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 Form 10-Q may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and as such may involve known and unknown risk, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results described in such forward-looking statements. Actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation: market and economic conditions, the management of our growth, the risks associated with Capital Bank, NA's loan portfolio and real estate holdings, local economic conditions affecting retail and commercial real estate, ability to integrate our new management and directors without encountering potential difficulties, the Company's geographic concentration in the southeastern region of the United States, the potential for the interests of the other shareholders of Capital Bank, NA to differ from those of the Company, restrictions imposed by Capital Bank, NA's loss sharing agreements with the FDIC, the assumptions and judgments required by loss share accounting and the acquisition method of accounting, competition within the industry, dependence on key personnel, government legislation and regulation, the risks associated with identification, completion and integration of any future acquisitions, risks related to Capital Bank, NA's technology and information systems, risks associated with the controlling interest of CBF in the Company, and risks associated with the limited liquidity of the Company's common stock. Additional factors that could cause actual results to differ materially are discussed in the Company's Annual Report on Form 10-K. All forward-looking statements attributable to the Company 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.

The following discussion addresses the factors that have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated statement of condition as of June 30, 2012, and statements of income for the three and six months ended June 30, 2012 and comparative periods when appropriate. Except as otherwise noted, dollar and share amounts in this Management's Discussion and Analysis of Financial Condition and Results of Operations are not in thousands.

CBF Investment

On September 30, 2010 (the "Transaction Date"), the Company completed the issuance and sale to CBF 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 "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 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 CBF 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 CBF 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 to increase the number of authorized shares of Common Stock to 50,000,000. The Warrant was exercisable, in whole or in part, and from time to time, from September 30, 2010 to March 30, 2012, at an exercise price of $15.00 per Warrant Share. On March 31, 2012, the Warrant expired unexercised.

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, CBF owns approximately 94.5% 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, existing members of the Company Board, remained as such following the closing of the Investment. All other members of the Company Board resigned effective September 30, 2010.

Because of the controlling proportion of voting securities in the Company acquired by CBF, the Investment was 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 required that all loans held by the Company on the Transaction Date be recorded at their fair value. The fair value of these acquired loans took 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.

TIB Bank Merger with Capital Bank, NA

On April 29, 2011 (the "Merger Date"), the Company's primary operating subsidiary, TIB Bank, was merged with and into NAFH National Bank (the "Bank Merger"), an affiliate institution which had been wholly-owned by the Company's controlling shareholder, CBF, preceding the Bank Merger. NAFH National Bank was formed on July 16, 2010 in connection with the purchase and assumption of the operations of three banks - Metro Bank of Dade County (Miami, Florida), Turnberry Bank (Aventura, Florida) and First National Bank of the South (Spartanburg, South Carolina) - from the Federal Deposit Insurance Corporation (the "FDIC"). As of June 30, 2012, following the mergers of TIB Bank, Capital Bank and GreenBank, as discussed above, Capital Bank, NA had total assets of $6.3 billion, total deposits of $5.1 billion and shareholders' equity of $966,5 million and operated 143 branches in Florida, North Carolina, South Carolina, Tennessee and Virginia.

Pursuant to the merger agreement dated April 27, 2011, between NAFH National Bank and TIB Bank, the Company exchanged its 100% ownership interest in TIB Bank for an approximately 53% ownership interest in the surviving combined entity, NAFH National Bank. Following the Bank Merger, CBF was deemed to control NAFH National Bank due to CBF's 94% ownership interest in the Company and CBF's direct ownership of the remaining 47% interest in NAFH National Bank subsequent to the Bank Merger. In addition, five of the Company's seven directors, and the Company's Chief Executive Officer, Chief Financial Officer and Chief Risk Officer are affiliated with CBF. Accordingly, subsequent to April 29, 2011, the Company began to account for its ownership in NAFH National Bank under the equity method of accounting.

On June 30, 2011, Capital Bank, a wholly-owned 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 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 June 30, 2012, the Company's net investment of $206.5 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 Bank Merger, assets and liabilities of the Bank were de-consolidated from the Company's balance sheet resulting in a significant decrease in the total assets and total liabilities of the Company in the second quarter of 2011. Accordingly, as of June 30, 2012, 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.

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 (the "merger"). 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. CBF will determine when and if the merger will ultimately take place.

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 (the "Written Agreement") where the Company agreed, among other things, that it will not make any payments on the outstanding trust preferred securities or declare or pay any dividends without the prior written approval of the FRB. 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, NA and that the condition of the Company was subsequently upgraded.

Quarterly Summary

For the second quarter of 2012, the Company reported net income of $1.9 million. Basic and diluted income per common share was $0.15. Net income during the quarter reflects equity income from the Company's investment in Capital Bank, NA of $2.4 million, net of tax and interest expense of approximately $440,000 related to trust preferred securities.

Operating and financial highlights include the following:

• Net income totaled $1.9 million, or $0.15 per share, basic and diluted, in the second quarter of 2012 and net income of $1.0 million or $0.08 and $0.07 per share, respectively in the second quarter of 2011.

• The Company held a 21% ownership interest in Capital Bank, NA, which has $6.3 billion in assets and operates 143 branches in Florida, North Carolina, South Carolina, Tennessee and Virginia.

• CBF, the Company's majority shareholder agreed to acquire 100% of Southern Community Financial Corp. ("Southern Community"), which it expects to close, pending shareholder and regulatory approvals, during the third quarter of 2012. Southern Community has assets of $1.5 billion and operates 22 branches in North Carolina. Upon closing, we expect that Southern Community's wholly owned bank subsidiary, Southern Community Bank and Trust, will be merged into Capital Bank, NA.

The following table presents summarized financial information for the Company's equity method investee; Capital Bank, NA. Prior to April 29, 2011 there was no equity method investment:

                                                                         Period From
                                Three Months         Six Months        April 29, 2011
                                    Ended               Ended              Through
                                June 30, 2012       June 30, 2012       June 30, 2011
   Interest income             $        72,893     $       147,025     $        20,710
   Interest expense                      8,000              16,725               3,280

   Net interest income                  64,893             130,300              17,430
   Provision for loan losses             6,608              11,984               6,496
   Non-interest income                  12,298              26,912               4,465
   Non-interest expense                 52,799             108,017              13,388
   Net income                           11,326              23,234               1,248

Results of Operations

Net income

Three months ended June 30, 2012:

The Company reported net income of $1.9 million for the three months ended June 30, 2012. Basic and diluted income per common share was $0.15. The Company's consolidated net income includes three months of equity in income from its investment in Capital Bank, NA which amounted to $2.4 million, net of tax. Net income also included interest expense of approximately $440,000 for the second quarter relating to trust preferred securities, and approximately $127,000 of merger related expense.

Three months ended June 30, 2011:

The Company reported net income of $1.0 million for the three months ended June 30, 2011. Basic and diluted income per common share was $0.08 and $0.07, respectively. The provision for loan losses recorded during the quarter of approximately $136,000 reflects the increase in the allowance for loan losses for loans originated during the quarter prior to the Bank Merger. Due to the Bank Merger discussed above and in Note 2, the Company's consolidated net income includes one month of the operations of TIB Bank and two months of equity in income from its investment in Capital Bank NA which amounted to approximately $658,000, net of tax.

Six months ended June 30, 2012:

The Company reported net income of $3.9 million for the six months ended June 30, 2012. Basic and diluted income per common share was $0.32. The Company's consolidated net income includes six months of equity in income from its investment in Capital Bank, NA which amounted to $5.0 million, net of tax. Net income also included interest expense of approximately $902,000 for the six months ended June 30, 2012 relating to trust preferred securities and approximately $127,000 of merger related expense.

Six months ended June 30, 2011:

The Company reported net income of $2.0 million for the six months ended June 30, 2011. Basic and diluted income per common share was $0.17 and $0.14, respectively. The provision for loan losses recorded during the period of approximately $621,000 reflects the increase in the allowance for loan losses for loans originated during the period. Due to the Bank Merger discussed above and in Note 2, the Company's consolidated net income includes four months of the operations of TIB Bank and two months of equity in income from its investment in Capital Bank, NA which amounted to approximately $658,000, net of tax.

Net Interest Income

Net Interest loss in the three and six months ended June 30, 2012 was significantly impacted by the Bank Merger discussed above. Accordingly, as a result of the deconsolidation of the Bank, interest-bearing liabilities which consisted of trust preferred securities significantly exceeded interest-earning assets, thus creating negative net interest income and a negative net interest margin.

Net interest income for the six months ended June 30, 2011 represented the amount by which interest income on interest-earning assets exceeded interest expense incurred on interest-bearing liabilities. Net interest income was the largest component of our income, and was affected by the interest rate environment and the volume and the composition of interest-earning assets and interest-bearing liabilities. Our interest-earning assets included loans, federal funds sold and securities purchased under agreements to resell, interest-bearing deposits in other banks and investment securities. Our interest-bearing liabilities included deposits, federal funds purchased, subordinated debentures, advances from the FHLB and other short term borrowings.

Rate 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 Bank Merger, the amounts for the three and six months ended June 30, 2012 are not comparable to the three and six months ended June 30, 2011.

Three months ended June 30, 2012:

Net interest loss was approximately $439,000 for the three months ended June 30, 2012. The net interest margin was (212.47%). Due to the Bank Merger and subsequent deconsolidation discussed above, the net interest loss and reported average balances includes only interest income and interest expense from interest earning assets includes only interest earning cash and trust preferred subordinated debt securities.

Three months ended June 30, 2011:

Net interest income was $3.9 million for the three months ended June 30, 2011. Due to the Bank Merger discussed above and in Note 2, net interest income for the quarter includes only one month 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 quarter decreased significantly. The Company's net interest margin was 3.08%. The high level of cash and highly liquid investment securities maintained during the three months ended June 30, 2011, while available to be redeployed to fund higher yielding assets as such opportunities arise, had an unfavorable impact on the margin and the overall yield on earning assets was unfavorably impacted by these lower yielding assets.

Six months ended June 30, 2012:

Net interest loss was approximately $902,000 for the six months ended June 30, 2012. The net interest margin was (210.31%). Due to the Bank Merger and subsequent deconsolidation discussed above, the net interest loss and reported average balances includes only interest income and interest expense from interest earning assets includes only interest earning cash and trust preferred subordinated debt securities.

Six months ended June 30, 2011:

Net interest income was $16.6 million for the six months ended June 30, 2011. Due to the Bank Merger discussed above and in Note 2, net interest income for the quarter includes 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 quarter decreased significantly. The Company's net interest margin was 3.28%. The high level of cash and highly liquid investment securities maintained during the six months ended June 30, 2011, while available to be redeployed to fund higher yielding assets as such opportunities arise, had an unfavorable impact on the margin and the overall yield on earning assets was unfavorably impacted by these lower yielding assets.

The following table presents average balances of the Company, the taxable-equivalent interest earned, and the rate paid thereon during the three months ended June 30, 2012 and 2011.

                                                          2012                                        2011
                                          Average       Income/        Yields/         Average      Income/       Yields/
(Dollars in thousands)                   Balances       Expense         Rates         Balances      Expense        Rates
Interest-earning assets:
Loans (1)(2)                             $      -      $      -              -        $ 339,036     $  4,355          5.15 %
Investment securities (2)                       -             -              -          133,543          908          2.73 %
Interest-bearing deposits in other
banks                                          831             1           0.48 %        37,091           31          0.34 %
Federal Home Loan Bank stock                    -             -              -            3,110            6          0.77 %

Total interest-earning assets                  831             1           0.48 %       512,780        5,300          4.15 %


Non-interest-earning assets:
Cash and due from banks                        739                                        8,423
Premises and equipment, net                     -                                        14,118
Other assets                               205,888                                      164,149

Total non-interest-earning assets          206,627                                      186,690

Total assets                             $ 207,458                                    $ 699,470


Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits                            $      -      $      -              -        $ 196,358     $    580          1.18 %
Money market                                    -             -              -           70,570          129          0.73 %
NOW accounts                                    -             -              -           60,135           50          0.33 %
Savings deposits                                -             -              -           37,353           63          0.68 %

Total interest-bearing deposits                 -             -              -          364,416          822          0.90 %

Other interest-bearing liabilities:
Short-term borrowings and FHLB
advances                                        -             -              -           54,076           69          0.51 %
Long-term borrowings                        23,279           440           7.60 %        22,984          466          8.13 %

Total interest-bearing liabilities          23,279           440           7.60 %       441,476        1,357          1.23 %


Non-interest-bearing liabilities and
shareholders' equity:
Demand deposits                                 -                                        72,545
Other liabilities                            4,116                                        5,513
Shareholders' equity                       180,063                                      179,936

Total non-interest-bearing liabilities
and shareholders' equity                   184,179                                      257,994

Total liabilities and shareholders'
equity                                   $ 207,458                                    $ 699,470


Interest rate spread (2)                                                  (7.12 )%                                    2.92 %

Net interest income (2)                                $    (439 )                                  $  3,943

Net interest margin (2) (3)                                             (212.47 )%                                    3.08 %

(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 average balances of the Company, the taxable-equivalent interest earned, and the rate paid thereon during the six months ended June 30, 2012 and 2011.

                                                         2012                                         2011
                                         Average       Income/        Yields/          Average       Income/       Yields/
(Dollars in thousands)                  Balances       Expense         Rates          Balances       Expense        Rates
Interest-earning assets:
Loans (1)(2)                            $      -      $      -              -        $   674,231     $ 17,776          5.32 %
Investment securities (2)                      -             -              -            270,081        3,266          2.44 %
. . .