UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended June 30, 1999

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

                  For the Transition Period From _____ to ____

                         Commission File Number 0-30062

                            CAPITAL BANK CORPORATION
                            ------------------------
             (Exact name of registrant as specified in its charter)

             North Carolina                                    56-2101930
             --------------                                    ----------
     (State or other jurisdiction of                         (IRS Employer
      incorporation or organization)                        Identification No.)

                            4400 Falls of Neuse Road
                          Raleigh, North Carolina 27609
                          -----------------------------
               (Address of Principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (919) 878-3100
                                                           --------------

Indicate by check mark whether the registrant (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  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days. [ X ] Yes   [   ]  No

As of August 5, 1999, there were issued and outstanding  3,658,689 shares of the
Registrant's common stock, no par value.
<PAGE>
                            Capital Bank Corporation

                                    CONTENTS

PART I - FINANCIAL INFORMATION

        Item 1. Condensed Financial Statements

        Consolidated statements of financial condition at June 30, 1999
              (Unaudited) and December 31, 1998

        Consolidated statements of income (loss) for the three months ended
              June 30, 1999 and June 30, 1998 (Unaudited)

        Consolidated statements of loss for the six months ended
              June 30, 1999 and June 30, 1998 (Unaudited)

        Consolidated statements of cash flows for the six months ended
             June 30, 1999 and June 30, 1998 (Unaudited)

        Notes to consolidated financial statements

        Item 2. Management's Discussion and Analysis of Financial Condition and
              Results of Operations

        Item 3. Quantitative and Qualitative Disclosures About Market Risk


PART II - OTHER INFORMATION

        Item 1. Legal Proceedings

        Item 2. Changes in Securities and Use of Proceeds

        Item 3. Defaults Upon Senior Securities

        Item 4. Submission of Matters to a Vote of Security Holders

        Item 5. Other Information

        Item 6. Exhibits and Reports on Form 8-K


        Signatures
<PAGE>
<TABLE>
<CAPTION>
CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1999 and December 31, 1998
                                                               June 30,   December 31,
ASSETS                                                           1999           1998
                                                             ---------      ---------
                                                            (In thousands)  (Unaudited)
<S>                                                          <C>            <C>
Cash and due from banks ................................     $   8,040      $  10,365
Federal funds sold .....................................        12,789         16,400
Investment securities
     Available for sale, at fair value .................        44,975         34,066
     Held-to-maturity, at amortized cost ...............         2,000          3,560
                                                             ---------      ---------
         Total investment securities ...................        46,975         37,626
                                                             ---------      ---------
Loans-net of unearned income ...........................       128,697        110,779
Allowance for loan losses ..............................        (1,813)        (1,457)
                                                             ---------      ---------
         Net loans .....................................       126,884        109,322
                                                             ---------      ---------
Premises and equipment, net ............................         2,933          2,592
Accrued interest receivable ............................         1,195            853
Deposit premium and goodwill, net ......................         1,725          1,833
Other assets ...........................................           876          1,002
                                                             ---------      ---------
            Total assets ...............................     $ 201,417      $ 179,993
                                                             =========      =========
LIABILITIES
Deposits
     Demand, non-interest bearing ......................     $   8,796      $   7,539
     Savings and interest bearing demand deposits ......        36,946         35,689
     Time deposits .....................................       102,118         94,115
                                                             ---------      ---------
         Total deposits ................................       147,860        137,343
                                                             ---------      ---------
Accrued interest payable ...............................           618            501
Repurchase agreements ..................................         3,659          2,501
Borrowings .............................................        16,052          5,066
Other liabilities ......................................         2,371          1,075
                                                             ---------      ---------
            Total liabilities ..........................       170,560        146,486

STOCKHOLDERS' EQUITY
Common stock, no par value; 20,000,000 shares
     authorized; 3,658,689 shares issued and outstanding        34,788         34,788
Accumulated deficit ....................................        (2,855)        (1,255)
Unearned ESOP shares ...................................           (52)           (66)
Deferred stock awards ..................................          --             (195)
Accumulated other comprehensive income (loss) ..........        (1,024)           235
                                                             ---------      ---------
            Total stockholders' equity .................        30,857         33,507
                                                             ---------      ---------
            Total liabilities and stockholders' equity .     $ 201,417      $ 179,993
                                                             =========      =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
CAPITAL BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three Months Ended June 30, 1999 and 1998
                                                                  1999         1998
                                                                 -------      -------
                                                              (In thousands)    (Unaudited)
<S>                                                              <C>          <C>
Interest income:
     Loans and loan fees ...................................     $ 2,524      $ 1,674
     Investment securities .................................         736          537
     Federal funds and other interest income ...............         153          296
                                                                  -------      -------
         Total interest income .............................       3,413        2,507
                                                                 -------      -------
Interest expense:
     Deposits ..............................................       1,624        1,309
     Borrowings and repurchase agreements ..................         232            4
                                                                 -------      -------
         Total interest expense ............................       1,856        1,313
                                                                 -------      -------
         Net interest income ...............................       1,557        1,194
     Provision for loan losses .............................         195          171
                                                                 -------      -------
         Net interest income after provision for loan losses       1,362        1,023

Noninterest income:
     Service charges and other fees ........................         108           68
     Other noninterest income ..............................         192           71
                                                                 -------      -------
         Total noninterest income ..........................         300          139

Noninterest expenses:
     Salaries and employee benefits ........................         977          723
     Occupancy .............................................         126           87
     Data processing .......................................          82           62
     Directors fees ........................................          46          105
     Advertising ...........................................          67           54
     Furniture and equipment ...............................          70           63
     Amortization of intangibles ...........................          54           54
     Other expenses ........................................         143          295
                                                                 -------      -------
         Total noninterest expenses ........................       1,565        1,443
                                                                 -------      -------
            Net income (loss) before tax expense ...........          97         (281)
     Income tax expense (benefit) ..........................          (4)           3
                                                                 -------      -------
            Net income (loss) ..............................     $   101      $  (284)
                                                                 =======      =======
Earnings per share - basic and diluted .....................     $  0.02      $ (0.08)
                                                                 =======      =======
Dividends per share ........................................     $  --        $  --
                                                                 =======      =======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
CAPITAL BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
Six Months Ended June 30, 1999 and 1998
                                                                   1999         1998
                                                                 -------      -------
                                                              (In thousands) (Unaudited)
<S>                                                              <C>          <C>
Interest income:
     Loans and loan fees ...................................     $ 4,913      $ 3,062
     Investment securities .................................       1,473        1,061
     Federal funds and other interest income ...............         252          597
                                                                 -------      -------
         Total interest income .............................       6,638        4,720
                                                                 -------      -------
Interest expense:
     Deposits ..............................................       3,171        2,431
     Borrowings and repurchase agreements ..................         350            9
                                                                 -------      -------
         Total interest expense ............................       3,521        2,440
                                                                 -------      -------
         Net interest income ...............................       3,117        2,280
     Provision for loan losses .............................         399          345
                                                                  -------      -------
         Net interest income after provision for loan losses       2,718        1,935

Noninterest income:
     Service charges and other fees ........................         205          134
     Other noninterest income ..............................         367           86
                                                                 -------      -------
         Total noninterest income ..........................         572          220
                                                                  -------      -------
Noninterest expenses:
     Salaries and employee benefits ........................       1,846        1,320
     Occupancy .............................................         238          168
     Data processing .......................................         163          112
     Directors fees ........................................         125          140
     Advertising ...........................................         130          107
     Furniture and equipment ...............................         133          119
     Amortization of intangibles ...........................         108          108
     Merger related expenses ...............................       1,647         --
     Other expenses ........................................         357          471
                                                                  -------      -------
         Total noninterest expenses ........................       4,747        2,545
                                                                 -------      -------
            Net loss before tax expense ....................      (1,457)        (390)
     Income tax expense (benefit) ..........................         (40)           4
                                                                 -------      -------
            Net loss .......................................     $(1,417)     $  (394)
                                                                 =======      =======

Earnings per share - basic and diluted .....................     $ (0.39)     $ (0.11)
                                                                 =======      =======
Dividends per share ........................................     $  0.05      $  0.05
                                                                 =======      =======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
CAPITAL BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1999 and 1998
                                                                     1999          1998
                                                                   --------      --------
                                                                (In thousands)  (Unaudited)
<S>                                                                <C>           <C>
Cash Flows From Operating Activities
     Net loss ................................................     $ (1,417)     $   (394)
     Adjustments to reconcile net loss to net cash provided
         by (used in) operating activities:
         Amortization of deposit premium and goodwill ........          108           108
         Depreciation ........................................          184           116
         Amortization of premium on securities, net ..........           24             4
         MRP and ESOP compensation ...........................          209            78
         Provision for loan losses ...........................          399           345
         Changes in assets and liabilities:
            Accrued interest receivable ......................         (342)           (2)
            Other assets .....................................          126          (276)
            Accrued interest payable and other liabilities ...        1,413          (387)
                                                                   --------      --------
                Net cash provided by (used in) operating
                  activities .................................          704          (408)
                                                                    --------      --------

Cash Flows From Investing Activities
     Loan originations, net of principal repayments ..........      (17,961)      (25,432)
     Additions to premises and equipment .....................         (525)       (1,680)
     Purchase of Federal Home Loan Bank stock ................         (343)          (63)
     Purchase of securities available for sale ...............      (16,281)       (7,233)
     Proceeds from maturities of securities available for sale        4,432         5,517
     Proceeds from maturities of securities held to maturity .        1,560         1,000
                                                                   --------      --------
                Net cash used in investing activities ........      (29,118)      (27,891)
                                                                   --------      --------

Cash Flows From Financing Activities
     Net increase in deposits ................................       10,517        18,010
     Net decrease in repurchase agreements ...................        1,158          --
     Net increase (decrease) in borrowings ...................       10,986           (29)
     Cash dividends ..........................................         (183)         (181)
                                                                   --------      --------
                Net cash provided by financing activities ....       22,478        17,800
                                                                   --------      --------

                Net change in cash and cash equivalents ......       (5,936)      (10,499)
     Cash and cash equivalents:
         Beginning ...........................................       26,765        30,046
                                                                   --------      --------
         Ending ..............................................     $ 20,829      $ 19,547
                                                                   --------      --------
</TABLE>
<PAGE>
Notes to the Consolidated Financial Statements

1.    Significant Accounting Policies and Interim Reporting

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information,  with the  instructions to Form 10-Q and Regulation S-X.
Accordingly,  they do not include all of the information and footnotes  required
by generally accepted accounting  principles for complete financial  statements.
In the opinion of management,  all adjustments necessary for a fair presentation
of the financial  position and results of operations  for the periods  presented
have been  included.  The results of  operations  for the six month period ended
June 30, 1999 are not  necessarily  indicative of the results of operations that
may be expected for the year ended December 31, 1999.

The  accounting  policies  followed  are as set  forth in Note 1 of the Notes to
Financial Statements in the 1998 Capital Bank Corporation annual report.

2.    Changes in Operating Structure

Capital Bank (the "Bank") was  incorporated  under the laws of North Carolina on
May 30, 1997 and commenced  operations  on June 20, 1997.  The Bank is a locally
owned  community bank engaged in general  commercial  banking,  providing a full
range of banking services.  The majority of the Bank's customers are individuals
and small to  medium-size  businesses.  The Bank's  primary source of revenue is
interest earned from loans to customers and from invested cash and securities.

Prior to March 31,  1999,  the Bank  operated  through its  corporate  office in
Raleigh,  North Carolina,  two branches in Cary, North Carolina and two branches
in Sanford,  North Carolina.  At a special meeting of shareholders held on March
26, 1999,  the  shareholders  of Capital Bank  approved  the  reorganization  of
Capital Bank into a bank holding company named "Capital Bank  Corporation"  (the
"Company").  In the holding company reorganization,  the shareholders of Capital
Bank each  received  a right to one  share of  Company  stock for each  share of
Capital  Bank stock that they owned.  Thus,  the  shareholders  of Capital  Bank
before  the  holding  company  reorganization  are now the  shareholders  of the
Company. In addition, on March 31, 1999 the Company completed its acquisition of
Home Savings Bank of Siler City SSB, Inc. in a stock-for-stock exchange in which
the Company issued 1,181,038 shares of its Common Stock. As used in this report,
the term  "Company"  refers to Capital Bank  Corporation  and its  subsidiaries,
Capital Bank and Home Savings  Bank of Siler City SSB,  Inc.,  after the holding
company reorganization.

As a result  of the  reorganization  and  acquisition,  which was  treated  as a
pooling-of-interests  transaction,  all amounts in these statements are restated
to reflect a consolidated basis as if the current organization had been in place
during both operating periods.
<PAGE>
3.    Comprehensive Loss

On January 1, 1998,  the  Company  adopted  Statement  of  Financial  Accounting
Standards No. 130 "Reporting  Comprehensive Income." Comprehensive loss includes
net  income  (loss)  and all other  changes to the  Company's  equity,  with the
exception of transactions with shareholders ("Other Comprehensive  Income"). The
Company's  only  components of other  comprehensive  income relate to unrealized
gains  and  losses  on  securities  available  for  sale.  The  Company's  total
comprehensive   net  loss  and   information   concerning  the  Company's  other
comprehensive  income items for the three and six month  periods  ended June 30,
1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                                      1999        1998
                                                                    -------      -------
(In thousands)                                                           (Unaudited)
Three month period ended June 30, 1999 and 1998:
<S>                                                                 <C>          <C>
     Net income (loss) before comprehensive items .............     $   101      $  (284)
     Unrealized gains/(losses) on securities available for sale        (922)          61
                                                                    -------      -------
     Comprehensive net loss ...................................     $  (821)     $  (223)
                                                                    =======      =======

Six month period ended June 30, 1999 and 1998:

     Net loss before comprehensive items ......................     $(1,417)     $  (394)
     Unrealized gains/(losses) on securities available for sale      (1,259)          67
                                                                    -------      -------
     Comprehensive net loss ...................................     $(2,676)     $  (327)
                                                                    =======      =======
</TABLE>

4.    Earnings Per Share

The Bank is required to report a dual presentation of basic and diluted earnings
per share  ("EPS").  Basic EPS  excludes  dilution  and is  computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. For loss periods,  diluted EPS is the same as
basic EPS due to the fact that including common stock equivalents  computed as a
result of the 215,248 stock options  outstanding  in the  calculation of diluted
EPS would be  antidilutive.  For periods  where the Bank has positive  earnings,
diluted EPS are presented due to the effect of those same options. The following
tables provide a computation and reconciliation of basic and diluted EPS for the
three and six month periods ended June 30, 1999 and 1998.
<PAGE>
4.     Earnings Per Share (Continued)

<TABLE>
<CAPTION>
                                                               1999             1998
                                                            -----------     -----------
(In thousands except number of shares)                             (Unaudited)
<S>                                                         <C>             <C>
Three month period ended June 30, 1999 and 1998:
Income available to stockholders - basic and diluted ..     $       101     $      (284)
                                                            ===========     ===========
Shares used in the computation of earnings per share:
Weighted average number of shares outstanding - basic .       3,674,964       3,638,651
Incremental shares from assumed exercise of stock
     options - antidilutive during loss periods .......          10,155             n/a
                                                            -----------     -----------
Weighted average number of shares outstanding - diluted       3,685,119       3,638,651
                                                            ===========     ===========

Six month period ended June 30, 1999 and 1998:

Income available to stockholders - basic and diluted ..     $  (1,417)     $      (394)
                                                            =========      ===========
Shares used in the computation of earnings per share:
Weighted average number of shares outstanding - basic .     3,674,386        3,636,216
Incremental shares from assured exercise of stock
  options - antidilutive during loss periods ..........           n/a              n/a

Weighted average number of shares outstanding - diluted     3,674,386        3,636,216
                                                            =========      ===========
</TABLE>
Item 2

Management's Discussion and Analysis
Of Financial Condition and Results of Operations
------------------------------------------------

The  following  discussion  presents  an  overview  of the  unaudited  financial
statements  for the three and six month  periods ended June 30, 1999 for Capital
Bank  Corporation  and its  wholly  owned  subsidiaries,  Capital  Bank and Home
Savings  Bank of Siler City,  SSB,  Inc. As a result of the  reorganization  and
acquisition,  all amounts in these  statements  are reflected on a  consolidated
basis as if the current  organization  had been in place  during both  operating
periods.   This  discussion  and  analysis  is  intended  to  provide  pertinent
information concerning financial position, results of operations, liquidity, and
capital resources. It should be read in conjunction with the unaudited financial
statements and related footnotes contained in Part I, Item 1 of this report.

Information set forth below contains various  forward-looking  statements within
the meaning of Section 27A of the  Securities Act of 1933 and Section 21E of the
Securities  Exchange  Act of 1934,  which  statements  represent  the  Company's
judgment  concerning the future and are subject to risks and uncertainties  that
could cause the Company's actual operating  results to differ  materially.  Such
forward-looking  statements  can be  identified  by the  use of  forward-looking
terminology,  such  as  "may",  "will",  "expect",   "anticipate",   "estimate",
"believe", or "continue", or the negative thereof or other variations thereof or
comparable   terminology.   The  Company  cautions  that  such   forward-looking
statements  are further  qualified  by  important  factors  that could cause the
Company's  actual  operating  results  to differ  materially  from  those in the
forward-looking  statements,  as well as the  factors  set forth  under  Exhibit
99.01,  "Risk  Factors," in the Company's  Annual Report on Form 10-K filed with
the FDIC.
<PAGE>
Overview

Capital Bank was  incorporated  under the laws of North Carolina on May 30, 1997
and commenced banking operations on June 20, 1997 in its main office in Raleigh,
North Carolina,  and two branch locations in Sanford,  North Carolina.  In March
1998,  the Bank opened a branch in Cary,  North  Carolina,  closely  followed by
another branch in the Cary area, which opened in September of that same year.

On August 6,  1998,  the Bank  announced  its plan to  organize  a bank  holding
company to be known as Capital Bank  Corporation.  In September,  1998, the Bank
entered  into a definite  agreement  to acquire Home Savings Bank of Siler City,
SSB,  Inc.  ("Home  Savings").  Home  Savings had total  assets in excess of $59
million and operated from its main office in Siler City.

On October 19, 1998, Capital Bank Corporation filed a Registration  Statement on
Form S-4 with the  Securities  and  Exchange  Commission  to register  under the
Securities  Act of 1933 up to 3,694,651  shares of its common stock to be issued
in connection  with Capital Bank's holding company  reorganization  and the Home
Savings acquisition.

Regulatory  and  shareholder  approval  was  completed  for  both  of the  above
transactions in 1999 and the  transactions  were completed on March 31, 1999. On
that same day,  Capital  Bank and Home  Savings  Bank of Siler City,  SSB,  Inc.
became wholly owned subsidiaries of the Company.

The  Company  has no  operations  other  than  those  of its  subsidiaries.  The
subsidiaries  are  full-service  community  banks.  The Company's  profitability
depends  principally  upon the net interest  income,  provision for loan losses,
noninterest income and noninterest expenses of the banks.

Financial Condition

Total  consolidated  assets of the Company  for the quarter  ended June 30, 1999
were $201.4 million compared to $180.0 million at December 31, 1998, an increase
of $21.4 million,  or 12%. On June 30, 1999, loans were $128.7 million, up $17.9
million, or 16%, compared to December 31, 1998. Investment securities were $47.0
million and Federal funds sold were $12.8 million at period end.  During the six
month period, Federal funds sold declined by $3.6 million as this asset category
was redeployed into higher yielding loans and securities. The allowance for loan
losses on June 30, 1999 was $1.8 million and represented  approximately 1.41% of
total loans. Management believes that the amount of the allowance is adequate at
this time.

Deposits on June 30, 1999 were $147.9  million,  an increase of $10.5 million or
8% from December 31, 1998.  Earning  assets  represented  94% of total assets on
June 30, 1999.  Total  consolidated  stockholders'  equity was $ 30.9 million at
June 30, 1999.


Results of Operations

For the three month period ended June 30, 1999, the Company  reported net income
of $101,000  or $.02 per share  compared to a loss of $284,000 or $.08 per share
in the second quarter of 1998. For the six month period ended June 30, 1999, the
Company reported a net loss of $1.4 million or $.39 per share compared to a loss
of $394,000 or $.11 per share for the same period in 1998.  Included in the loss
for the six month period ended June 30, 1999 were certain  nonrecurring  charges
related to the  establishment of the bank holding company and the acquisition of
Home  Savings  of  $1.6  million.   Excluding  those  costs,   the  Company  had
consolidated net income from operations of  approximately  $230,000 or $0.06 per
share for the six month period ended June 30, 1999.
<PAGE>
Net interest  income in the second quarter was $1.6 million,  up 30% compared to
$1.2 million in the second  quarter of 1998. For the six month period ended June
30, 1999, net interest income was $3.1 million,  up 37% compared to $2.3 million
for the same period in 1998.  The  Company's  net interest  margin (net interest
income as a percentage  of average  earning  assets) was 3.37% and 3.47% for the
three and six month periods ended June 30, 1999, respectively.

The  provision  for loan losses was  $195,000 and $399,000 for the three and six
month  periods  ended June 30, 1999,  respectively.  This  provision was used to
build the  allowance for loan losses to a prudent level to support the Company's
actual loan growth. At June 30, 1999, the allowance for loan losses was 1.41% of
total loans.  Loans 30 days or more past due totaled  $766,000  and  represented
 .60% of total loans on June 30, 1999.

Non-interest  income for the three and six month  periods  ended June 30,  1999,
were $300,000 and $572,000, respectively,  compared to $139,000 and $220,000 for
the same  periods in 1998.  The  increases in  non-interest  income is primarily
attributable  to mortgage  origination  fees and loan servicing fees  associated
with  accounts  receivable  financing.  These two business  activities  were new
revenue sources in latter part of 1998.

Non-interest  expense for the three and six month  periods  ended June 30, 1999,
were $1.6 million and $4.7 million,  respectively,  compared to $1.4 million and
$2.5  million for the same  periods in 1998.  Salaries  and  employee  benefits,
representing  the largest  expense  category,  increased  from $723,000 and $1.3
million for the three and six month periods in 1998 to $977,000 and $1.8 million
for the same periods in 1999. These increases  reflect an increase in the number
of  personnel  employed  by the Company as the Company  must  maintain  adequate
staffing  levels  in order to meet  customer  needs  and to keep  pace  with its
expected  growth.  As of June 30, 1999 the Company had 68  full-time  equivalent
employees.  Nonrecurring charges related to the Home Savings acquisition and the
setup of the Capital Bank  Corporation  bank  holding  company  represented  the
second largest expense category.  Those expenses amounted to approximately  $1.6
million for the six month period ended June 30, 1999. Occupancy costs, the third
highest component of non-interest expenses,  increased from $87,000 and $168,000
for the three and six month  periods in 1998 to $126,000  and  $238,000  for the
same periods in 1999. These increases are primarily  associated with the leasing
of  additional  office  space as a result of growth in the lending  area and the
related growth in the number of personnel  needed in that  department.  Although
management expects  noninterest  expense to increase on an absolute basis as the
Company  continues its growth,  these expenses as a percentage of asset size and
operating revenue are anticipated to decrease over time.

Liquidity and Capital Resources

The  Company's  liquidity  management  involves  planning to meet the  Company's
anticipated funding needs at a reasonable cost.  Liquidity  management is guided
by  policies   formulated   by  the   Company's   senior   management   and  the
Asset/Liability  Management Committee of the Board of Directors. The Company had
$20.8 million in its most liquid  assets,  cash and cash  equivalents at quarter
end. The Company's  principal  sources of funds are deposits,  Federal Home Loan
Bank borrowings and capital.  Core deposits (total deposits less certificates of
deposits in the amount of $100,000 or more),  one of the most stable  sources of
liquidity,  together with equity  capital funded 81% of total assets at June 30,
1999.  In  addition,  the Company has the ability to take  advantage  of various
other funding programs available from the Federal Home Loan Bank of Atlanta.
<PAGE>
Stockholder's  equity  was $30.9  million  or $8.43 per share at June 30,  1999.
Management believes this level of shareholders' equity provides adequate capital
to  support  the  Company's  growth  for the next 12 months  and to  maintain  a
well-capitalized  position.  At June 30, 1999, Capital Bank had a leverage ratio
of 16.7%, a Tier 1 capital ratio of 20.2%, and a total risk-based  capital ratio
of 21.4% and Home Savings Bank had a leverage  ratio of 13.3%,  a Tier 1 capital
ratio of 34.2%, and a total risk-based  capital ratio of 35.5%. These ratios far
exceed the federal  regulatory  minimum  requirements  for a  "well-capitalized"
bank.  Management's  challenge  is to use this  capital to  implement  a prudent
growth  strategy of branch and bank  acquisitions  while  growing  the  existing
branch structure  through quality service and  responsiveness  to its customers'
needs,  although  there  is no  assurance  that  the  Company  will  meet  these
objectives.

Effects of Inflation

Inflation  can  have a  significant  effect  on  the  operating  results  of all
industries.  However,  management  believes the inflationary  factors are not as
critical to the banking  industry  as they are to other  industries,  due to the
high concentration of relatively  short-duration  monetary assets in the banking
industry.  Inflation does,  however,  have some impact on the Company's  growth,
earnings and total assets, and on its need to closely monitor capital levels.

Interest rates are significantly  affected by inflation,  but it is difficult to
assess the impact,  since neither the timing nor the magnitude of the changes in
the  various  inflation  indices  coincides  with  changes  in  interest  rates.
Inflation does impact the economic value of longer-term  interest-bearing assets
and  liabilities,  but the Company  attempts to limit its  long-term  assets and
liabilities.

Year 2000

As the Year 2000 approaches,  an important  business issue has emerged regarding
whether or not existing computer systems and other operating systems can process
this date value  properly.  The problem is the result of computer  programs  and
related  logic which use a two digit value to define a particular  calendar year
(i.e. 99 for 1999). When this logic is used,  computer systems can not recognize
the two digit code "00"  associated  with the Year 2000 as coming  after 99. The
issue is  significant  because many computer  systems  deployed  throughout  the
business world, not just in banks, use software which contain the two digit date
logic.

Capital Bank  Corporation  uses two outside data processing  companies  (service
bureaus)  to provide  computer  processing  systems  for their  primary  banking
products including loans, deposits, ATM's, check processing and general ledger.

The  computer  software  used by these  service  bureaus  is used by many  banks
throughout  the  country.  Both service  bureaus have tested their  software and
believe that they are Y2K compliant.

In addition to the service  bureaus,  the Company  utilizes  personal  computers
configured into seven local area networks  (LANS) which are, in turn,  connected
to each other  through a wide area network  (WAN).  All key  equipment  has been
purchased  new  since  1997 and has  subsequently  been  tested  for  Year  2000
readiness  by an  independent  consultant.  The test results  indicate  that all
equipment will function properly into the Year 2000.
<PAGE>
In addition to the  service  bureau  applications,  the  Company  uses  software
distributed  through the LAN/WAN network for functions such as word  processing,
E-mail, spreadsheet,  teller transactions,  document preparation and new account
setup.  All these  software  products are purchased or licensed from third party
vendors.  It should be noted that  Capital  Bank  Corporation  does not write or
develop any of its own  computer  applications  and all key third party  vendors
have provided the Company with written  certification  or information that their
software is Year 2000 ready.

In addition to receiving  these  assurances from third party vendors the Company
has instituted a Year 2000  compliance  program whereby it is reviewing the year
2000 issue on a comprehensive,  Company-wide basis. This program is administered
by a project team  consisting  of executive  and senior  management as well as a
representative from the Board of Directors.

As of June 30,  1999,  the  Company had  completed  its  assessment  of existing
computer  systems  and   applications   and  had  identified   mission  critical
applications. The Bank has tested these systems or has reviewed third party test
results.  It is the opinion of management that all mission critical systems will
properly  handle the century  data  change.  However,  the Year 2000 is a global
issue which  extends  beyond the  control of Capital  Bank  Corporation  and may
effect the  providers of services  such as power and  telecommunications.  These
services  are  critical  to the  ongoing  operations  of the  Company and in the
unlikely event of an interruption in these services,  it is management's opinion
that such a failure will be quickly resolved.

The Company has developed detailed  contingency plans in case problems do occur.
The Company has developed a general business  resumption  contingency plan which
provides for the  implementation of manual processes on a temporary basis should
any computer  application  malfunction  on or after January 1, 2000. The Company
has also developed a liquidity plan which is designed to meet customer needs for
increased funds and currency.

The  Company  has  budgeted  $93,000  for the Year  2000  program  and has spent
approximately $72,000 to date.

As a lending  institution  the Company is exposed to potential risk if borrowers
suffer year 2000 related  difficulties  and are unable to repay their loans.  In
July 1998, the Company sent informational material and a year 2000 questionnaire
to all large borrowers  which focuses on their year 2000  readiness.  During the
third quarter 1998,  the Company's  loan officers and account  managers met with
these customers to personally review the answers to these  questionnaires and to
discuss  the  impact  of the Year  2000 on their  operations.  The  Company  has
evaluated the  information  obtained  from these  meetings in order to determine
what  impact the Year 2000 will have on their  financial  performance  and their
ability to make loan  payments.  Thus far none of the Company's  borrowers  have
reported the  expectation  of material  adverse  impacts as a result of the year
2000 issue.

Based on the information now available, the Company anticipates that the systems
it uses will  properly  process  dates in the year 2000 and  beyond and that the
costs  incurred in achieving full year 2000  compliance  will not be material to
the Company's results of operation, liquidity or capital resources.
<PAGE>
Item 3            Quantitative and Qualitative Disclosures About Market Risk
------            ----------------------------------------------------------

The Company has not  experienced  any material change in its portfolio risk from
December 31, 1998 to June 30, 1999.

Part II - Other Information

Item 1            Legal Proceedings
------            -----------------

There are no material pending legal  proceedings to which the Company is a party
or of which any of its  property is  subject.  In  addition,  the Company is not
aware of any threatened litigation,  unasserted claims or assessments that could
have a material adverse effect on the Company's  business,  operating results or
condition.

Item 2            Changes in Securities and Use of Proceeds
------            -----------------------------------------

None

Item 3            Defaults Upon Senior Securities
------            -------------------------------

None

Item 4            Submission of Matters to a Vote of Security Holders
------            ---------------------------------------------------

On June 17, 1999, the annual meeting of  stockholders of the Company was held to
consider and vote upon three issues; the election of several Class II directors,
the election of one Class I director, and the ratification of the appointment of
PricewaterhouseCoopers, LLP as the Company's independent auditors for the fiscal
year ended  December 31, 1999. All items were approved by the  stockholders.  Of
the  3,658,689  shares  eligible to vote,  3,304,804  were voted as shown on the
following tables:

Vote concerning the election of Class II directors:


                                        For            Withheld          Total
                                     ---------          -------        ---------

Edwin E. Bridges ............        3,295,336            9,468        3,304,804

L.I. Cohen, Jr ..............        3,268,504           36,300        3,304,804

Robert L. Jones .............        3,268,204           36,600        3,304,804

Vernon Malone ...............        3,265,864           38,940        3,304,804

J. Rex Thomas ...............        3,267,864           36,940        3,304,804

Bruce V. Wainwright .........        3,267,064           37,740        3,304,804

Samuel J. Wornom, III .......        3,268,504           36,300        3,304,804

<PAGE>
Vote concerning the election of one Class I director:


                                      For            Withheld          Total
                                   ---------         ---------        ---------

John F. Grimes                     3,258,050           46,754         3,304,804


Vote concerning the  ratification of the appointment of  PricewaterhouseCoopers,
LLP as the independent auditors for the fiscal year ended December 31, 1999:


                     For            Against          Abstain           Total
                  --------          ------           --------        --------
                  3,215,599         60,580            28,625         3,304,804


In each case, the affirmative vote of at least a majority of all shares entitled
to vote was required to approve the action and was obtained.

Item 5            Other Information
------            -----------------

None

Item 6            Exhibits and Reports on Form 8-K
------            --------------------------------

 (a)     Exhibits

         27.01    Financial Data Schedule


 (b)     Reports on Form 8-K

         During the quarter  ended June 30, 1999, a Current  Report on Form 8-K,
         dated March 31,  1999,  was filed with the  Commission  by the Company.
         This report  included  information  about the Company's  acquisition of
         Home  Savings and Capital  Bank's  reorganization  into a bank  holding
         company.  The  report  also  included  or  incorporated  the  following
         financial  statements:  (i) Home Savings as of  September  30, 1998 and
         1997 and for the years ended  September 30, 1998,  1997, and 1996, (ii)
         certain interim financial  statements of Home Savings as of and for the
         quarter  ended  December 31, 1998 (filed by  amendment);  and (iii) pro
         forma  financial  statements for the Company and Home Savings as of and
         for the year ended December 31, 1998 (filed by amendment).

         During the  quarter  ended June 30,  1999,  an  amendment  to the above
         mentioned  Form 8-K was filed to include the  required  interim and pro
         forma financial statements as also described above.

<PAGE>

                                   Signatures

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                           CAPITAL BANK CORPORATION


Date:  August 5, 1999                      By: /s/ Allen T. Nelson, Jr.,
                                               -------------------------
                                               Allen T. Nelson, Jr.,
                                               Senior Vice President and CFO