline in 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 future hurricanes or tropical storms, including flooding and wind damage. Many of our customers have incurred significantly higher property and casualty insurance premiums on their properties located in our markets, which may adversely affect real estate sales and values in those markets.30

Capital Bank’s construction and land development loans are based upon estimates of costs and the values of the complete projects.

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

In general, C&D lending involves additional risks because of the inherent difficulty in estimating a property’s value both before and at completion of the project. Construction costs may exceed original estimates as a result of increased materials, labor or other costs. In addition, because of current uncertainties in the residential and commercial real estate markets, property values have become more difficult to determine than they have been historically. The repayment of construction and land acquisition and development loans is often dependent, in part, on the ability of the borrower to sell or lease the property. These loans also require ongoing monitoring. In addition, speculative construction loans to a residential builder are often associated with homes that are not presold and, thus, pose a greater potential risk than construction loans to individuals on their personal residences. Slowing housing sales have been a contributing factor to an increase in non-performing loans as well as an increase in delinquencies.

As of December 31, 2011, C&D loans totaled $509.3 million (or 12% of Capital Bank’s total loan portfolio), of which $86.0 million was for construction and/or development of residential properties and $423.3 million was for construction/development of commercial properties. As of December 31, 2011, non-performing C&D loans covered under FDIC loss share agreements totaled $39.4 million and non-performing C&D loans not covered under FDIC loss share agreements totaled $94.9 million.

Capital Bank’s non-owner occupied commercial real estate loans may be dependent on factors outside the control of its borrowers.

While Capital Bank intends to focus on originating loans other than non-owner occupied commercial real estate loans, in the acquisitions it acquired non-owner occupied commercial real estate loans for individuals and businesses for various purposes, which are secured by commercial properties. These loans typically involve repayment dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service. This may be adversely affected by changes in the economy or local market conditions. Non-owner occupied commercial real estate loans expose a lender to greater credit risk than loans secured by residential real estate because the collateral securing these loans typically cannot be liquidated as easily as residential real estate. In such cases, Capital Bank may be compelled to modify the terms of the loan or engage in other potentially expensive work-out techniques. If Capital Bank forecloses on a non-owner occupied commercial real estate loan, the 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 Capital Bank’s residential or consumer loan portfolios.

As of December 31, 2011, Capital Bank’s non-owner occupied commercial real estate loans totaled $903.9 million (or 21% of its total loan portfolio). As of December 31, 2011, non-performing non-owner occupied commercial real estate loans covered under FDIC loss share agreements totaled $15.3 million and non-performing non-owner occupied commercial real estate loans not covered under FDIC loss share agreements totaled $49.5 million.

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

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

As of December 31, 2011, Capital Bank’s commercial business loans totaled $1.4 billion (or 32% of its total loan portfolio). Of this amount, $902.8 million was secured by owner-occupied real estate and $465.8 million was secured by business assets. As of December 31, 2011, non-performing commercial business loans covered under FDIC loss share agreements totaled $29.8 million and non-performing commercial business loans not covered under FDIC loss share agreements totaled $67.7 million.

Capital Bank’s allowance for loan losses and fair value adjustments may prove to be insufficient to absorb losses for loans that it originates.

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

•	cash flow of the borrower and/or the project being financed;
•	the changes and uncertainties as to the future value of the collateral, in the case of a collateralized loan;
•	the duration of the loan;
•	the discount on the loan at the time of acquisition;
•	the credit history of a particular borrower; and
•	changes in economic and industry conditions.

Non-performing loans covered under loss share agreements with the FDIC totaled $124.1 million, and Non-performing loans not covered under loss share agreements with the FDIC totaled $258.3 million as of December 31, 2011. Capital Bank maintains an allowance for loan losses with respect to loans it originates, which is a reserve established through a provision for loan losses charged to expense, which management believes is appropriate to provide for probable losses in Capital Bank’s loan portfolio. The amount of this allowance is determined by Capital Bank’s management team through periodic reviews. As of December 31, 2011, the allowance on loans covered by loss share agreements with the FDIC was $11.8 million, and the allowance on loans not covered by loss share agreements with the FDIC was $22.9 million. As of December 31, 2011, the ratio of Capital Bank’s allowance for loan losses to non-performing loans covered by loss share agreements with the FDIC was 9.5% and the ratio of its allowance for loan losses to non-performing loans not covered by loss share agreements with the FDIC was 8.9%.

The application of the acquisition method of accounting to CBF’s completed acquisitions impacted Capital Bank’s allowance for loan losses. Under the acquisition method of accounting, all loans were recorded in 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. Capital Bank may in the future determine that the estimates of fair value are too high, in which case Capital Bank would provide for additional loan losses associated with the acquired loans. As of December 31, 2011, the allowance for loan losses on purchased credit-impaired loan pools totaled $26.3 million, of which $11.8 million was related to loan pools covered by loss share agreements with the FDIC and $14.5 million was related to loan pools not covered by loss share agreements with the FDIC.

The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires Capital Bank 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 Capital Bank originates, identification of additional problem loans originated by Capital Bank and other factors, both within and outside of management’s control, may require an increase in the allowance for loan losses. If current trends in the real estate markets continue, Capital Bank’s management expects that it 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 Capital Bank’s 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, Capital Bank 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 Capital Bank’s financial condition and results of operations.

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

Capital Bank forecloses on and take title to the real estate serving as collateral for many of its loans as part of its business. Real estate owned by Capital Bank and not used in the ordinary course of its operations is referred to as “other real estate owned” or “OREO” property. At December 31, 2011, Capital Bank had $168.8 million of OREO. Increased OREO balances have led to greater expenses as costs are incurred to manage and dispose of the properties. Capital Bank’s management expects that its 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 Capital Bank’s statement of operations. Capital Bank’s management evaluates OREO properties periodically and writes down the carrying value of the properties if the results of such evaluations require it. The expenses associated with OREO and any further property write-downs could have a material adverse effect on Capital Bank’s financial condition and results of operations.

Capital Bank is subject to environmental liability risk associated with lending activities.

A significant portion of Capital Bank’s loan portfolio is secured by real property. During the ordinary course of business, Capital Bank 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, Capital Bank may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require Capital Bank to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit the Bank’s 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 Capital Bank’s exposure to environmental liability. Although Capital Bank has 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 Capital Bank’s financial condition 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 resulting in proposed new laws and regulations governing foreclosures. Such laws and regulations might restrict or delay Capital Bank’s ability to foreclose and collect payments for single family residential loans under the loss sharing agreements.

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 Capital Bank’s ability to foreclose on a loan, any requirement that the Bank forego a portion of the amount otherwise due on a loan or any requirement that the Bank modify any original loan terms will in some instances require Capital Bank to advance principal, interest, tax and insurance payments, which may negatively impact its business, financial condition, liquidity and results of operations.

In addition, for the single family residential loans covered by the loss sharing agreements, Capital Bank cannot collect loss share payments until it liquidates the properties securing those loans. These loss share payments could be delayed by an extended foreclosure process, including delays resulting from a court backlog, local or national foreclosure moratoriums or other delays, and these delays could have a material adverse effect on Capital Bank’s results of operations.

Like other financial services institutions, Capital Bank’s 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 the Bank.

Like other financial services institutions, Capital Bank has 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.

Capital Bank’s earnings and cash flows largely depend upon the level of its net interest income, which is the difference between the interest income it earns on loans, investments and other interest earning assets, and the interest it pays 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 Capital Bank’s 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 Capital Bank’s 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 the Bank’s financial assets and liabilities and its ability to realize gains on the sale of assets. A decrease in the general level of interest rates may affect Capital Bank through, among other things, increased prepayments on its loan and mortgage-backed securities portfolios and increased competition for deposits.

Accordingly, changes in the level of market interest rates affect Capital Bank’s net yield on interest earning assets, loan origination volume, loan and mortgage-backed securities portfolios and its 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 Capital Bank’s balance sheet. Interest rates are highly sensitive to many factors beyond the Bank’s management’s 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”). Capital Bank’s management 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 the Bank’s financial performance.

Capital Bank has benefited in recent periods from a favorable interest rate environment, but management believes that this environment cannot be sustained indefinitely and interest rates would be expected to rise as the economy recovers. A strengthening U.S. economy would be expected to cause the Board of Governors of the Federal Reserve to increase short-term interest rates, which would increase Capital Bank’s borrowing costs.

The fair value of Capital Bank’s investment securities can fluctuate due to market conditions out of management’s control.

As of December 31, 2011, approximately 94% of Capital Bank’s 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 December 31, 2011, the fair value of Capital Bank’s investment securities portfolio was approximately $827.4 million. Factors beyond Capital Bank’s control can significantly influence the fair value of securities in its 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, Capital Bank has historically taken a conservative investment posture, concentrating on government issuances of short duration. In the future, Capital Bank 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 Capital Bank’s 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, Capital Bank may recognize realized and/or unrealized losses in future periods, which could have an adverse effect on its financial condition and results of operations.

Capital Bank has a significant deferred tax asset that may not be fully realized in the future.

Capital Bank’s net deferred tax asset totaled $164.2 million as of December 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 Capital Bank’s estimates and assumptions about future taxable income are not accurate, the value of its deferred tax asset may not be recoverable and may result in a valuation allowance that would impact the Bank’s earnings.

Recent market disruptions have caused increased liquidity risks and, if Capital Bank is unable to maintain sufficient liquidity, it may not be able to meet the cash flow requirements of its depositors and borrowers.

The recent disruption and illiquidity in the credit markets have generally made potential funding sources more difficult to access, less reliable and more expensive. Capital Bank’s 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 Capital Bank’s liquidity and could adversely affect its 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, Capital Bank’s reserves may not be able to cover the withdrawals.

Furthermore, an inability to increase Capital Bank’s deposit base at all or at attractive rates would impede its ability to fund the Bank’s continued growth, which could have an adverse effect on the Bank’s business, results of operations and financial condition. Collateralized borrowings such as advances from the FHLB are an important potential source of liquidity. Capital Bank’s borrowing capacity is generally dependent on the value of the collateral pledged to the FHLB. An adverse regulatory change could reduce Capital Bank’s borrowing capacity or eliminate certain types of collateral and could otherwise modify or even eliminate the Bank’s 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 Capital Bank’s balance sheet to asset classes that are less liquid. Any such change or termination may have an adverse effect on Capital Bank’s liquidity.

Capital Bank’s access to other funding sources could be impaired by factors that are not specific to the Bank, 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. Capital Bank may need to incur additional debt in the future to achieve its business objectives, in connection with future acquisitions or for other reasons. Any borrowings, if sought, may not be available to Capital Bank or, if available, may not be on favorable terms. Without sufficient liquidity, Capital Bank may not be able to meet the cash flow requirements of its depositors and borrowers, which could have a material adverse effect on the Bank’s financial condition and results of operations.

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

Capital Bank expects to depend on checking, savings and money market deposit account balances and other forms of customer deposits as its primary source of funding for the Bank’s lending activities. Capital Bank’s future growth will largely depend on its ability to retain and grow a strong deposit base. Because 43% of Capital Bank’s deposits as of December 31, 2011 were time deposits, it may prove harder to maintain and grow the Bank’s deposit base than would otherwise be the case. Capital Bank is also working to transition certain of its 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 Capital Bank, which could adversely affect its 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 Capital Bank is fully insured and may place them in other institutions or make investments that are perceived as being more secure. Further, even if Capital Bank is able to grow and maintain its 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), Capital Bank could lose a relatively low cost source of funds, increasing its funding costs and reducing the Bank’s net interest income and net income. Additionally, any such loss of funds could result in lower loan originations, which could materially negatively impact Capital Bank’s growth strategy and results of operations.

Capital Bank operates in a highly competitive industry and faces significant competition from other financial institutions and financial services providers, which may decrease its growth or profits.

Consumer and commercial banking is highly competitive. Capital Bank’s market contains not only a large number of community and regional banks, but also a significant presence of the country’s largest commercial banks. Capital Bank competes 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, Capital Bank competes 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 Capital Bank’s 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 Capital Bank’s ability to market its products and services. Also, technology has lowered barriers to entry and made it possible for banks to compete in Capital Bank’s market without a retail footprint by offering competitive rates, as well as non-banks to offer products and services traditionally provided by banks. Many of Capital Bank’s 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 Capital Bank can.

Capital Bank’s 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 the Bank’s business effectively;
•	the ability to expand the Bank’s market position;
•	the scope, relevance and pricing of products and services offered to meet customer needs and demands;
•	the rate at which the Bank introduces new products and services relative to its competitors;
•	customer satisfaction with the Bank’s level of service; and
•	industry and general economic trends.

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

Capital Bank may be adversely affected by the soundness of other financial institutions

Capital Bank’s ability to engage in routine funding and other transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. Defaults by, or even rumors or questions about, one or more financial institutions, or the financial services industry generally, may lead to market-wide liquidity problems and losses of depositor, creditor and counterparty confidence and could lead to losses or defaults by us or by other institutions.

Capital Bank is subject to losses due to the errors or fraudulent behavior of employees or third parties.

Capital Bank is exposed to many types of operational risk, including the risk of fraud by employees and outsiders, clerical recordkeeping errors and transactional errors. Capital Bank’s business is dependent on its employees as well as third-party service providers to process a large number of increasingly complex transactions. Capital Bank could be materially adversely affected if one of its employees causes a significant operational breakdown or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates the Bank’s operations or systems. When Capital Bank originates loans, it relies 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, Capital Bank generally bears the risk of loss associated with the misrepresentation. Any of these occurrences could result in a diminished ability of Capital Bank to operate its business, potential liability to customers, reputational damage and regulatory intervention, which could negatively impact the Bank’s business, financial condition and results of operations.

Capital Bank is dependent on its information technology and telecommunications systems and third-party servicers, and systems failures, interruptions or breaches of security could have an adverse effect on the Bank’s financial condition and results of operations.

Capital Bank’s business is highly dependent on the successful and uninterrupted functioning of its information technology and telecommunications systems and third-party servicers. Capital Bank outsources many of its 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 the Bank’s operations. Because Capital Bank’s information technology and telecommunications systems interface with and depend on third-party systems, the Bank 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 Capital Bank’s ability to process new and renewal loans, gather deposits and provide customer service, compromise the Bank’s ability to operate effectively, damage its reputation, result in a loss of customer business and/or subject the Bank to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on the Bank’s financial condition and results of operations.

In addition, Capital Bank provides its customers the ability to bank remotely, including online over the Internet. The secure transmission of confidential information is a critical element of remote banking. Capital Bank’s network could be vulnerable to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches. Capital Bank 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 Capital Bank’s activities or the activities of its customers involve the storage and transmission of confidential information, security breaches and viruses could expose the Bank 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 Capital Bank’s systems and could adversely affect its reputation, results of operations and ability to attract and maintain customers and businesses. In addition, a security breach could also subject Capital Bank to additional regulatory scrutiny, expose the Bank to civil litigation and possible financial liability and cause reputational damage.

Hurricanes or other adverse weather events would negatively affect Capital Bank’s local economies or disrupt its operations, which would have an adverse effect on the Bank’s business or results of operations.

Capital Bank’s 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. Capital Bank’s 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 Capital Bank, damage its banking facilities and offices and negatively impact the Bank’s growth strategy. Such weather events can disrupt operations, result in damage to properties and negatively affect the local economies in the markets where Capital Bank operates. The Bank’s management cannot predict whether or to what extent damage that may be caused by future hurricanes or tornadoes will affect Capital Bank’s operations or the economies in its 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 Capital Bank’s loans and an increase in delinquencies, foreclosures or loan losses. Capital Bank’s business or results of operations may be adversely affected by these and other negative effects of natural or manmade disasters.

Risks Relating to Capital Bank’s Growth Strategy

Capital Bank may not be able to effectively manage its growth.

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

•	the ability of its officers and other key employees to continue to implement and improve its operational, credit, financial, management and other internal risk controls and processes and its reporting systems and procedures in order to manage a growing number of client relationships;
•	to scale its technology platform;
•	to integrate its acquisitions and develop consistent policies throughout the various businesses; and
•	to manage a growing number of client relationships.

Capital Bank may not successfully implement improvements to, or integrate, its 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, Capital Bank’s 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, Capital Bank’s growth strategy may divert management from its existing businesses and may require the Bank to incur additional expenditures to expand its administrative and operational infrastructure and, if Capital Bank is unable to effectively manage and grow its banking franchise, its business and the Bank’s consolidated results of operations and financial condition could be materially and adversely impacted. In addition, if Capital Bank is unable to manage future expansion in its operations, the Bank 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 Capital Bank’s business.

Many of Capital Bank’s new activities and expansion plans require regulatory approvals, and failure to obtain them may restrict its growth.

Capital Bank intends to complement and expand its business by pursuing strategic acquisitions of banks and other financial institutions. Generally, any acquisition of target financial institutions or assets by CBF or Capital Bank 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 an application based on the above criteria or other considerations or the regulatory approvals may not be granted on terms that are acceptable to CBF or Capital Bank. For example, Capital Bank could be required to sell branches as a condition to receiving regulatory approvals, and such a condition may not be acceptable to CBF or Capital Bank or may reduce the benefit of any acquisition.

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

The success of future transactions will depend on CBF’s ability to successfully identify and consummate transactions with target financial institutions that meet its investment criteria. There are significant risks associated with CBF’s ability to identify and successfully consummate transactions with target financial institutions. There are a limited number of acquisition opportunities, and CBF expects 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 CBF and Capital Bank do, and CBF’s 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 CBF could. CBF’s ability to compete in acquiring certain sizable target institutions will be limited by its 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 CBF intends 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 CBF believes are justified, which could result in CBF having to pay more for target financial institutions than it prefers or to forego target financial institutions. As a result of the foregoing, CBF may be unable to successfully identify and consummate future transactions to grow its business on commercially attractive terms, or at all.

Because the institutions CBF intends to acquire may have distressed assets, CBF may not be able to realize the value it predicts from these assets or make sufficient provision for future losses in the value of, or accurately estimate the future write-downs taken in respect of, these assets.

Delinquencies and losses in the loan portfolios and other assets of financial institutions that CBF acquires may exceed its initial forecasts developed during the due diligence investigation prior to acquiring those institutions. Even if CBF conducts extensive due diligence on an entity it decides 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, CBF fails to identify issues specific to an entity or the environment in which the entity operates, CBF may be forced to later write down or write off assets, restructure its 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 CBF acquires and of CBF as a whole. If any of the foregoing adverse events occur with respect to one subsidiary, they may adversely affect other of CBF’s subsidiaries or the CBF as a whole. Current economic conditions have created an uncertain environment with respect to asset valuations and there is no certainty that CBF will be able to sell assets of target institutions if it determines it would be in its best interests to do so. The institutions CBF 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 CBF’s ability to successfully combine the target financial institution’s business with CBF’s existing banking business and, if CBF experiences 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 CBF’s ability to successfully combine the target financial institution’s business with its 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 Capital Bank’s 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 Capital Bank’s systems may divert the Bank’s management’s attention and resources, and CBF may be unable to develop, or experience prolonged delays in the development of, the systems necessary to operate its acquired banks, such as a financial reporting platform or a human resources reporting platform call center. If CBF experiences 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, CBF and Capital Bank may be unable to recognize synergies, operating efficiencies and/or expected benefits within expected timeframes within expected cost projections, or at all. CBF may also not be able to preserve the goodwill of the acquired financial institution.

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

CBF will generally establish the pricing of transactions and the capital structure of entities to be acquired 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 CBF’s acquisitions, or future projections with respect to new acquisitions, are not accurate, such inaccuracies could materially and adversely affect Capital Bank’s business and CBF’s consolidated results of operations and financial condition.

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

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

Risks Relating to the Regulation of Capital Bank’s Industry

Capital Bank operates in a highly regulated industry and the laws and regulations that govern its operations, corporate governance, executive compensation and financial accounting, or reporting, including changes in them or Capital Bank’s failure to comply with them, may adversely affect us.

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

Capital Bank is periodically subject to examination and scrutiny by a number of banking agencies and, depending upon the findings and determinations of these agencies, the Bank may be required to make adjustments to its business that could adversely affect it.

Federal and state banking agencies periodically conduct examinations of Capital Bank’s 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 Capital Bank’s operations has become unsatisfactory, or that the Bank or its 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 Capital Bank’s capital, to restrict its growth, to change the asset composition of its portfolio or balance sheet, to assess civil monetary penalties against its 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 its deposit insurance. If Capital Bank becomes subject to such regulatory actions, its 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 Capital Bank’s operations.

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection (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 Capital Bank’s 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;
•	changes to deposit insurance assessments;
•	regulation of debit interchange fees the Bank earns;
•	changes in retail banking regulations, including potential limitations on certain fees the Bank 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 Capital Bank’s business activities, require changes to certain of its business practices, impose upon the Bank more stringent capital, liquidity and leverage requirements or otherwise adversely affect Capital Bank’s business. These changes may also require Capital Bank 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 Capital Bank’s results of operations and financial condition. While management cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on Capital Bank or the Company, these changes could be materially adverse to the Company, Capital Bank and CBF.

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 the Company, CBF and Capital Bank.

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

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

Capital Bank is subject to federal and state and fair lending laws, and failure to comply with these laws could lead to material penalties.

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

Capital Bank faces 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 effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network, established by the U.S. Treasury Department to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. There is also increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control (which we refer to as “OFAC”). If Capital Bank’s policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions that CBF has already acquired or may acquire in the future are deficient, Capital Bank would be subject to liability, including fines and regulatory actions such as restrictions on its ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of its business plan, including its acquisition plans, which would negatively impact its 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 Capital Bank.

Federal, state and local consumer lending laws may restrict Capital Bank’s ability to originate certain mortgage loans or increase the Bank’s risk of liability with respect to such loans and could increase its 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 Capital Bank’s policy not to make predatory loans, but these laws create the potential for liability with respect to the Bank’s lending and loan investment activities. They increase Capital Bank’s cost of doing business and, ultimately, may prevent the Bank from making certain loans and cause it to reduce the average percentage rate or the points and fees on loans that it does make.

The Federal Reserve may require the Company or CBF and its other subsidiaries to commit capital resources to support Capital Bank.

The Federal Reserve, which examines the Company and CBF, 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, the Company or CBF could be required to provide financial assistance to Capital Bank if it experiences financial distress.

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

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

The Company and CBF are bank holding companies regulated by the Federal Reserve. Accordingly, acquisition of control of CBF or the Company (or a 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 acquirer 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 CBF or Capital Bank’s 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 the Company or CBF’s outstanding voting securities.

In addition to regulatory approvals, any stockholder deemed to “control” the Company or CBF 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 the Company or CBF’s voting securities, or a lesser percentage if such holder or group otherwise exercises a “controlling influence” over the Company or CBF, 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;
•	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.

The Company’s or CBF’s 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 the Company’s common stock.

Risks Related to CBF’s Common Stock Proposed to by Issues in the Merger

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

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

In addition, CBF intends to file a registration statement on Form S-8 under the Securities Act to register additional shares of Class A common stock for issuance under CBF’s 2010 Equity Incentive Plan. CBF may issue all of these shares without any action or approval by CBF’s 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 acquire CBF’s shares in the merger.

If shares of CBF’s Class B non-voting common stock are converted into shares of Class A common stock, your voting power subsequent to the merger will be diluted.

Generally, holders of CBF’s Class B non-voting common stock have no voting power and have no right to participate in any meeting of stockholders or to have notice thereof. However, holders of Class B non-voting common stock that are converted into Class A common stock will have all the voting rights of the other holders of Class A common stock. Class B non-voting common stock is not convertible in the hands of the initial holder. However, a transferee unaffiliated with the initial holder that receives Class B non-voting common stock subsequent to transfer permitted by CBF’s certificate of incorporation may elect to convert each share of Class B non-voting common stock into one share of Class A common stock. Subsequent to the merger, upon conversion of any Class B non-voting common stock, your voting power will be diluted in proportion to the decrease in your ownership of the total outstanding Class A common stock.

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

The market price of CBF’s 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 CBF or Capital Bank’s performance;
●	actual or anticipated fluctuations in CBF or Capital Bank’s quarterly operating results;
●	changes in or failure to meet publicly disclosed expectations as to CBF or Capital Bank’s future financial performance;
●	downgrades in securities analysts’ estimates of CBF or Capital Bank’s financial performance or lack of research and reports by industry analysts;
●	changes in market valuations or earnings of similar companies;
●	any future sales of CBF’s common stock or other securities; and
●	additions or departures of key personnel.

The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of particular companies. These types of broad market fluctuations may adversely affect the trading price of CBF’s 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 the Company or CBF 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 CBF’s Class A common stock.

CBF and the Company do not currently intend to pay dividends on shares of their common stock in the foreseeable future and the ability to pay dividends will be subject to restrictions under applicable banking laws and regulations.

CBF and the Company do not currently intend to pay cash dividends on their common stock in the foreseeable future. The payment of cash dividends in the future will be dependent upon various factors, including earnings, if any, cash balances, capital requirements and general financial condition. The payment of any dividends will be within the discretion of the then-existing Board of Directors. It is the present intention of the Boards of Directors of the Company and CBF to retain all earnings, if any, for use in business operations in the foreseeable future and, accordingly, the Boards of Directors do not currently anticipate declaring any dividends. Because CBF and the Company do not expect to pay cash dividends on their common stock for some time, any gains on an investment in CBF’s Class A common stock will be limited to the appreciation, if any, of the market value of the 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 CBF and the Company depending on their financial condition could be deemed an unsafe or unsound practice. The ability to pay dividends will directly depend on the ability of Capital Bank to pay dividends to us, which in turn will be restricted by the requirement that it maintains an adequate level of capital in accordance with requirements of its regulators and, in the future, can be expected to be further influenced by regulatory policies and capital guidelines. In addition, on August 24, 2010, Capital Bank entered into the OCC Operating Agreement, which in certain circumstances will restrict Capital Bank’s ability to pay dividends to us, to make changes to its capital structure and to make certain other business decisions.

Certain provisions of CBF’s 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 CBF’s common stock and could entrench management. In addition, Delaware law may inhibit takeovers of CBF and could limit CBF’s ability to engage in certain strategic transactions its Board of Directors believes would be in the best interests of stockholders.

CBF’s 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 CBF’s Board of Directors to designate the terms of and issue new series of preferred stock, which may make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for CBF’s securities, including its Class A common stock.

The loss sharing agreements with the FDIC require that Capital Bank receive prior FDIC consent, which may be withheld by the FDIC in its sole discretion, prior to CBF, Capital Bank or the Company’s 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 CBF or its bank subsidiary with or into another company if CBF’s 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 CBF’s bank subsidiary and (3) a sale of shares by a stockholder, or a group of related stockholders, that will effect a change in control of Capital Bank, as determined by the FDIC with reference to the standards set forth in the Change in Bank Control Act (generally, the acquisition of between 10% and 25% of any class of CBF’s 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 CBF’s voting securities). If CBF 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 Capital Bank’s financial condition, results of operations and cash flows. In addition, statutes, regulations and policies that govern bank holding companies, including the BHCA, may restrict CBF’s ability to enter into certain transactions.

CBF is also subject to anti-takeover provisions under Delaware law. CBF has 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.

Risks Related to Our Common Stock

~~NAFH~~CBF is a controlling shareholder and may have interests that differ from the interests of our other shareholders.

Upon completion of the ~~NAFH~~ Investment ~~and shareholder rights offering and before accounting for any stock that may subsequently be issued pursuant to the Warrant~~, ~~NAFH~~CBF owned approximately 9490% of the Company’s outstanding voting power. As a result, ~~NAFH~~CBF will be able to control the election of our directors, determine our corporate and management policies and determine the outcome of any corporate transaction or other matter submitted to our shareholders for approval. Such transactions may include mergers and acquisitions (~~which~~including ~~may~~the ~~include~~contemplated ~~mergers~~potential merger of the Company ~~and/or its subsidiaries~~ with orand into ~~NAFH and/or NAFH's other subsidiaries~~CBF), sales of all or some of the Company'’s assets (including sales of such assets to ~~NAFH~~CBF and/or ~~NAFH'~~CBF’s other subsidiaries) or purchases of assets from ~~NAFH~~CBF and/or ~~NAFH'~~CBF’s other subsidiaries, and other significant corporate transactions.

OnFive ~~March~~of 11our seven directors, ~~2011~~our Chief Executive Officer, ~~NAFH~~our ~~disclosed~~Chief ~~that~~Financial itOfficer, isand ~~seeking~~our ~~regulatory~~Chief ~~approval~~Risk Officer are affiliated with CBF. CBF also has sufficient voting power to ~~combine~~amend ~~its~~our ~~three~~organizational ~~banks,~~documents. ~~Capital~~The ~~Bank,~~interests ~~TIB~~of ~~Bank~~CBF ~~and~~may ~~NAFH~~differ ~~National~~from ~~Bank~~those ~~and~~of ~~that~~our other shareholders, and it may ~~also~~take ~~seek~~actions tothat ~~combine~~advance its ~~holding~~interests ~~companies~~to (the ~~Company,~~detriment ~~NAFH~~of our other shareholders. Additionally, ~~and~~CBF ~~Capital~~is ~~Bank~~in ~~Corporation). No~~the ~~assurances~~business ~~can~~of bemaking ~~given~~investments ~~that~~in ~~applicable~~or ~~regulatory~~acquiring ~~approvals~~financial ~~will~~institutions beand ~~obtained~~may, from time to time, acquire and hold interests in businesses that ~~the~~compete ~~transactions~~directly ~~described~~or ~~above~~indirectly ~~will~~with beus. ~~consummated~~CBF may also pursue, orfor ifits ~~consummated~~own account, asacquisition opportunities that may be complementary to ~~the~~our ~~timing~~business, ~~price~~and as a result, ~~structure~~those oracquisition ~~other~~opportunities ~~terms~~may ofnot ~~the~~be ~~transactions~~available to us.

Five of our seven directors, our Chief Executive Officer, our Chief Financial Officer, and our Chief Risk Officer are affiliates of NAFH. NAFH also has sufficient voting power to amend our organizational documents. The interests of NAFH may differ from those of our other shareholders, and it may take actions that advance its interests to the detriment of our other shareholders. Additionally, NAFH is in the business of making investments in or acquiring financial institutions and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. NAFH may also pursue, for its own account, acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us.

This concentration of ownership could also have the effect of delaying, deferring or preventing a change in our control or impeding a merger or consolidation, takeover or other business combination that could be favorable to the other holders of our common stock, and the trading prices of our common stock may be adversely affected by the absence or reduction of a takeover premium in the trading price.

1746

As a controlled company, we are exempt from certain ~~NASDAQ~~Nasdaq corporate governance requirements.

The Company’s common stock is currently listed on the ~~NASDAQ~~Nasdaq ~~Capital~~Global Select Market. The ~~NASDAQ~~Nasdaq generally requires a majority of directors to be independent and requires independent director oversight over the nominating and executive compensation functions. However, under the rules applicable to the ~~NASDAQ~~Nasdaq, if another company owns more than 50% of the voting power of a listed company, that company is considered a “controlled company” and exempt from rules relating to independence of the board of directors and the compensation and nominating committees. The Company is a controlled company because ~~NAFH~~CBF beneficially owns more than 50% of the Company’s outstanding voting stock. Accordingly, the Company is exempt from certain corporate governance requirements and its shareholders may not have all the protections that these rules are intended to provide.

We may choose to voluntarily delist our common stock from NASDAQ or cease to be a reporting issuer under SEC rules.

We may choose to, or our majority shareholder ~~NAFH~~CBF may cause us to, voluntarily delist from the ~~NASDAQ~~NAsdaq ~~Capital~~Global Select Market. If we were to delist from ~~NASDAQ~~Nasdaq, we may or may not list ourselves on another exchange, and may or may not be required to continue to file periodic and current reports and other information as a reporting issuer under SEC rules. A delisting of our common stock could negatively impact shareholders by reducing the liquidity and market price of our common stock, reducing information available about the Company on an ongoing basis and potentially reducing the number of investors willing to hold or acquire our common stock. In addition, if we were to delist from ~~NASDAQ~~Nasdaq, we would no longer be subject to any of the corporate governance rules applicable to ~~NASDAQ~~Nasdaq listed companies. See also “—As a controlled company, we are exempt from certain ~~NASDAQ~~Nasdaq corporate governance requirements.”

Future issuance or sales of our common stock or other securities, ~~including through exercise of NAFH’s Warrant,~~ will dilute the ownership interests of our existing shareholders and could depress the market price of our common stock.

~~NAFH~~In ~~received,~~order into ~~connection~~maintain ~~with~~our ~~the~~capital ~~Investment,~~at adesired ~~warrant~~levels ~~representing~~or ~~the~~required ~~right~~regulatory levels, or to ~~purchase,~~fund ~~during~~future growth, the ~~18-month~~Company ~~period~~Board ~~following~~may ~~the~~decide ~~closing~~from time to time to issue additional shares of ~~the~~common ~~Investment~~stock, uppreferred tostock 11or securities convertible into,~~666,667~~ exchangeable for or representing rights to acquire shares of our common stock. atThe ~~$15.00~~sale of these shares may significantly dilute our shareholders’ ownership interest and the per share. Ifbook itvalue ~~does~~of ~~so,~~our ~~whether~~common instock. ~~part~~New orinvestors in ~~full~~the future may also have rights, ~~shareholders~~preferences ~~other~~and ~~than~~privileges ~~NAFH~~senior ~~will~~to ~~suffer~~our ~~dilution~~current ofshareholders ~~their~~which ~~common~~may ~~shares~~adversely impact our current shareholders.

Further, although we presently do not have any intention of issuing additional common stock apart from the issuances contemplated by the Investment, we may do so in the future in order to meet our capital needs and regulatory requirements, and will be able to do so without shareholder approval, up to the newly increased number of authorized shares. Our board of directors may determine from time to time a need to obtain additional capital through the issuance of additional shares of common stock or other preferred securities including securities convertible into or exchangeable for shares of our common stock, subject to limitations imposed by the NASDAQ and the Federal Reserve Board. There can be no assurance that such shares can be issued at prices or on terms better than or equal to the terms obtained by our current shareholders. The issuance of any additional shares of common stock or convertible or exchangeable preferred securities by us in the future may result in a reduction of the per share book value or market price, if any, of the then-outstanding common stock. Issuance of additional shares of common stock or convertible or exchangeable preferred securities will reduce the proportionate ownership and voting power of our existing shareholders.

Resales of our common stock or other securities in the public market may cause the market price of our common stock to fall.

Sales of a substantial number of shares of our common stock in the public market by our shareholders (including ~~NAFH~~CBF), or the perception that such sales are likely to occur, could cause the market price of our common stock to decline. Pursuant to the ~~Company’s investment agreement with NAFH~~Investment, we have agreed to provide customary registration rights for the shares of common stock issued to ~~NAFH~~CBF and ~~NAFH~~CBF can exercise those rights in order to sell additional shares of our common stock at its discretion. We cannot predict the effect, if any, that future sales of our common stock in the market, or availability of shares of our common stock for sale in the market, will have on the market price of our common stock. We therefore can give no assurance that sales of substantial amounts of our common stock in the market, or the potential for large amounts of sales in the market, would not cause the price of our common stock to decline or impair our ability to raise capital through sales of our common stock.

Market conditions and other factors may affect the value of our common stock.

The trading price of the shares of our common stock will depend on many factors, which may change from time to time, including: the factors substantially similar to those identified above under “—The market price of CBF’s Class A common stock may be volatile, which could cause the value of an investment in CBF’s Class A common stock to decline.”

• conditions in the regional and national credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally;47

• market interest rates;

• the market for similar securities;

• government action or regulation;

• general economic conditions or conditions in the financial markets;

• changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity or real estate valuations or volatility;

• our past and future dividend practice; and

• our financial condition, performance, creditworthiness and prospects.

The trading volume in our common stock has been low and the sale of substantial amounts of our common stock in the public market could depress the price of our common stock.

Our common stock is thinly traded. The average daily trading volume of our shares on The Nasdaq ~~National~~Global Select Market during ~~the~~2011 ~~2010~~ was approximately 1,~~311~~846 shares. Thinly traded stock can be more volatile than stock trading in an active public market. In recent years, the stock market has experienced a high level of price and volume volatility, and market prices for the stock of many companies have experienced wide price fluctuations that have not necessarily been related to their operating performance. Therefore, our shareholders may not be able to sell their shares at the volumes, prices, or times that they desire.

We cannot predict the effect, if any, that future sales of our common stock in the market, or availability of shares of our common stock for sale in the market, will have on the market price of our common stock. We therefore can give no assurance sales of substantial amounts of our common stock in the market, or the potential for large amounts of sales in the market, would not cause the price of our common stock to decline or impair our ability to raise capital through sales of our common stock.

Holders of our junior subordinated debentures have rights that are senior to those of our common stockholders.

We have supported our continued growth through the issuance of trust preferred securities from special purpose trusts and accompanying junior subordinated debentures. At December 31, ~~2010~~2011, we had outstanding trust preferred securities and accompanying junior subordinated debentures with face values totaling $33.0 million. Payments of the principal and interest on the trust preferred securities of these special purpose trusts are conditionally guaranteed by us. Further, the accompanying junior subordinated debentures we issued to the special purpose trusts are senior to our shares of common stock. As a result, we must make payments on the junior subordinated debentures before any dividends can be paid on our common stock and, in the event of our bankruptcy, dissolution or liquidation, the holders of the junior subordinated debentures must be satisfied before any distributions can be made on our common stock. We have the right to defer distributions on our junior subordinated debentures (and the related trust preferred securities) for up to five years, during which time no dividends may be paid on our common stock. As discussed above, pursuant to the board resolution adopted on October 5, 2009, we began deferring interest payments on our junior subordinated debentures in October 2009.

The Warrant and other potential issuances of equity securities may impact net income available to our common shareholders and our earnings per share.

We may issue and sell shares of preferred stock or common stock in the future, and such future issuances of equity could further impact the earnings per share available to our existing shareholders.

Our earnings per share could also be diluted by the shares of common stock issuable upon exercise of the Warrant currently held by NAFH. As of December 31, 2010, the shares issuable upon exercise of the Warrant would represent approximately 49% of our outstanding common shares. This percentage includes the shares issuable upon exercise of the Warrant in our total outstanding shares.

An investment in our common stock is not an insured deposit.

Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company. As a result, our shareholders may lose some or all of their investment in our common stock.

ITEM 1B: UNRESOLVED STAFF COMMENTS

~~We did not receive any written comments during 2010 from the Commission staff regarding our periodic and current reports under the Act that remain unresolved from any prior period~~None.

1948

ITEM 2: PROPERTIES

The Company’s executive offices are located at 599 9th Street North, Naples, Florida. ~~TIB~~As ~~Bank‘s~~discussed ~~main~~in ~~office~~Item is1, ~~located~~effective atas ~~6435~~of ~~Naples~~April ~~Boulevard~~29, ~~Naples~~2011, ~~Florida~~the Company’s primary operating subsidiary, TIB Bank, was merged with and into NAFH National Bank. ~~All~~ Subsequent to the merger, the Company ~~operated~~began to account for its ownership in NAFH Bank under the equity method of accounting and the assets and liabilities of the Bank were de-consolidated from the Company’s balance sheet. Due to the deconsolidation of the Bank during the second quarter of 2011, there are no properties that are asoperated ~~follows:~~by the Company.

Address	Location	Purpose	Owned/ Leased
30480 Overseas Highway	Big Pine Key	Branch	Owned
8100 Health Center Boulevard	Bonita Springs	Branch and Office Space	Leased
12205 Metro Parkway	Fort Myers	Branch	Owned
12195 Metro Parkway-Suites 1-7	Fort Myers	Office Space	Owned
17000 Alico Commerce Court	Fort Myers	Branch	Owned
600 North Homestead Boulevard	Homestead	Branch	Owned
777 North Krome Avenue	Homestead	Branch	Owned
704 Washington Avenue	Homestead	Office Space	Leased
28 N.E. 18 Street	Homestead	Office Space	Owned
80900 Overseas Highway 99451 Overseas Highway	Islamorada Key Largo	Branch and Office Space Branch and Office Space	Owned Owned
103330 Overseas Highway	Key Largo	Branch	Owned
330 Whitehead Street	Key West	Branch	Owned
3618 North Roosevelt Boulevard	Key West	Branch	Owned
2348 Overseas Highway	Marathon	Branch	Owned
11401 Overseas Highway	Marathon Shores	Branch	Owned
6435 Naples Boulevard	Naples	TIB Bank HQ, Branch & Office Space	Owned
3940 Prospect Avenue – Suite 105	Naples	Branch	Leased
599 9th Street North – Suite 100,101 & 201	Naples	Corporate HQ, Branch & Office Space	Owned
9465 Tamiami Trail N	Naples	Office space	Owned
91980 Overseas Highway	Tavernier	Branch	Owned
521 Del Prado Boulevard South	Cape Coral	Branch	Owned
506 Cape Coral Parkway	Cape Coral	Branch	Owned
2209 Santa Barbara Boulevard Suite 101	Cape Coral	Branch	Leased
3405 Hancock Bridge Parkway	North Fort Myers	Branch	Owned
15280 McGregor Boulevard	Fort Myers	Branch	Leased
9820 Stringfellow Road	Saint James City	Branch	Owned
1099 North Tamiami Trail	Nokomis	Branch	Owned
717 East Venice Avenue	Venice	Branch	Owned
240 Nokomis Avenue South	Venice	Branch	Owned
1790 East Venice Avenue, Suite 101	Venice	Branch	Leased
3479 Precision Drive, Suite 118	North Venice	Branch	Leased

The information set forth on page 14 of Item 1, “Business — Facilities and Real Estate” is incorporated herein by reference.

In 2008, TIB Bank completed the lease and vacated the office space located at 632 Washington Avenue in Homestead, Florida 33030 and occupied the office space located at 704 Washington Street in Homestead, Florida. TIB Bank terminated an option to acquire land located at 10815 Bonita Beach Road in Bonita Springs, Florida. TIB Bank also sold a vacant commercial lot located at 5 Homestead Avenue in Key Largo, Florida. TIB Bank repossessed a property located at 9465 Tamiami Trail North in Naples, Florida which was transferred to fixed assets and is being used for office space by TIB Bank beginning in 2009. During 2008, TIB Bank also purchased a building located at 17000 Alico Commerce Court in Ft. Myers, Florida.49

On February 13, 2009, the Company acquired the operations of eight branches of the former Riverside Bank of the Gulf Coast. On March 30, 2009, TIB Bank opened the Alico Branch located at 17000 Alico Commerce Court in Ft. Myers, Florida.

ITEM 3: LEGAL PROCEEDINGS

While the Company and the Bank are from time to time parties to various legal proceedings arising in the ordinary course of their business, management believes after consultation with legal counsel that at December 31, ~~2010~~2011 there were no proceedings threatened or pending against the Company or the Bank that will, individually or in the aggregate, have a material adverse effect on the consolidated results of operations or financial condition of the Company.

ITEM 4: ~~(REMOVED~~ ~~AND~~MINE ~~RESERVED)~~SAFETY DISCLOUSURES

None.

PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the NASDAQ Capital Market under the symbol “TIBB.” As of December 31, ~~2010~~2011, there were 636 registered shareholders of record and 1112,~~816~~349,~~865~~935 shares of our common stock outstanding. The share and per share amounts discussed throughout this document have been adjusted to account for the effects of 6 (six) 1% (one percent) stock dividends declared for shareholders of record on July 7, 2008, September 30, 2008, December 31, 2008, March 31, 2009, June 30, 2009 and September 30, 2009 and distributed July 17, 2008, October 10, 2008, January 10, 2009, April 10, 2009, July 10, 2009 and October 10, 2009, respectively and the effects of the 1 for 100 reverse stock split effective after the close of business on December 15, 2010.

On January 4, 2010, we received a letter from NASDAQ that stated the Company’s common stock closed below the required minimum $1.00 per share bid price for the previous 30 consecutive business days. The letter also indicated that, in accordance with listing rules, we have a period of 180 calendar days, until July 6, 2010, to regain compliance with this requirement. The Company was not able to regain compliance and requested a hearing to appeal NASDAQ’s determination to delist the Company’s common stock. The hearing was held on August 5, 2010 and the Company requested an extension to January 3, 2011 to regain compliance. The request was subsequently granted. The Company was not able to regain compliance with the continued listing requirements of the NASDAQ Global Select market by January 3, 2011. However, through a rights offering which was completed on January 18, 2011 and a 1 for 100 reverse stock split effective December 15, 2010, the Company met the continued listing requirements of the NASDAQ Capital Market. Accordingly, we requested that NASDAQ transfer the Company’s shares to The NASDAQ Capital Market. The request was granted and was effective upon the open of trading on January 27, 2011.

The following table sets forth, for the periods indicated, the high and low sale prices per share for our common stock on the NASDAQ Global Select Market:

		2010					2009
	2011		2010
(Quarter Ended)	High	~~High~~Low	High	Low	~~Low~~		~~High~~		~~Low~~
March 31,	23.02	$17.50	$172.00	$58.08	$	~~58.08~~	$	~~430.94~~	$	~~260.76~~
June 30,	19.70	11.00	192.00	45.00		~~45.00~~		~~380.35~~		~~259.78~~
September 30,	14.45	9.17	200.00	31.00		~~31.00~~		~~282.96~~		~~132.67~~
December 31,	10.82	8.51	48.00	19.34		~~19.34~~		~~156.00~~		~~45.00~~

We did not pay any cash dividends for the years ended December 31, ~~2009~~2010 and December 31, ~~2010~~2011. ~~For the year ended December 31, 2009 we issued stock dividends in lieu of cash dividends for the first three quarters.~~ Our ability to pay cash dividends to our shareholders is primarily dependent on the earnings of the Bank, as well as the dividend restrictions under the terms of our outstanding junior subordinated debentures. Payment of dividends by the Bank to us is also limited by dividend restrictions in capital requirements imposed by bank regulators. Information regarding restrictions on the ability of the Bank to pay dividends to us is contained in Note 15 of the "Notes to Consolidated Financial Statements" contained in Item 8 hereof.

2150

The Company received a request from the Federal Reserve Bank of Atlanta for the Company’s Board of Directors to adopt a resolution that it will not declare or pay any dividends on its outstanding common or preferred stock, nor will it make any payments or distributions on the outstanding trust preferred securities or corresponding subordinated debentures without the prior written approval of the Reserve Bank. The Board adopted this resolution on October 5, 2009. On September 22, 2010 the Federal Reserve Bank of Atlanta (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~~Deferral ~~Company~~of ~~has notified~~ the ~~trustees of its $20 million~~ trust preferred securities ~~due~~is ~~July~~allowed 7,for ~~2036~~up ~~and~~to ~~its~~60 $5months ~~million~~without ~~trust~~being ~~preferred~~considered ~~securities~~an ~~due~~event ~~July 31, 2031~~ of ~~its election to defer interest payments on the trust preferred securities beginning with the payments due in October 2009~~default. The Company ~~has~~submitted ~~notified~~a ~~the~~written ~~trustees~~request ofto ~~its~~the $8FRB ~~million~~to ~~trust~~authorize ~~preferred~~the ~~securities~~payment ~~due September 27, 2030~~ of ~~its~~deferred ~~election~~and tocurrent ~~defer~~ interest payments onthrough the ~~trust~~next ~~preferred~~payment ~~securities~~date ~~beginning~~and ~~with~~future ~~the~~interest payments when due inas ~~March~~scheduled ~~2010. Deferral~~on of the three trust preferred securities. isOn ~~allowed~~September ~~for~~28, up2011, pursuant to 60receipt ~~months without being considered an event~~ of ~~default. Additionally,~~ the ~~Company~~FRB’s ~~may not declare or pay dividends on its capital stock~~approval, ~~including~~concurrent ~~dividends~~interest onpayments ~~preferred~~were ~~stock,~~made ~~or,~~for ~~with~~each ~~certain~~of ~~exceptions,~~the ~~repurchase capital stock without first having paid all~~ trust preferred ~~interest~~securities and ~~all cumulative preferred dividends that are due. At this time it is unlikely that~~ the Company ~~will~~began ~~resume~~the ~~payment~~process of ~~cash~~exiting ~~dividends~~from ~~on its common stock for~~ the ~~foreseeable~~deferral ~~future~~period.

With respect to information regarding our securities authorized for issuance under equity incentive plans, the information contained in the section entitled “Executive Compensation – Equity Compensation Plan Information” of our definitive Proxy Statement for the ~~2011~~2012 Annual Meeting of Shareholders is incorporated herein by reference.

Issuer Purchases of Equity Securities

For the year ended December 31, ~~2010~~2011, we did not repurchase any shares of our common stock.

2251

STOCK PRICE PERFORMANCE GRAPH

The stock price performance graph below shall not be deemed incorporated by reference by any general statement incorporating by reference this Form 10-K into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

The graph below compares the cumulative total return of the Company, the Nasdaq Composite Index and a peer group index.

			Period Ending
Index	12/31/06		12/31/07		12/31/08		12/31/09		12/31/10		12/31/11
TIB Financial Corp.		100.00		49.75		26.92		4.01		1.30		0.56
NASDAQ Composite		100.00		110.66		66.42		96.54		114.06		113.16
SNL Southeast Bank		100.00		75.33		30.50		30.62		29.73		17.39

ITEM 6: SELECTED FINANCIAL DATA

The selected consolidated financial data presented below as of and for the years ended December 31, 2011, 2010, 2009, 2008, ~~2007~~ and ~~2006~~2007 is ~~unaudited and has been~~ derived from our audited Consolidated Financial Statements and from our records. The information presented below should be read in conjunction with the Consolidated Financial Statements and related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Balance Sheet Data and Ratios

As of December 31,

(Dollars and shares in thousands, except per share data)	Successor Company		~~Predecessor Company~~			Predecessor Company
	2010		2009			2008			2007			2006
	2011		2010			2009			2008			2007
Total assets	$	1204,~~756,866~~623	$	1,~~705~~756,~~407~~866		$	1,~~610~~705,~~114~~407		$	1,~~444~~610,~~739~~114		$	1,~~319~~444,~~093~~739
Investment securities		~~418,092~~-		~~250~~418,~~339~~092			~~225~~250,~~770~~339			~~160~~225,~~357~~770			~~131~~160,~~199~~357
Total loans		~~1,004,329~~-		1,~~196~~004,~~164~~329			1,~~223~~196,~~319~~164			1,~~127~~223,~~667~~319			1,~~063~~127,~~852~~667
Allowance for loan losses		~~402~~-		~~29,083~~402			2329,~~783~~083			1423,~~973~~783			914,~~581~~973
Deposits		~~1,367,025~~-		1,~~369~~367,~~384~~025			1,~~135~~369,~~668~~384			1,~~049~~135,~~958~~668			1,~~029~~049,~~457~~958
Shareholders’ equity		~~176~~177,~~750~~378		55176,~~518~~750			~~121~~55,~~114~~518			96121,~~240~~114			8596,~~862~~240
Allowance for loan losses/total loans	NA		NM				2.43	%		1.94	%		1.33	%
Allowance for loan losses/loans originated in Successor period	NA			1.76	%	NA			NA			NA
Non-performing assets/total assets	NA			4.84	%		5.71	%		2.95	%		1.88	%
Non-performing loans/total loans	NA			5.61	%		6.09	%		3.25	%		1.43	%
Allowance for loan losses/non-performing loans	NA		NA				39.93	%		59.79	%		93.08	%

Allowance for loan losses/total loans	NM				2.43	%		1.94	%		1.33	%		0.90	%
Allowance for loan losses/loans originated in Successor period		1.76	%	NA			NA			NA			NA
Non-performing assets/total assets		4.84	%		5.71	%		2.95	%		1.88	%		0.69	%
Non-performing loans/total loans		5.61	%		6.09	%		3.25	%		1.43	%		0.40	%
Allowance for loan losses/non-performing loans	NA				39.93	%		59.79	%		93.08	%		226.88	%

Income Statement and Performance Data

	Successor Company	Predecessor Company
(Dollars and shares in thousands, except per share data)		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	Year Ended December 31, 2007	Year Ended Decebmer 31, 2006
		Year Ended December 31, 2011				Three Months Ended December 31, 2010			Nine Months Ended September 30, 2010			Year Ended December 31, 2009			Year Ended December 31, 2008			Year Ended December 31, 2007
Interest and dividend income	~~$15,681~~	$~~52,317~~	~~$81~~21,~~127~~146	~~$88,164~~	~~$94,741~~	$~~85,234~~	15,681		$	52,317		$	81,127		$	88,164		$	94,741
Interest expense	~~3,249~~	~~19,435~~	355,~~736~~481	~~43,504~~	~~48,721~~	~~38,171~~	3,249			19,435			35,736			43,504			48,721
Net interest income	~~12,432~~	~~32,882~~	4515,~~391~~665	~~44,660~~	~~46,020~~	~~47,063~~	12,432			32,882			45,391			44,660			46,020
Provision for loan losses	~~402~~	~~29,697~~	~~42,256~~621	~~28,239~~	~~9,657~~	~~3,491~~	402			29,697			42,256			28,239			9,657
Net interest income after provision for loan losses	~~12,030~~	~~3,185~~	315,~~135~~044	~~16,421~~	~~36,363~~	~~43,572~~	12,030			3,185			3,135			16,421			36,363
Non-interest income *	~~2,710~~	~~9,326~~	148,~~110~~626	~~784~~	~~1,362~~	~~6,275~~	2,710			9,326			14,110			784			1,362
Non-interest expense **	~~13,923~~	~~65,316~~	6521,~~342~~770	~~50,988~~	~~41,921~~	~~35,833~~	13,923			65,316			65,342			50,988			41,921
Income tax expense (benefit)***	~~257~~	0	~~13,451~~(900	~~(12,853~~)	~~(1,775)~~	~~5,021~~	257			-			13,451			(12,853	)		(1,775	)
Income (loss) before preferred allocation	~~560~~	~~(52,805)~~	~~(61~~2,~~548)~~800	~~(20,930)~~	~~(2,421)~~	~~8,993~~	560			(52,805	)		(61,548	)		(20,930	)		(2,421	)
Income from discontinued operations, net of taxes	-	-	-	-	-	~~254~~	-			-			-			-			-
Income earned by preferred shareholders and discount accretion	-	~~2,009~~	~~2,662~~-	~~165~~	-	-	-			2,009			2,662			165			-
Gain on retirement of Series A preferred allocated to common shareholders	-	~~(24,276)~~	-	-	-	-	-			(24,276	)		-			-			-
Net income (loss) allocated to common shareholders	~~$560~~	$~~(30,538)~~	~~$(64~~2,~~210)~~800	~~$(21,095)~~	~~$(2,421)~~	$~~9,247~~	560		$	(30,538	)	$	(64,210	)	$	(21,095	)	$	(2,421	)
Book value per common share ****		$	14.36			$	14.96		$	15.18		$	141.63		$	592.09		$	709.26
Basic earnings (loss) per common share from continuing operations		$	0.23			$	0.05		$	(205.64	)	$	(433.27	)	$	(145.02	)	$	(18.54	)
Basic earnings per common share from discontinued operations			-				-			-			-			-			-
Basic earnings (loss) per common share		$	0.23			$	0.05		$	(205.64	)	$	(433.27	)	$	(145.02	)	$	(18.54	)
Diluted earnings (loss) per common share from continuing operations		$	0.23			$	0.03		$	(205.64	)	$	(433.27	)	$	(145.02	)	$	(18.54	)
Diluted earnings per common share from discontinued operations			-				-			-			-			-			-
Diluted earnings (loss) per common share		$	0.23			$	0.03		$	(205.64	)	$	(433.27	)	$	(145.02	)	$	(18.54	)
Basic weighted average common equivalent shares outstanding			12,350				11,817			149			148			145			131
Diluted weighted average common equivalent shares outstanding			12,324				18,320			149			148			145			131
Dividends declared per common share		$	-			$	-		$	-		$	-		$	0.0005		$	0.0023
Return on average assets*****			0.40	%			0.13	%.		(3.16	)%		(3.47	)%		(1.36	)%		(0.18	)%
Return on average equity*****			1.55	%			1.25	%		(108.42	)%		(53.92	)%		(20.41	)%		(2.52	)%
Average equity/average assets			25.78	%			10.19	%		2.91	%		6.44	%		6.65	%		6.99	%
Net interest margin			3.08	%			3.16	%		2.84	%		2.76	%		3.10	%		3.60	%
Dividend payout ratio ******		NM				NM			NM			NM			NM			NM
Non-interest expense/tax equivalent net interest income and non-interest income from continuing operations			89.62	%			91.76	%		154.27	%		109.47	%		111.78	%		87.86	%

Book value per common share ****	$14.96	$15.18	$141.63	$592.09	$709.26	$690.15
Basic earnings (loss) per common share from continuing operations	$0.05	$(205.64)	$(433.27)	$(145.02)	$(18.54)	$72.97
Basic earnings per common share from discontinued operations	-	-	-	-	-	2.06
Basic earnings (loss) per common share	$0.05	$(205.64)	$(433.27)	$(145.02)	$(18.54)	$75.03
Diluted earnings (loss) per common share from continuing operations	$0.03	$(205.64)	$(433.27)	$(145.02)	$(18.54)	$71.25
Diluted earnings per common share from discontinued operations	-	-	-	-	-	2.01
Diluted earnings (loss) per common share	$0.03	$(205.64)	$(433.27)	$(145.02)	$(18.54)	$73.27
Basic weighted average common equivalent shares outstanding	11,817	149	148	145	131	123
Diluted weighted average common equivalent shares outstanding	18,320	149	148	145	131	126
Dividends declared per common share	$-	$-	$-	$0.0005	$0.0023	$0.0022
Return (loss) on average assets****	0.03%	(3.16)%	(3.47)%	(1.36)%	(0.18)%	0.74%
Return (loss) on average equity****	0.31%	(108.42)%	(53.92)%	(20.41)%	(2.52)%	11.05%
Average equity/average assets	10.19%	2.91%	6.44%	6.65%	6.99%	6.72%
Net interest margin	3.16%	2.84%	2.76%	3.10%	3.60%	4.18%
Dividend payout ratio *****	NM	NM	NM	NM	NM	30.51%
Non-interest expense/tax equivalent net interest income and non-interest income from continuing operations	91.76%	154.27%	109.47%	111.78%	87.86%	66.75%

* Non-interest income for 2009 and 2008 includes $5.1 million and $1.1 million of net gains on securities sold, respectively. Non-interest income for 2009, 2008 and 2007 includes charges related to the other than temporary impairment of investment securities of $763,000, $6.4 million and $5.7 million, respectively, as discussed in more detail in the “Investment Portfolio” section of management’s discussion and analysis.

*	Non-interest income for 2009 and 2008 includes $5.1 million and $1.1 million of net gains on securities sold, respectively. Non-interest income for 2009, 2008 and 2007 includes charges related to the other than temporary impairment of investment securities of $763,000, $6.4 million and $5.7 million, respectively, as discussed in more detail in the "Investment Portfolio" section of management's discussion and analysis.

**	Non-interest expense for 2009 includes a goodwill impairment charge of $5.9 million.

***	Income tax expense (benefit) for 2009 includes a valuation allowance against deferred income tax assets of $30.4 million.

****	For predecessor only, calculation includes unvested shares of restricted.

*****	The computation of return on average assets and return on average equity is based on net income from continuing operations.

******	The computation of the dividend payout ratio is based on net income (loss) from continuing operations.

** Non-interest expense for 2009 includes a goodwill impairment charge of $5.9 million.55

*** Income tax expense (benefit) for 2009 includes a valuation allowance against deferred income tax assets of $30.4 million.

**** For predecessor only, calculation includes unvested shares of restricted.

***** The computation of return on average assets and return on average equity is based on net income from continuing operations.

****** The computation of the dividend payout ratio is based on net income (loss) from continuing operations.

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Headquartered in Naples, Florida, TIB Financial Corp. is a ~~bank~~financial ~~holding~~services company inwith ~~the~~a ~~Southern~~21% ~~Florida~~equity ~~marketplace~~method ~~and~~investment ~~the~~in ~~parent~~Capital ~~company of TIB~~ Bank ~~and Naples Capital Advisors~~NA, ~~Inc. The Bank operates primarily as~~ a ~~real~~national ~~estate~~banking ~~secured~~association ~~commercial~~with ~~lender,~~approximately ~~focusing~~$6.5 onbillion ~~middle-market businesses~~ in ~~our~~total ~~Southern~~assets ~~Florida markets. The Bank funds its lending activity primarily by gathering retail~~ and ~~commercial~~143 ~~deposits from our~~ full-service ~~area. TIB~~banking ~~Bank~~offices ~~was~~throughout ~~formed~~southern inFlorida ~~1974~~ and ~~has~~the aFlorida ~~substantial~~Keys, ~~market~~North ~~presence~~Carolina, inSouth ~~the~~Carolina, ~~Florida~~Tennessee ~~Keys~~and Virginia. In ~~recent years,~~ TIB ~~Bank~~Financial ~~has~~Corp. ~~expanded~~is ~~into~~also the ~~adjacent~~parent ~~Florida~~company ~~counties~~ of ~~Miami-Dade~~Naples Capital Advisors, ~~Collier~~Inc., ~~Lee~~a ~~and~~registered ~~Sarasota~~investment advisor.

~~Memorandum~~Capital ofBank ~~Understanding~~Financial ~~and~~Corp. ~~Consent Order~~Investment

On ~~July 2,~~September ~~2009~~30, ~~TIB Bank entered into a Memorandum of Understanding~~2010, ~~which~~(the is“Transaction anDate”) ~~informal~~the ~~agreement,~~Company ~~with~~completed ~~bank~~the ~~regulatory~~issuance ~~agencies~~and ~~that~~sale itto ~~would~~CBF ~~move~~of in7,000,000 ~~good~~shares ~~faith~~of toCommon ~~increase~~Stock, ~~its~~70,000 ~~Tier~~shares 1of ~~leverage~~Series ~~capital~~B ~~ratio~~Preferred toStock ~~not less than 8%~~ and ~~its~~a ~~total~~warrant ~~risk-based~~(the ~~capital~~“Warrant”) ~~ratio~~ to ~~not~~purchase ~~less~~up ~~than~~to ~~12% by December 31~~11,666,667 ~~2009~~shares ~~and~~of ~~maintain~~Common ~~these~~Stock ~~higher~~of ~~ratios~~the ~~for~~Company as(the ~~long~~“Warrant asShares”) ~~this~~for ~~agreement~~aggregate ~~was~~consideration inof ~~effect. At December 31~~$175, ~~2009~~000,000. ~~these~~The ~~elevated~~consideration ~~capital~~was ~~ratios~~comprised ~~were~~of ~~not~~approximately ~~met. On July 2~~$162, ~~2010~~840,000 ~~TIB~~in ~~Bank~~cash ~~entered~~and ~~into~~approximately a$12,160,000 ~~Consent~~in ~~Order,~~the ~~which~~form isof a ~~formal~~contribution ~~agreement,~~to ~~with~~ the ~~bank~~Company ~~regulatory~~of ~~agencies~~all ~~under which~~37,000 ~~among~~outstanding ~~other~~shares ~~things,~~of ~~the~~Series ~~Bank~~A ~~has~~Preferred ~~agreed~~Stock topreviously ~~maintain~~issued ato ~~Tier~~the 1United ~~capital~~States ~~ratio~~Department of atthe ~~least~~Treasury 8%under ofthe ~~total~~TARP ~~assets~~Capital Purchase Program and athe ~~total~~related ~~risk~~warrant ~~based~~to ~~capital~~purchase ~~ratio~~shares of atthe ~~least~~Company’s ~~12%~~Common ~~within~~Stock, 90which ~~days.~~CBF Atpurchased ~~September 30,~~directly ~~2010,~~from ~~based upon~~ the ~~preliminary acquisition accounting adjustments, these ratios were not met~~Treasury. ~~TIB~~The ~~Bank~~Series ~~achieved~~A aPreferred ~~Tier~~Stock ~~1 capital ratio of 7.8%~~ and athe ~~total~~related ~~risk-based~~warrant ~~capital~~were ~~ratio~~retired ofon ~~12.9%.~~September ~~At December 31~~30, 2010, ~~TIB Bank achieved a Tier 1 capital ratio of 8.1%~~ and aare ~~total~~no ~~risk-based~~longer ~~capital ratio of 13~~outstanding.1% ~~and exceeded all regulatory requirements.~~ The ~~Consent~~70,000 ~~Order~~shares ~~also governs certain aspects~~ of ~~TIB~~Series ~~Bank’s~~B ~~operations~~Preferred ~~including~~Stock areceived ~~requirement~~by ~~that~~CBF itconverted ~~reduce~~into ~~the~~an ~~balance~~aggregate of ~~assets classified substandard and doubtful by at least 70% over a two-year period~~4,666,667 ~~and~~shares ~~not undertake asset growth~~ of 5%Common orStock ~~more~~following ~~per~~shareholder ~~year~~approval ~~without~~of ~~prior~~an ~~approval~~amendment ~~from~~to the ~~regulatory~~Company’s ~~agencies.~~Restated ~~The~~Articles ~~Consent Order superseded the Memorandum~~ of ~~Understanding.~~Incorporation ~~On September 22, 2010~~ (the ~~Federal~~“Articles ~~Reserve Bank~~ of ~~Atlanta (“FRB~~Incorporation”) ~~and~~to increase the ~~Company~~number ~~entered~~of ~~into~~authorized ashares ~~written~~of ~~agreement~~Common ~~(the~~Stock ~~“Written~~to ~~Agreement”)~~50,000,000. ~~where~~The ~~the~~Warrant ~~Company~~is ~~agreed~~exercisable, ~~among~~in ~~other~~whole ~~things,~~or ~~that~~in itpart, ~~will~~and ~~not~~from ~~make~~time ~~any~~to ~~payments~~time, onfrom ~~the~~September ~~outstanding~~30, ~~trust~~2010 ~~preferred~~to ~~securities~~March or30, ~~declare~~2012, orat ~~pay~~an ~~any~~exercise ~~dividends~~price ~~without~~of ~~the~~$15.00 ~~prior~~per ~~written~~Warrant ~~approval of the FRB~~Share.

~~Recent~~As ~~Capital~~a ~~Investments~~result of the Investment and following the completion on January 18, 2011 of a rights offering, pursuant to which shareholders of the Company as of July 12, 2010 purchased 533,029 shares of Common Stock, CBF owns approximately 94% of the issued and outstanding voting power of the Company. Upon the completion of the Investment, R. Eugene Taylor (Chairman), Christopher G. Marshall, Peter N. Foss, William A. Hodges and R. Bruce Singletary were named to board of directors of the Company (the “Company Board”). Mr. Howard Gutman and Mr. Brad Boaz, currently members of the Company Board, remained as such following the closing of the Investment. All other members of the board of directors of the Company resigned effective September 30, 2010.

OnBecause ~~March~~of 7,the ~~2008,~~controlling proportion of voting securities in the Company ~~consummated~~acquired aby ~~transaction~~CBF, ~~whereby~~the ~~two~~Investment ofis ~~Southwest~~considered ~~Florida’s~~an ~~prominent~~acquisition ~~families,~~for ~~their~~accounting ~~representatives~~purposes and ~~their~~requires ~~related~~the ~~business~~application ~~interests~~and ~~purchased~~push ~~1.2~~down ~~million~~of ~~shares~~the acquisition method of ~~the~~accounting. The ~~Company’s~~accounting ~~common~~guidance ~~stock~~for acquisition accounting requires that the assets acquired and ~~warrants~~liabilities assumed be recorded at their respective fair values as of the acquisition date. ~~Gross~~Any ~~proceeds~~purchase ~~from~~price in excess of the ~~investment~~net ~~provided~~assets ~~additional~~acquired ~~capital~~is ofrecorded ~~$10.1~~as ~~million~~goodwill.

On December 5, 2008, the Company issued $37 million of preferred stock and a related warrant to the U.S. Treasury under the U.S. Treasury’s Capital Purchase Program to strengthen the Company’s capital base and to support our continued capacity to provide new loans to creditworthy individual and commercial customers.

On September 30, 2010, (the “Transaction Date”) the Company completed the issuance and sale to NAFH of 7,000,000 shares of Common Stock, 70,000 shares of Series B Preferred Stock and a warrant (the “Warrant”) to purchase up to 11,666,667 shares of Common Stock of the Company (the “Warrant Shares”) for aggregate consideration of $175,000,000.The consideration was comprised of approximately $162,840,000 in cash and approximately $12,160,000 in the form of a contribution to the Company of all 37,000 outstanding shares of Series A Preferred Stock previously 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. The Series A Preferred Stock and the related warrant were retired on September 30, 2010 and are no longer outstanding. The 70,000 shares of Series B Preferred Stock received by NAFH converted into an aggregate of 4,666,667 shares of Common Stock following shareholder approval of an amendment to the Company’s Restated Articles of Incorporation (the “Articles of Incorporation”) to increase the number of authorized shares of Common Stock to 50,000,000. 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 $15.0 per Warrant Share.

As a result of the Investment and following the completion on January 18, 2011 of a rights offering, pursuant to which shareholders of the Company as of July 12, 2010 purchased 533,029 shares of Common Stock, NAFH owns approximately 94% of the issued and outstanding voting power of the Company. Upon the completion of the Investment, R. Eugene Taylor (Chairman), Christopher G. Marshall, Peter N. Foss, William A. Hodges and R. Bruce Singletary were named to board of directors of the Company (the “Company Board”). Mr. Howard Gutman and Mr. Brad Boaz, currently members of the Company Board, remained as such following the closing of the Investment. All other members of the board of directors of the Company resigned effective September 30, 2010.

TIB Bank added R. Eugene Taylor, Christopher G. Marshall, R. Bruce Singletary and Bradley Boaz to its board of directors. Mr. Howard Gutman, a current member of TIB Bank's board, remained as such following the closing of the Investment. All other members of the board of directors of TIB Bank resigned effective September 30, 2010. In addition, the Company has appointed several new executive officers: R. Eugene Taylor as Chief Executive Officer, Christopher G. Marshall as Chief Financial Officer, and R. Bruce Singletary as Chief Risk Officer. Stephen J. Gilhooly will continue to serve as the Treasurer of the Company.

Because of the controlling proportion of voting securities in the Company acquired by NAFH, the Investment is considered an acquisition for accounting purposes and requires the application and push down of the acquisition method of accounting. The accounting guidance for acquisition accounting requires that the assets acquired and liabilities assumed be recorded at their respective fair values as of the acquisition date. Any purchase price in excess of the net assets acquired is recorded as goodwill.

The most significant fair value adjustments resulting from the application of the acquisition method of accounting were made to loans. Accounting guidance requires that all loans held by the Company on the Transaction Date be recorded at their fair value. The fair value of these acquired loans takes into account both the differences in loan interest rates and market rates and any deterioration in their credit quality. Because concerns about the probability of receiving the full amount of the contractual payments from the borrowers was considered in estimating the fair value of the loans, stating the loans at their fair value results in no allowance for loan loss being provided for these loans as of the Transaction Date. As of September 30, 2010, certain loans had evidence of credit deterioration since origination, and it was probable that not all contractually required principal and interest payments would be collected. Such loans identified at the time of the acquisition were accounted for using the measurement provision for purchased credit-impaired (“PCI”) loans, according to the FASB Accounting Standards Codification (“ASC”) 310-30. The special accounting for PCI loans not only requires that they are recorded at fair value at the date of acquisition and that any related allowance for loan and lease losses is not permitted to be carried forward past the Transaction Date, but it also governs how interest income will be recognized on these loans and how any further deterioration in credit quality after the Transaction Date will be recognized and reported.

As a result of the adjustments required by the acquisition method of accounting, the Company’s balance sheet and results of operations from periods prior to the Transaction Date are labeled as Predecessor Company amounts and are not comparable to balances and results of operations from periods subsequent to the Transaction Date, which are labeled as Successor Company. The lack of comparability arises from the assets and liabilities having new accounting bases as a result of recording them at their fair values as of the Transaction Date rather than at their historical cost basis. As a result of the change in accounting bases, items of income and expense such as the rate of interest income and expense as well as depreciation and rental expense will change. In general, these changes in income and expense relate to the amortization of premiums or accretion of discounts to arrive at contractual amounts due. To call attention to this lack of comparability, the Company has placed a black line between the Successor Company and Predecessor Company columns in the Consolidated Financial Statements and in the tables in the notes to the statements and in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~NASDAQ~~TIB ~~Delisting~~Bank Merger with Capital Bank, NA

On ~~July~~April 729, ~~2010~~2011 (the “Merger Date”), the Company’s ~~received~~primary aoperating ~~delisting~~subsidiary, ~~notice~~TIB ~~from~~Bank, ~~The~~was ~~NASDAQ~~merged ~~Stock~~with ~~Market~~and ~~LLC,~~into ~~which~~NAFH ~~was anticipated~~Bank, ~~due~~an toaffiliate ~~the~~institution ~~Company’s~~which ~~non~~had been wholly-~~compliance~~owned ~~with~~by the ~~NASDAQ~~Company’s ~~$1.00~~controlling ~~per~~shareholder, ~~share~~CBF, ~~bid~~preceding ~~price~~the ~~requirement~~Merger. ~~The~~NAFH ~~letter~~Bank ~~from~~was ~~the~~formed ~~NASDAQ~~on ~~notified~~July ~~the~~16, ~~Company~~2010 ~~that it was~~ in ~~violation~~connection ofwith ~~NASDAQ~~the ~~Marketplace~~purchase ~~Rule~~and ~~5505~~assumption inof ~~that~~ the ~~bid~~operations ~~price~~of ~~for~~three ~~its~~banks ~~common~~– ~~stock~~Metro ~~was~~Bank ~~below~~of ~~the~~Dade ~~required~~County ~~listing~~(Miami, ~~standard~~Florida), ~~and~~Turnberry ~~that~~Bank ~~its~~(Aventura, ~~common~~Florida) ~~stock~~and ~~would~~First beNational ~~delisted~~Bank ~~from~~of the ~~NASDAQ~~South ~~on July 16~~(Spartanburg, ~~2010~~South ~~unless~~Carolina) ~~the~~– ~~Company~~from ~~asked~~the ~~for~~Federal aDeposit ~~hearing~~Insurance ~~before~~Corporation a(the ~~NASDAQ~~“FDIC”). ~~Listing~~Pursuant ~~Qualifications~~to ~~Hearing~~the ~~Panel.~~merger ~~This~~agreement ~~hearing~~dated ~~was~~April ~~held~~27, ~~on August 5~~2011, ~~2010.~~between ~~During~~NAFH ~~the~~Bank ~~hearing~~and ~~the~~TIB ~~Company requested an extension to January 3~~Bank, ~~2011 for~~ the Company toexchanged ~~demonstrate~~its a100% ~~closing~~ownership ~~bid~~interest ~~price of $1.00 per share~~ in ~~accordance~~TIB ~~with~~Bank ~~the~~for ~~NASDAQ~~an ~~rules.~~approximately ~~The~~53% ~~Company~~ownership ~~advised~~interest ~~NASDAQ~~in ~~that~~ the ~~Company~~surviving ~~intended~~combined toentity, ~~call~~NAFH aBank. ~~special~~Following ~~meeting of its shareholders following~~ the ~~closing~~Merger, ofCBF ~~the~~was ~~NAFH~~deemed ~~Investment~~ to ~~approve~~control ~~the~~NAFH ~~adoption~~Bank ofdue ~~an amendment~~ to ~~the Company~~CBF’s ~~Restated~~94% ~~Articles~~ownership ofinterest ~~Incorporation~~in tothe ~~affect~~Company ~~a reverse stock split~~ and ~~thereby~~CBF’s ~~regain~~direct ~~compliance~~ownership ~~with~~of the ~~listing~~remaining ~~rules.~~47% Oninterest ~~September 2,~~in ~~2010,~~NAFH ~~the~~Bank ~~Company~~subsequent ~~was advised by the NASDAQ that its request for an extension~~ to ~~January 3, 2011 was granted. On December 15, 2010,~~ the ~~Company affected a 1 for 100 reverse stock split~~Merger. ~~Additionally,~~In ~~on January 18~~addition, ~~2011,~~five of the Company’s ~~completed~~seven ~~a Rights Offering through which 533~~directors,~~029~~ ~~shares~~and of the Company’s ~~common~~Chief ~~stock~~Executive ~~were issued in exchange for approximately $8.0 million. As a result of these actions~~Officer, ~~the~~Chief ~~Company~~Financial ~~met~~Officer ~~the~~and ~~continued~~Chief ~~listing~~Risk ~~requirements~~Officer ~~for~~are ~~the~~affiliated ~~NASDAQ~~with ~~Capital Market~~CBF. Accordingly, ~~Pursuant~~subsequent to ~~our~~April ~~request~~29, ~~the~~2011, ~~listing of~~ the Company’s ~~shares~~began ~~was~~to ~~transferred~~account tofor ~~the~~its ~~NASDAQ~~ownership ~~Capital~~in ~~Market~~NAFH ~~effective~~Bank ~~upon~~under the ~~open~~equity method of ~~trading on January 27, 2011~~accounting.

27On June 30, 2011, Capital Bank, a wholly-owned subsidiary of Capital Bank Corp., an affiliated bank holding company in which CBF has an 83% ownership interest, was merged with and into NAFH Bank, with NAFH Bank as the surviving entity. In connection with the transaction, NAFH Bank also changed its name to Capital Bank, National Association. On September 7, 2011, GreenBank, a wholly-owned subsidiary of Green Bankshares Inc., an affiliated bank holding company in which CBF has a 90% ownership interest, was merged with and into Capital Bank, NA. Subsequently and as a result of those transactions, the Company’s ownership interest in Capital Bank, NA was reduced to approximately 21%. At December 31, 2011, the Company’s net investment of $200.8 million in Capital Bank, NA, was recorded in the Consolidated Balance Sheet as “Equity method investment in Capital Bank, NA” which represented the Company’s pro rata ownership of Capital Bank, NA’s total shareholders’ equity. In periods subsequent to the Merger Date, the Company has and will adjust this equity investment balance based on its equity in Capital Bank, NA’s net income and comprehensive income. In connection with the Merger, assets and liabilities of the Bank were de-consolidated from the Company’s balance sheet resulting in a significant decrease in the total assets and total liabilities of the Company in the second quarter of 2011. Accordingly, as of December 31, 2011, no investments, loans or deposits are reported on the Company’s Consolidated Balance Sheet and subsequent to the Merger Date, interest income and interest expense are the result of cash deposited in Capital Bank, NA and the outstanding trust preferred securities issued by the Company, respectively.

As of December 31, 2011, following the mergers of TIB Bank, Capital Bank and GreenBank as discussed above, Capital Bank, NA had total assets of $6.5 billion, total deposits of $5.1 billion and shareholders’ equity of $939.8 million. As of December 31, 2011, following the mergers, Capital Bank, NA operated 143 branches in Florida, North Carolina, South Carolina, Tennessee and Virginia.

Potential Merger of TIB Financial Corp. and Capital Bank Financial Corp.

On September 1, 2011, CBF's Board of Directors approved and adopted a plan of merger. The plan of merger provides for the merger of TIB Financial Corp. with and into CBF, with CBF continuing as the surviving entity. In the merger, each share of TIB Financial Corp.’s common stock issued and outstanding immediately prior to the completion of the merger, except for shares for which appraisal rights are properly exercised and certain shares held by CBF or TIB Financial Corp., will be converted into the right to receive 0.7205 of a share of CBF Class A common stock. No fractional shares of Class A common stock will be issued in connection with the merger, and holders of TIB Financial Corp. common stock will be entitled to receive cash in lieu thereof.

Since CBF currently owns more than 90% of common stock of TIB Financial Corp., under Delaware and Florida law, no vote of our stockholders is required to complete the merger.

Consent Order and Written Agreement

On July 2, 2010, TIB Bank entered into a Consent Order, which is a formal agreement, with the bank regulatory agencies under which, among other things, the Bank had 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. 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 and the Company entered into a 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. The Company submitted a written request to the FRB to authorize the payment of deferred and current interest payments through the next payment date and future interest payments when due as scheduled on the three trust preferred securities. On September 28, 2011, pursuant to receipt of the FRB’s approval, concurrent interest payments were made for each of the trust preferred securities and the Company began the process of exiting from the deferral period. On November 8, 2011, the FRB notified the Company that the Written Agreement was terminated effective April 30, 2011 given that TIB Bank was merged into Capital Bank and that the condition of the Company was subsequently upgraded.

NASDAQ Information

On July 7, 2010, the Company received a delisting notice from The NASDAQ Stock Market LLC, which was anticipated, due to the Company’s non-compliance with the NASDAQ’s $1.00 per share bid price requirement. The letter from the NASDAQ notified the Company that it was in violation of NASDAQ Marketplace Rule 5505 in that the bid price for its common stock was below the required listing standard and that its common stock would be delisted from the NASDAQ on July 16, 2010 unless the Company asked for a hearing before a NASDAQ Listing Qualifications Hearing Panel. This hearing was held on August 5, 2010. During the hearing the Company requested an extension to January 3, 2011 for the Company to demonstrate a closing bid price of $1.00 per share in accordance with the NASDAQ rules. The Company advised NASDAQ that the Company intended to call a special meeting of its shareholders following the closing of the Investment to approve the adoption of an amendment to the Company’s Restated Articles of Incorporation to affect a reverse stock split and thereby regain compliance with the listing rules. On September 2, 2010, the Company was advised by the NASDAQ that its request for an extension to January 3, 2011 was granted. On December 15, 2010, the Company affected a 1 for 100 reverse stock split. Additionally, on January 18, 2011, the Company completed a Rights Offering through which 533,029 shares of the Company’s common stock were issued in exchange for approximately $8.0 million. As a result of these actions, the Company met the continued listing requirements for the NASDAQ Capital Market. Pursuant to our request the listing of the Company’s shares was transferred to the NASDAQ Capital Market effective upon the open of trading on January 27, 2011.

Performance Overview

~~The~~Successor Company reported net income of $560,000 for the three months ended December 31, 2010. Basic and diluted income per common share was $0.05. The most significant factor for the 2010 net income was increases in net interest income due to the impact of the purchase accounting adjustments which revalued deposits and borrowings to yield market interest rates as of September 30, 2010. The provision for loan losses of $402,000 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 Company reported net income of $2.8 million for the year ended December 31, 2011. Basic and diluted income per common share was $0.23. The most significant factor for 2011 was the Merger activity discussed above in the second quarter of 2011. The Company began to account for its ownership in Capital Bank, NA under the equity method of accounting and the assets and liabilities of the Bank were de-consolidated from the Company’s balance sheet. The net income includes the four months of the operations of TIB Bank from January 1, 2011 through April 29, 2011, the date of the merger and eight months of equity in income from investment in Capital Bank, NA from April 30, 2011 to December 31, 2011. The provision for loan losses of $621,000 recorded during 2011 reflects the allowance for loan losses established for loans originated subsequent to September 30, 2010.

The Company reported net income of $560,000 for the three months ended December 31, 2010. Basic and diluted income per common share was $0.05 and $0.03, respectively. The most significant factor for the 2010 net income was increases in net interest income due to the impact of the purchase accounting adjustments which revalued deposits and borrowings to yield market interest rates as of September 30, 2010. The provision for loan losses of $402,000 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.

Predecessor Company

The net loss for the nine months ended September 30, 2010 was $52.8 million. Basic and diluted loss per common share was $205.64. Contributing to the loss during the nine months ended September 20, 2010 were: $21.7 million of valuation adjustments, losses on sale and operating expenses associated with foreclosed real estate; no tax benefit recorded in the current period as a result of the Company’s deferred tax assets being fully reserved; and $2.1 million in expenses incurred in connection with our capital raise activities and the termination of a related consulting agreement.

For the year ended December 31, 2009, our operations resulted in a net loss before dividends and accretion on preferred stock of $61.5 million. The net loss allocated to common shareholders was $64.2 million, or $433.27 per share, for the year ended December 31, 2009. The most significant factors contributing to the 2009 loss were a $42.3 million provision for loan losses, a $13.5 million provision for income taxes and a $5.9 million goodwill impairment charge, partially offset by $4.3 million in net gains from investment securities and a $1.2 million gain resulting from the death benefit received from a bank owned life insurance policy covering a former employee.

(Dollars in thousands)	Successor Company			~~Predecessor Company~~			Predecessor Company
	Three Months Ended December 31, 2010			Nine Months Ended September 30, 2010			Year Ended December 31, 2009
	Year Ended December 31, 2011			Three Months Ended December 31, 2010			Nine Months Ended September 30, 2010			Year Ended December 31, 2009
Net interest income	$	1215,~~432~~665		$	3212,~~882~~432		$	4532,~~391~~882		$	45,391
Provision for loan losses		(~~402~~621	)		(~~29,697~~402	)		(4229,~~256~~697	)		(42,256	)
Non-interest income (1)		24,~~710~~530			62,~~557~~710			86,~~629~~557			8,629
Life insurance gain		-			134			1,186
Equity in income from investment in Capital Bank, NA		4,084			-			-			-
Investment securities gains		-			2,635			4,295
Life insurance gain		-			-			134			1,186
Non-interest expense (2)		(13,923	)		(65,316	)		(59,455	)
Investment securities gains		12			-			2,635			4,295
Goodwill impairment charge		-			-			(5,887	)
Non-interest expense (2)		(18,898	)		(13,923	)		(63,249	)		(59,455	)
Income (loss) before income taxes	$	817		$	(52,805	)	$	(48,097	)
Capital raise expense		-			-			(2,067	)		-
Net income (loss) before income taxes excluding life insurance conversion gain, investment securities gains and goodwill impairment charge	$	817		$	(55,574	)	$	(47,691	)
Impairment charge		(2,872	)		-			-			(5,887	)
Income (loss) before income taxes	$	1,900		$	817		$	(52,805	)		(48,097	)
Net income (loss) before income taxes excluding life insurance, capital raise expenses, investment securities gains, impairment charge	$	4,760		$	817		$	(53,507	)	$	(47,691	)

(1) Non-interest income excludes gains on the conversion of life insurance policies covering a former employee and a former director, ~~and~~ investment securities gains and losses and equity income from investment in Capital Bank, NA .

(2) Non-interest expense excludes ~~goodwill~~capital raise costs and impairment charges.

We have made significant progress in redirecting our focus on primary objectives of growth, expansion and improving profitability and efficiency. The satisfaction of regulatory capital requirements and compliance with its regulatory agreements has allowed a shift of the Company’s attention to operating a conventional commercial and retail bank and providing competitive financial services and exceptional customer service to the communities we serve. We continue to increase our emphasis and focus on loan origination and core deposit growth.59

Net interest income was $12.4 million for the three months ended December 31, 2010 and was significantly impacted by the purchase accounting adjustments to the interest earning assets and interest bearing liabilities. Additionally, the high level of cash and highly liquid investment securities maintained during the three months ended December 31, 2010, while available to be redeployed to fund higher yielding assets as such opportunities arise, have an unfavorable impact on the margin and the overall yield on earning assets is unfavorably impacted these lower yielding assets . Net interest income for the nine months ended September 30, 2010 was $32.8 million. Net interest income for this period was impacted by the increase in the net interest margin due to reductions of the cost of interest bearing deposits and the successful repricing or replacement of maturing higher priced time deposits with lower cost funding in this continuing low interest rate environment. Partially offsetting the increase in the net interest margin was continued higher levels of nonperforming loans and the change in asset mix resulting in lower volumes of higher yielding loans and investment securities. Net interest income was $45.4 million for the year ended December 31, 2009. The monetary policy pursued by the Federal Reserve affects market interest rates including the prime rate, our loan yields, our deposit and borrowing costs and our net interest margin. Our earning assets and deposits increased with the acquisition of Riverside, offset by increases in non-performing loans.

Non-interest income includes service charges on deposit accounts, investment securities gains and losses, real estate fees and other operating income. Non-interest income for the three months ended December 31, 2010 was $2.7 million. Non-interest income for the nine months ended September 30, 2010 was $9.3 million which included $2.6 million of investment security gains and a $134,000 death benefit received on a bank owned life insurance policy covering a former employee. Non-interest income for the year ended December 31, 2009 was $14.1 million which included $4.3 million of investment security gains and a $1.2 million death benefit received on a bank owned life insurance policy covering a former employee.

Non-interest expense for the three months ended December 31, 2010 was $13.9 million. FDIC insurance continues to remain elevated to higher deposit insurance premiums. Non-interest expense for the nine months ended September 30, 2010 was $65.3 million. Non-interest expense includes $21.7 million of OREO valuation adjustments and related expense and $2.1 million of expense related to our capital raise initiative. Non-interest expense for the year ended December 31, 2009 was $65.3 million. Non-interest expense for 2009 includes a $5.9 million goodwill impairment charge. Salary and employee benefits include increases in employee benefits largely due to employee medical insurance costs, the addition of new positions to manage the higher level of problem assets plus merit adjustments for certain employees and due to the lower level of loan origination activity during 2009, the amount of salary and benefit costs capitalized as direct loan origination costs decreased. FDIC insurance costs include a one-time special assessment of $800,000. Information system conversion costs of $223,000 were incurred in merging the operations of The Bank of Venice and OREO valuation adjustments and expenses increased due to higher levels of foreclosed assets.

Total assets were $1.76 billion as of December 31, 2010 (Successor Company) and $1.71 billion at December 31, 2009 (Predecessor Company). Total loans were $1.00 billion as of December 31, 2010 (Successor Company) and $1.20 billion a year ago (Predecessor Company). Due to the application of the acquisition method of accounting, loans were recorded at their fair value at September 30, 2010. During the nine months ended September 30, 2010, $20.1 million of indirect auto loans were sold.

As of December 31, 2010 the allowance for loan losses totaled $402,000. The allowance represents allowance for loan losses established for loans originated subsequent to September 30, 2010.

Economic and Operating Environment Overview

During 2010 the national economic recession reached a plateau reflecting stable but historically high levels of unemployment and signs that economic activity is beginning to increase. In our local markets the economic contraction that began in late 2006 and early 2007 continued with unemployment in Florida reaching 12% by the end of 2010. Declining retail sales and lower personal income also reflect the contracting economic environment in our local markets.

While global and national financial market volatility and liquidity concerns receded towards the end of the year and the banking system began to stabilize along with economic fundamentals. Due largely to the accommodative monetary policy maintained by the Federal Reserve system, liquidity concerns in the national banking system lessened during the second half of the year.

In response to the continuing economic stress, the Federal Reserve maintained an accommodating monetary policy through open market transactions and maintained the targeted fed funds rate at 0% to 0.25% throughout 2010. Accordingly, the prime rate remained at 3.25% during the year.

The extended economic downturn on a national and local basis has continued to adversely impact our individual and business customers. The markets we serve continue to be among the most severely impacted in the country. The continuing economic stress to consumers and local businesses was apparent during 2010 as we continued to encounter higher than historical levels of borrowers who become unable to continue meeting the contractual terms of their loans.

Analysis of Financial Condition

Successor Company

~~Our~~Net ~~assets~~interest ~~totaled~~income was $115.767 ~~billion~~million atfor the year ended December 31, ~~2010~~2011. ~~Total~~Net ~~loans~~interest atincome for the twelve months ended December 31, ~~2010~~2011 ~~were~~was ~~$1.00~~significantly ~~billion~~impacted by the Merger discussed above. ~~Due~~Accordingly, toas a result of the ~~application~~deconsolidation of the ~~acquisition~~Bank, ~~method~~net interest income includes only four months of the operations of TIB Bank and twelve months of interest expense on the Company’s trust preferred securities. Net interest income was $12.4 million for the three months ended December 31, 2010 and was significantly impacted by the purchase accounting adjustments to the interest earning assets and interest bearing liabilities. Additionally, ~~loans~~the ~~were~~high ~~recorded~~level atof ~~their~~cash ~~fair~~and ~~value~~highly atliquid ~~September~~investment 30securities maintained during the three months ended December 31, 2010, had an unfavorable impact on the margin and the overall yield on earning assets was unfavorably impacted.

Total deposits were $1.37 billion at December 31, 2010. Borrowed funds, consisting of Federal Home Loan Bank (FHLB) advances, short-term borrowings, notes payable and subordinated debentures, totaled $201.2 million at December 31, 2010.

Shareholders’ equity was $176.8 million at December 31, 2010.

Predecessor Company

~~Our~~Net ~~assets~~interest ~~totaled~~income ~~$1.71~~for ~~billion~~the atnine ~~year~~months ended ~~December~~September 3130, ~~2009~~2010 was $32.8 ~~Total~~million. Net interest income for this period was impacted by the increase in the net interest margin due to reductions of the cost of interest bearing deposits and the successful repricing or replacement of maturing higher priced time deposits with lower cost funding in this continuing low interest rate environment. Partially offsetting the increase in the net interest margin was continued higher levels of nonperforming loans ~~were~~and the change in asset mix resulting in lower volumes of higher yielding loans and investment securities. Net interest income was $145.204 ~~billion~~million atfor the year ended December 31, 2009.

~~Total~~The ~~deposits~~monetary ~~were~~policy ~~$1.37~~pursued ~~billion~~by atthe ~~December~~Federal ~~31,~~Reserve ~~2009.~~affects ~~Borrowed~~market ~~funds,~~interest ~~consisting~~rates ofincluding ~~FHLB~~the ~~advances~~prime rate, ~~short-term~~our ~~borrowings~~loan yields, ~~notes~~our ~~payable~~deposit and ~~subordinated~~borrowing ~~debentures,~~costs ~~totaled~~and ~~$268~~our net interest margin.5 ~~million~~Our atearning ~~December~~assets 31and deposits increased with the acquisition of Riverside, ~~2009~~offset by increases in non-performing loans.

~~Shareholders’~~Successor ~~equity was $55.5 million at December 31, 2009.~~Company

30Non-interest income for the year ended December 31, 2011 was $8.6 million which includes the four months of the operations of TIB Bank, eight months of equity in income from investment in Capital Bank, NA and twelve months of operations of Naples Capital Advisors, Inc. Non-interest income for the three months ended December 31, 2010 was $2.7 million.

Predecessor Company

Non-interest income for the nine months ended September 30, 2010 was $9.3 million which included $2.6 million of investment security gains and a $134,000 death benefit received on a bank owned life insurance policy covering a former employee. Non-interest income for the year ended December 31, 2009 was $14.1 million which included $4.3 million of investment security gains and a $1.2 million death benefit received on a bank owned life insurance policy covering a former employee.

Successor Company

Non-interest expense for the year ended December 31, 2011 was $21.8 million includes the four months of the operations of TIB Bank, twelve months of operations of Naples Capital Advisors, Inc. and the operations of the Company. During 2011, the Company’s registered investment advisor, Naples Capital Advisors, Inc. experienced a decrease in assets under advisement following the departure of certain employees leading to a $2.9 million customer relationship intangible impairment. Non-interest expense for the three months ended December 31, 2010 was $13.9 million. FDIC insurance continued to remain elevated due to higher deposit insurance premiums in 2010.

Predecessor Company

Non-interest expense for the nine months ended September 30, 2010 was $65.3 million. Non-interest expense includes $21.7 million of OREO valuation adjustments and related expense and $2.1 million of expense related to our capital raise initiative. Non-interest expense for the year ended December 31, 2009 was $65.3 million. Non-interest expense for 2009 includes a $5.9 million goodwill impairment charge. Salary and employee benefits include increases in employee benefits largely due to employee medical insurance costs, the addition of new positions to manage the higher level of problem assets plus merit adjustments for certain employees and due to the lower level of loan origination activity during 2009, the amount of salary and benefit costs capitalized as direct loan origination costs decreased. FDIC insurance costs include a one-time special assessment of $800,000. Information system conversion costs of $223,000 were incurred in merging the operations of The Bank of Venice and OREO valuation adjustments and expenses increased due to higher levels of foreclosed assets.

Successor Company

Due to the Merger, the assets and liabilities of the Bank were de-consolidated from the Company’s balance sheet. The deconsolidation resulted in a significant decrease in the total assets and total liabilities of the Company in the second quarter of 2011. Accordingly, as of December 31, 2011, no investments, loans or deposits are reported on the Company’s Consolidated Balance Sheet. Total assets were $204.6 million as of December 31, 2011. Total assets were $1.76 billion as of December 31, 2010. Total loans were $1.00 billion as of December 31, 2010. Due to the application of the acquisition method of accounting, loans were recorded at their fair value at September 30, 2010.

As of December 31, 2010, the allowance for loan losses totaled $402,000. The allowance represents allowance for loan losses established for loans originated subsequent to September 30, 2010.

Economic and Operating Environment Overview

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. In our local markets the economic recovery is slower than the nation evidenced by the higher than average unemployment rate of 9.9% in Florida and North Carolina, 9.5% in South Carolina, and 8.7% in Tennessee during December 2011. Although the aforementioned states unemployment rates at the end of 2011 have decreased from their 2010 rates, they are higher than the federal rate of 8.5%. South Florida continues to suffer from elevated unemployment and continued pressure on home prices, which have declined 1.95% in the fourth quarter of 2011, as measured by S&P/Case-Shiller Home Prices Indices. North Carolina, South Carolina, and Tennessee are also experiencing employment and home price pressure, although not as severe as South Florida.

In response to the continuing economic stress, the Federal Reserve maintained an accommodating monetary policy through open market transactions and maintained the targeted fed funds rate at 0% to 0.25% throughout 2011. Accordingly, the prime rate remained at 3.25% during the year.

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.

Analysis of Financial Condition

Total assets at December 31, 2011 were $204.6 million. As discussed above, due to the Merger, the Company began to account for its ownership in Capital Bank, NA under the equity method of accounting and the assets and liabilities of the Bank were de-consolidated from the Company’s balance sheet. The deconsolidation resulted in a significant decrease in the total assets and total liabilities of the Company in the second quarter of 2011. Accordingly, as of December 31, 2011, no investments, loans or deposits are reported on the Company’s Consolidated Balance Sheet.

Total assets at December 31, 2010, were $1.76 billion. Total loans at December 31, 2010 were $1.00 billion. Due to the application of the acquisition method of accounting, loans were recorded at their fair value at September 30, 2010.

Total deposits were $1.37 billion at December 31, 2010.

At December 31, 2011, trust preferred securities, had a carrying value of $23.2 million, and a notional value of $33.0 million which was comparable to the balance at December 31, 2010. Borrowed funds, consisting of Federal Home Loan Bank (FHLB) advanced and short-term borrowings, totaled $178.3 million at December 31, 2010.

Shareholders’ equity totaled $177.4 million at December 31, 2011, increasing $628,000 from $176.8 million at December 31, 2010.

Results of Operations

Net income

Successor Company

Twelve months ended December 31, 2011:

The Company reported net income of $2.8 million for the twelve months ended December 31, 2011 which includes four months of the operations of TIB Bank, eight months of equity in income from investment in Capital Bank, NA and twelve months of operations of Naples Capital Advisors, Inc. Basic and diluted income per common share was $0.23. Net income includes interest expense of $1.9 million for the twelve months ended December 31, 2011 related to trust preferred securities. The provision for loan losses of $621,000 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 return on average assets for the twelve months ended December 31, 2011 was 0.40%. On the same basis, the return on average shareholders’ equity was 1.55% for the same period of 2011.

Three months ended December 31, 2010:

The Company reported net income of $560,000 for the three months ended December 31, 2010. Basic and diluted income per common share was $0.05 and $0.03, respectively. 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 $402,000 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 return on average assets for the three months ended December 31, 2010 was 0.13%. On the same basis, the return on average shareholders’ equity was 1.25% for the same period of 2010.

Predecessor Company

Nine months ended September 30, 2010:

The net loss for the nine months ended September 30, 2010 was $52.8 million. Basic and diluted loss per common share was $205.64.

The loss on average assets for the nine months ended September 30, 2010 was 4.22%. On the same basis, the loss on average shareholders’ equity was 144.96% for the same period of 2010.

Contributing to the loss during the nine months ended September 20, 2010 were: $21.7 million of valuation adjustments, losses on sale and operating expenses associated with foreclosed real estate; no tax benefit recorded in the current period as a result of the Company’s deferred tax assets being fully reserved; and $2.1 million in expenses incurred in connection with our capital raise activities and the termination of a related consulting agreement.

~~Year~~Twelve months ended ~~2009~~December ~~compared~~31, ~~with 2008~~2009:

The net loss for ~~2009~~the ~~was~~twelve ~~$61.5~~months ~~million~~ended ~~compared~~December to31, a2009 ~~net~~was ~~loss of~~ $2061.95 million ~~for 2008~~. Basic and diluted loss per common share ~~for 2009~~ was $433.27~~, as compared to basic and diluted loss per common share of $145~~.~~02 in 2008.~~

The loss on average assets for 2009 was 3.47% ~~compared~~and ~~to a loss on average assets of 1.36% for 2008. On~~ the ~~same basis, the~~ loss on average shareholders’ equity was 53.92% ~~for 2009 compared to 20~~.~~4% for 2008.~~

Contributing significantly to the loss during 2009 were the $42.3 million provision for loan losses, the valuation allowance against deferred income tax assets of $30.4 million and the goodwill impairment charge of $5.9 million, partially offset by $5.1 million in net gains on securities sold and a $1.2 million gain resulting from the death benefit received from a Bank owned life insurance policy covering a former employee. In response to continued slowing economic activity and softening real estate values in our markets, our allowance for loan losses increased to $29.1 million or 2.43% of total loans, resulting from our provision for loan losses of $42.3 million exceeding net charge-offs of $37.0 million for the period. ~~For additional information on these items, see the sections that follow entitled “Allowance and Provision for Loan Losses” and “Investment Portfolio”, respectively.~~

Net interest income

Net ~~interest~~Interest income ~~represents~~in ~~the~~2011 ~~amount~~was bysignificantly ~~which~~impacted ~~interest~~by ~~income~~the onMerger ~~interest-earning~~discussed ~~assets~~above. ~~exceeds~~Accordingly, ~~interest~~as ~~expense~~a ~~incurred~~result onof ~~interest-bearing liabilities. Net interest income is~~ the ~~largest~~deconsolidation ~~component~~ of ~~our~~the ~~income~~Bank, ~~and is affected by the~~ interest-bearing ~~rate~~liabilities ~~environment,~~which ~~and~~consisted ~~the volume and the composition~~ of ~~interest-earning~~trust ~~assets~~preferred ~~and~~securities ~~interest-bearing~~significantly ~~liabilities. Our~~exceeded interest-earning assets ~~include loans~~, ~~federal~~thus ~~funds~~creating ~~sold~~negative ~~and~~net ~~securities~~interest ~~purchased~~income ~~under~~and ~~agreements~~a tonegative ~~resell,~~net interest~~-bearing~~ ~~deposits~~margin in ~~other~~periods ~~banks,~~subsequent ~~and~~to ~~investment securities. Our interest-bearing liabilities include deposits, federal funds purchased, subordinated debentures, advances from~~ the ~~FHLB and other short-term borrowings~~Merger.

~~Rate~~Net ~~and~~interest ~~volume~~income ~~variance~~was ~~analyses allocate~~ the ~~change~~largest incomponent ~~interest~~of our income, and ~~interest~~was ~~expense~~affected ~~between~~by ~~that~~the ~~which~~interest israte ~~due~~environment toand ~~changes in~~ the ~~rate~~volume ~~earned~~and orthe ~~paid~~composition ~~for specific categories~~ of interest-earning assets and interest-bearing liabilities. ~~and~~Our ~~that~~interest-earning ~~which~~assets isincluded ~~due~~loans, tofederal ~~changes~~funds insold ~~the~~and ~~average~~securities ~~balance~~purchased ~~between~~under ~~two~~agreements ~~periods. The Company is unable~~ to ~~provide~~resell, ainterest-bearing ~~rate~~deposits ~~and volume variance analyses~~ in ~~this~~other ~~discussion~~banks ~~because~~and ~~there~~investment ~~are no comparable periods as the periods required to be presented are of different lengths~~securities. ~~Because~~Our ofinterest-bearing ~~the~~liabilities ~~purchase~~included ~~accounting adjustments~~deposits, ~~the~~federal ~~amounts~~funds ~~for the three month period ended December 31~~purchased, ~~2010~~subordinated ~~cannot be added to the nine months ended September 30~~debentures, ~~2010~~advances tofrom ~~get to~~ the ~~full~~FHLB ~~year~~and ~~2010~~other toshort ~~compare~~term ~~to the full year of 2009~~borrowings.

~~Three~~Rate ~~Months~~and volume variance analyses allocate the change in interest income and interest expense between that which is due to changes in the rate earned or paid for specific categories of assets and liabilities and that which is due to changes in the average balance between two periods. Because of the purchase accounting adjustments and the Merger, the amounts for twelve months ended December 31, 2011, three months ended December 31, 2010:, nine months ended September 30, 2010 and twelve months ended December 31, 2009 are not comparable.

~~Net~~Successor interest income was $12.4 million for the three months ended December 31, 2010. The net interest income was significantly impacted by the purchase accounting adjustments to the interest earning assets and interest bearing liabilities. Because of the accretion of new discounts and premiums established by re-valuing the assets and liabilities to their fair value as of September 30, 2010, the rates at which interest income and expense are accrued changed from prior periods irrespective of whether market rates or contractual rates changed. Due to the continued favorable repricing of deposit liabilities coupled with the purchase accounting adjustments the net interest margin increased to 3.16%. Additionally, the high level of cash and highly liquid investment securities maintained during the three months ended December 31, 2010, while available to be redeployed to fund higher yielding assets as such opportunities arise, have an unfavorable impact on the margin and the overall yield on earning assets is unfavorably impacted these lower yielding assets .Company

~~Going~~Twelve ~~forward,~~months weended ~~expect~~December market short-term interest rates to remain low for an extended period of time. We expect deposit costs to continue to decline but they may decrease more slowly or to a lesser extent than loan yields31, or they could increase due to strong demand in the financial markets and banking system for liquidity which may be reflected in elevated pricing competition for deposits. The predominant drivers affecting net interest income are the composition of earning assets, the interest rates paid on our deposits and the net change in non-performing assets.2011:

Net interest income was $15.7 million for the twelve months ended December 31, 2011. Due to the Merger discussed above, net interest income includes only four months of the operating results of TIB Bank. Accordingly, as a result of the deconsolidation of the Bank, the reported average balances of interest earning assets and liabilities along with interest income and expense for the period decreased significantly. Net interest income was also impacted by the purchase accounting adjustments required as a result of the Investment. Because of the accretion of discounts and premiums established by re-valuing the assets and liabilities to their fair values as of September 30, 2010, the rates at which interest income and expense are accrued changed from prior periods irrespective of whether market rates or contractual rates changed. The net interest margin for the twelve months ended December 31, 2011 was to 3.08%.

Three months ended December 31, 2010:

Net interest income was $12.4 million for the three months ended December 31, 2010 while the net interest margin was 3.16%. The net interest income was significantly impacted by the purchase accounting adjustments to the interest earning assets and interest bearing liabilities. Because of the accretion of new discounts and premiums established by re-valuing the assets and liabilities to their fair value as of September 30, 2010, the rates at which interest income and expense are accrued changed from prior periods irrespective of whether market rates or contractual rates changed. Due to the continued favorable repricing of deposit liabilities coupled with the purchase accounting adjustments the net interest margin increased to 3.16%. Additionally, the high level of cash and highly liquid investment securities maintained during the three months ended December 31, 2010, while available to be redeployed to fund higher yielding assets as such opportunities arise, have an unfavorable impact on the margin and the overall yield on earning assets is unfavorably impacted these lower yielding assets.

Predecessor Company

Nine months ended September 30, 2010:

Net interest income was $32.9 million for the nine months ended September 30, 2010 while the net interest margin was 2.84%. The increase in the net interest margin is due to reductions of the cost of interest bearing deposits and the successful repricing or replacement of maturing higher priced time deposits with lower cost funding in this continuing low interest rate environment. Partially offsetting the increase in the net interest margin was continued higher levels of nonperforming loans and the change in asset mix resulting in lower volumes of higher yielding loans and investment securities.

Interest and dividend income for the nine months of 2010 was impacted by lower balances of loans, higher levels of nonperforming loans and significant declines in market interest rates and the related impact on loan and investment yields. Due to the lower interest rate environment, the lower volumes of higher yielding loans, and the higher level of non-accrual loans, the yield of our loans declined.

Partially offsetting the decline in interest and dividend income, were decreases in interest expense on deposits as a result of lower interest rates paid. The average interest cost of interest bearing deposits declined and the overall cost of interest bearing liabilities declined.

~~Year~~Twelve months ended 2009 ~~compared with 2008~~:

Net interest income was $45.4 million for the year ended December 31, 2009~~, compared to $44~~.7 ~~million~~The ~~for~~increase ~~the~~in ~~same~~this period infrom ~~2008. The~~prior ~~$731,000~~periods ~~or 2% increase~~ was due to the significant increase in interest earning assets and interest bearing liabilities as a result of the assumption of the Riverside deposits and investment of the proceeds and the growth of the Company. The ~~34 basis point decrease in the~~ net interest margin ~~from~~was ~~3.10% to~~ 2.76% ~~substantially offset the effect of the growth of the balance sheet~~.

The net interest margin continued to be adversely impacted by the level of nonaccrual loans and non-performing assets which reduced the margin by an estimated 19 basis points during the twelve months ended December 31, 2009. The utilization of the proceeds from the Riverside transaction to reduce borrowings and brokered time deposits and purchase investment securities further reduced the net interest rate spread because a greater portion of the Company’s assets were comprised of lower yielding investment securities and short-term money market investments. We continue to maintain a higher level of short-term investments in light of the continuing economic stress and elevated volatility of financial markets, which has also reduced the margin.

The ~~$7.0 million~~ decrease in interest and dividend income ~~compared to 2008~~ was mainly attributable to decreased average rates on loan balances and investment securities due primarily to the 400 basis point decrease in prime rate and the significant decline in other interest rates combined with a higher level of non-performing loans. Partially offsetting this decline were decreases in the interest cost of transaction accounts, time deposits and borrowings due to decreases in deposit interest rates paid and other market interest rates. Increases in balances and changes in product mix, favoring higher yielding products, led to an increase in interest expense on savings deposits.

Interest rates during 2009 were significantly lower than the prior year period due to the highly stimulative monetary policies undertaken by the Federal Reserve beginning in the third quarter of 2007. As a result of the actions taken by the Federal Reserve, the prime rate declined from 7.25% in the first quarter of 2008 to 3.25% by the fourth quarter of 2008 and has remained at that level in 2009.64

~~Due~~The tofollowing ~~the~~table ~~rapid~~presents ~~and significant decline in~~ the ~~prime~~average ~~rate,~~balances ~~the overall lower interest rate environment~~ and ~~the~~yields ~~higher~~for ~~level of non-performing loans, the yield on our loans declined 93 basis points. The yield of our~~ interest earning assets ~~declined~~and ~~117~~interest ~~basis~~bearing ~~points~~liabilities infor ~~2009 compared to 2008 due to~~ the ~~reduction~~year inended ~~the~~December ~~yield~~31, ~~on our loans and the significant increase in lower yielding investment securities and short-term money market investments~~2011.

~~The~~Average ~~lower~~Balance interest rate environment also resulted in a significant decline in the interest cost of interest bearing liabilities. The average interest cost of interest bearing deposits declined by 105 basis points and the overall cost of interest bearing liabilities declined by 99 basis points. Due to the rapidly declining interest rate environment and highly competitive deposit pricing on a local and national basis, we were not able to reduce the cost of our deposits as quickly and to the same extent as the decline in our earning asset yield.Sheet

	2011
(Dollars in thousands)	Average Balances		Income/ Expense		Yields/ Rates
Interest-earning assets:
Loans (1)(2)	$	334,344	$	17,777		5.32	%
Investment securities (2)		133,931		3,267		2.44	%
Interest bearing deposits in other banks		38,509		113		0.29	%
FHLB stock		3,077		31		1.01	%
Total interest-earning assets		509,861		21,188		4.16	%

Non-interest earning assets:
Cash and due from banks		8,380
Premises and equipment, net		14,121
Equity method investment in Capital Bank, NA		133,074
Other assets		37,011
Total non-interest earning assets		192,586
Total Assets	$	702,447

Interest bearing liabilities:
Interest bearing deposits:
Time deposits	$	207,725	$	2,367		1.14	%
Money market		67,691		497		0.73	%
NOW accounts		58,281		181		0.31	%
Savings deposits		34,776		231		0.66	%
Total interest-bearing deposits		368,473		3,276		0.89	%

Short-term borrowings and FHLB advances		55,809		320		0.57	%
Long-term borrowings		23,021		1,885		8.19	%
Total interest bearing liabilities		447,303		5,481		1.23	%

Non-interest bearing liabilities and shareholders’ equity:
Demand deposits		69,517
Other liabilities		4,532
Shareholders’ equity		181,095
Total non-interest bearing liabilities and shareholders’ equity		255,144
Total liabilities and shareholders’ equity	$	702,447
Interest rate spread						2.93	%
Net interest income			$	15,707
Net interest margin (3)						3.08	%

The following table presents average balances of the Company, the taxable-equivalent interest earned, and the rate paid thereon during the three months ended December 31, 2010 and the nine months ended September 30, 2010.

Successor Company								Predecessor Company
	Three Months Ended December 31, 2010							Nine Months Ended September 30, 2010
(Dollars in thousands)	Average Balances		Income/ Expense		Yields/ Rates			Average Balances			Income/ Expense		Yields/ Rates
Interest-earning assets:
Loans (1)(2)	$	1,010,946	$	13,722		5.39	%	$	1,131,509		$	45,532		5.38	%
Investment securities (2)		380,126		1,876		1.96	%		301,584			6,687		2.96	%
Interest-bearing deposits in other banks		162,159		103		0.25	%		108,712			204		0.25	%
Federal Home Loan Bank stock		9,572		11		0.46	%		10,278			26		0.34	%
Federal funds sold and securities sold under agreements to resell		-		-		0.00	%		4			-		0.00	%
Total interest-earning assets		1,562,803		15,712		3.99	%		1,552,087			52,449		4.52	%
Non-interest-earning assets:
Cash and due from banks		22,608							22,070
Premises and equipment, net		43,521							47,711
Allowance for loan losses		1,084							(26,949	)
Other assets		124,889							77,397
Total non-interest-earning assets		192,102							120,229
Total assets	$	1,754,905						$	1,672,316
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts	$	172,519	$	137		0.32	%	$	201,570		$	534		0.35	%
Money market		184,597		411		0.88	%		185,821			1,460		1.05	%
Savings deposits		75,796		128		0.67	%		78,661			418		0.71	%
Time deposits		732,516		1,866		1.01	%		708,892			11,391		2.15	%
Total interest-bearing deposits		1,165,428		2,542		0.87	%		1,174,944			13,803		1.57	%
Other interest-bearing liabilities:
Short-term borrowings and FHLB advances		175,503		248		0.56	%		190,912			3,659		2.56	%
Long-term borrowings		31,516		459		5.78	%		61,681			1,973		4.28	%
Total interest-bearing liabilities		1,372,447		3,249		0.94	%		1,427,537			19,435		1.82	%
Non-interest-bearing liabilities and shareholders’ equity:
Demand deposits		189,566							182,073
Other liabilities		14,092							14,002
Shareholders’ equity		178,800							48,704
Total non-interest-bearing liabilities and shareholders’ equity		382,458							244,779
Total liabilities and shareholders’ equity	$	1,754,905						$	1,672,316
Interest rate spread (tax equivalent basis)						3.05	%							2.70	%
Net interest income (tax equivalent basis)			$	12,463							$	33,014
Net interest margin (3) (tax equivalent basis)						3.16	%							2.84	%
_______ (1) Average loans include non-performing 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) Net interest margin is net interest income divided by average total interest-earning assets.

The following table presents the average balances and yields for interest earning assets and interest bearing liabilities for the years ending December 31, 2009 and 2008.

Average Balance Sheets

Predecessor Company	2009								2008
(Dollars in thousands)	Average Balances			Income/ Expense		Yields/ Rates			Average Balances			Income/ Expense		Yields/ Rates
ASSETS
Interest-earning assets:
Loans (1)(2)	$	1,225,804		$	68,960		5.63	%	$	1,186,839		$	77,877		6.56	%
Investment securities (3)		327,963			12,071		3.68	%		183,649			8,629		4.70	%
Money Market Mutual Funds		31,277			132		0.42	%		-			-		-
Interest bearing deposits in other banks		50,947			124		0.24	%		12,131			104		0.85	%
FHLB stock		10,771			24		0.23	%		10,012			350		3.50	%
Federal funds sold/Repo		2,940			5		0.17	%		55,525			1,374		2.47	%
Total interest-earning assets		1,649,702			81,316		4.93	%		1,448,156			88,334		6.10	%
Non-interest earning assets:
Cash and due from banks		30,182								17,507
Premises and equipment, net		39,759								37,596
Allowances for loan losses		(24,967	)							(16,111	)
Other assets		78,128								54,395
Total non-interest earning assets		123,102								93,387
Total Assets	$	1,772,804							$	1,541,543
LIABILITIES & SHAREHOLDERS’ EQUITY
Interest bearing liabilities:
Interest bearing deposits:
NOW accounts	$	182,398			1,235		0.68	%	$	172,520			2,932		1.70	%
Money market		196,469			2,817		1.43	%		151,273			3,649		2.41	%
Savings deposits		116,956			2,142		1.83	%		52,896			669		1.26	%
Time deposits		696,606			21,452		3.08	%		591,723			25,346		4.28	%
Total interest-bearing deposits		1,192,429			27,646		2.32	%		968,412			32,596		3.37	%
Short-term borrowings and FHLB advances		212,585			5,303		2.49	%		242,210			7,450		3.08	%
Long-term borrowings		63,000			2,787		4.42	%		63,000			3,458		5.49	%
Total interest bearing liabilities		1,468,014			35,736		2.43	%		1,273,622			43,504		3.42	%
Non-interest bearing liabilities and shareholders’ equity:
Demand deposits		173,083								146,158
Other liabilities		17,557								19,196
Shareholders’ equity		114,150								102,567
Total non-interest bearing liabilities and shareholders’ equity		304,790								267,921
Total liabilities and shareholders’ equity	$	1,772,804							$	1,541,543
Interest rate spread							2.50	%							2.68	%
Net interest income				$	45,580							$	44,830
Net interest margin (3)							2.76	%							3.10	%

__________

(1) Average loans include non-performing loans. ~~Interest on loans includes loan fees of $498 in 2009, $420 in 2008.~~

(2)	Interest income and rates include 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.

(3)	Net interest margin is net interest income divided by average total interest-earning assets.

3465

	Successor Company							Predecessor Company
	Three Months Ended December 31, 2010							Nine Months Ended September 30, 2010
(Dollars in thousands)	Average Balances		Income/ Expense		Yields/ Rates			Average Balances		Income/ Expense		Yields/ Rates
Interest-earning assets:
Loans (1)(2)	$	1,010,946	$	13,722		5.39	%	$	1,131,509	$	45,532		5.38	%
Investment securities (2)		380,126		1,876		1.96	%		301,584		6,687		2.96	%
Interest-bearing deposits in other banks		162,159		103		0.25	%		108,712		204		0.25	%
Federal Home Loan Bank stock		9,572		11		0.46	%		10,278		26		0.34	%
Federal funds sold and securities sold under agreements to resell		-		-		0.00	%		4		-		0.00	%
Total interest-earning assets		1,562,803		15,712		3.99	%		1,552,087		52,449		4.52	%

Non-interest-earning assets:
Cash and due from banks		22,608							22,070
Premises and equipment, net		43,521							47,711
Other assets		125,973							50,448
Total non-interest-earning assets		192,102							120,229
Total assets	$	1,754,905						$	1,672,316

Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits	$	732,516	$	1,866		1.01	%	$	708,892	$	11,391		2.15	%
Money market		184,597		411		0.88	%		185,821		1,460		1.05	%
NOW accounts		172,519		137		0.32	%		201,570		534		0.35	%
Savings deposits		75,796		128		0.67	%		78,661		418		0.71	%
Total interest-bearing deposits		1,165,428		2,542		0.87	%		1,174,944		13,803		1.57	%

Other interest-bearing liabilities:
Short-term borrowings and FHLB advances		175,503		248		0.56	%		190,912		3,659		2.56	%
Long-term borrowings		31,516		459		5.78	%		61,681		1,973		4.28	%
Total interest-bearing liabilities		1,372,447		3,249		0.94	%		1,427,537		19,435		1.82	%

Non-interest-bearing liabilities and shareholders’ equity:
Demand deposits		189,566							182,073
Other liabilities		14,092							14,002
Shareholders’ equity		178,800							48,704
Total non-interest-bearing liabilities and shareholders’ equity		382,458							244,779
Total liabilities and shareholders’ equity	$	1,754,905						$	1,672,316

Interest rate spread (tax equivalent basis)						3.05	%						2.70	%
Net interest income (tax equivalent basis)			$	12,463						$	33,014
Net interest margin (3) (tax equivalent basis)						3.16	%						2.84	%

_______

(1)	Average loans include non-performing 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)	Net interest margin is net interest income divided by average total interest-earning assets.

The following table presents the average balances and yields for interest earning assets and interest bearing liabilities for the year ended December 31, 2009.

Average Balance Sheet

Predecessor Company	2009
(Dollars in thousands)	Average Balances		Income/ Expense		Yields/ Rates
Interest-earning assets:
Loans (1)(2)	$	1,225,804	$	68,960		5.63	%
Investment securities (2)

Filing Compare · TIB FINANCIAL CORP.