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 March 31, 2005

              |_| 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.)

                              4901 Glenwood Avenue
                          Raleigh, North Carolina 27612
               ---------------------------------------------------
               (Address of Principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (919) 645-6400
                                                           --------------

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). |X| Yes |_| No

As of May 6, 2005 there were 6,568,690 shares outstanding of the registrant's
common stock, no par value.


<PAGE>

                            Capital Bank Corporation
                                    CONTENTS

<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                                        Page No.
<S>                                                                               <C>
   Item 1. Financial Statements

   Condensed consolidated statements of financial condition at March 31, 2005
        (Unaudited) and December 31, 2004                                               1
   Condensed consolidated statements of income for the three months
        ended March 31, 2005 and 2004 (Unaudited)                                       2
   Condensed consolidated statements of changes in shareholders' equity for
        the three months ended March 31, 2005 and 2004 (Unaudited)                      3
   Condensed consolidated statements of cash flows for the three months
        ended March 31, 2005 and 2004 (Unaudited)                                   4 - 5
   Notes to condensed consolidated financial statements                            6 - 10

   Item 2. Management's Discussion and Analysis of Financial Condition and
        Results of Operations                                                     10 - 25

   Item 3. Quantitative and Qualitative Disclosures About Market Risk                  25

   Item 4. Controls and Procedures                                                25 - 26

PART II - OTHER INFORMATION

   Item 1. Legal Proceedings                                                           26

   Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                 26

   Item 3. Defaults Upon Senior Securities                                             26

   Item 4. Submission of Matters to a Vote of Security Holders                         26

   Item 5. Other Information                                                           26

   Item 6. Exhibits                                                                    27

   Signatures                                                                          28
</TABLE>


<PAGE>

Item 1.  Financial Statements
CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 2005 and December 31, 2004

<TABLE>
<CAPTION>
                                                               March 31,    December 31,
                                                                 2005          2004
----------------------------------------------------------------------------------------
                                    (Dollars in thousands)    (Unaudited)
<S>                                                            <C>           <C>
ASSETS
Cash and due from banks:
   Interest earning                                            $     369     $     971
   Noninterest earning                                            28,340        22,036
Federal funds sold and short term investments                      4,611             4
Investment securities - available for sale, at fair value        139,575       140,946
Investment securities - held to maturity, at amortized cost       14,046        13,336
Federal Home Loan Bank stock                                       6,345         6,298
Loans - net of unearned income and deferred fees                 647,922       654,867
Allowance for loan losses                                        (10,372)      (10,721)
                                                               ---------     ---------
      Net loans                                                  637,550       644,146
                                                               ---------     ---------
Premises and equipment, net                                       15,691        15,608
Bank owned life insurance                                         13,632        13,500
Deposit premium and goodwill, net                                 13,011        13,065
Deferred tax assets                                                6,516         5,985
Accrued interest receivable and other assets                       7,626         6,399
                                                               ---------     ---------
         Total assets                                          $ 887,312     $ 882,294
                                                               =========     =========

LIABILITIES
Deposits:
   Demand, noninterest bearing                                 $  64,744     $  65,673
   Savings and interest bearing demand deposits                  202,662       193,435
   Time deposits                                                 394,772       395,868
                                                               ---------     ---------
      Total deposits                                             662,178       654,976
                                                               ---------     ---------
Repurchase agreements and federal funds purchased                 14,346        16,755
Federal Home Loan Bank advances                                  100,864       102,320
Subordinated debentures                                           20,620        20,620
Accrued interest payable and other liabilities                    12,339         9,885
                                                               ---------     ---------
         Total liabilities                                       810,347       804,556
                                                               ---------     ---------

SHAREHOLDERS' EQUITY
Common stock, no par value; 20,000,000 shares authorized;
   6,565,042 and 6,612,787 issued and outstanding as of
   March 31, 2005 and December 31, 2004, respectively             67,468        68,341
Retained earnings                                                 10,253         9,092
Accumulated other comprehensive income (loss)                       (756)          305
                                                               ---------     ---------
         Total shareholders' equity                               76,965        77,738
                                                               ---------     ---------
         Total liabilities and shareholders' equity            $ 887,312     $ 882,294
                                                               =========     =========
</TABLE>

See Notes to Condensed Consolidated Financial Statements


                                      -1-
<PAGE>

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                                 2005            2004
----------------------------------------------------------------------------------------
                     (In thousands except per share data)            (Unaudited)
<S>                                                          <C>             <C>
Interest income:
   Loans and loan fees                                       $     9,742     $     8,471
   Investment securities                                           1,697           1,718
   Federal funds and other interest income                            17              42
                                                             -----------     -----------
      Total interest income                                       11,456          10,231
                                                             -----------     -----------
Interest expense:
   Deposits                                                        3,182           2,862
   Borrowings and repurchase agreements                            1,368           1,100
                                                             -----------     -----------
      Total interest expense                                       4,550           3,962
                                                             -----------     -----------
      Net interest income                                          6,906           6,269
Provision (credit) for loan losses                                  (250)            116
                                                             -----------     -----------
      Net interest income after provision for loan losses          7,156           6,153
                                                             -----------     -----------
Noninterest income:
   Service charges and other fees                                    657             727
   Mortgage banking revenues                                         272             337
   Net gain on sale of securities                                      6              13
   Other noninterest income                                          405             524
                                                             -----------     -----------
      Total noninterest income                                     1,340           1,601
                                                             -----------     -----------
Noninterest expenses:
   Salaries and employee benefits                                  3,149           2,842
   Occupancy                                                         614             572
   Furniture and equipment                                           367             365
   Data processing                                                   311             322
   Advertising                                                       216             202
   Amortization of deposit premium                                    54              65
   Other expenses                                                  1,439           1,269
                                                             -----------     -----------
      Total noninterest expenses                                   6,150           5,637
                                                             -----------     -----------
         Income before income tax expense                          2,346           2,117
Income tax expense                                                   791             737
                                                             -----------     -----------
         Net income                                          $     1,555     $     1,380
                                                             ===========     ===========

Earnings per share - basic                                   $      0.23     $      0.21
                                                             ===========     ===========
Earnings per share - diluted                                 $      0.22     $      0.20
                                                             ===========     ===========

Weighted average shares
   Basic                                                       6,754,576       6,688,946
                                                             ===========     ===========
   Fully diluted                                               6,941,776       6,886,567
                                                             ===========     ===========
</TABLE>

See Notes to Condensed Consolidated Financial Statements


                                      -2-
<PAGE>

Capital Bank Corporation
Consolidated Statements of Changes in Shareholders' Equity
For the Three Months Ended March 31, 2005 and 2004

                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                           Shares of                      Other
                                            Common         Common      Comprehensive    Retained
                                             Stock         Stock          Income        Earnings        Total
                                          ----------     ----------    -------------   ----------     ----------
                                                                        (Unaudited)
<S>                <C>                     <C>           <C>            <C>            <C>            <C>
Balance at January 1, 2004                 6,541,495     $   67,381     $      377     $    5,165     $   72,923
Issuance of common stock
   for options exercised                      29,637            343             --             --            343
Net income                                        --             --             --          1,380          1,380
Other comprehensive income                        --             --          1,123             --          1,123
                                                                                                      ----------
   Comprehensive income                                                                                    2,503
                                                                                                      ----------
Dividends ($0.05 per share)                       --             --             --           (329)          (329)
                                          ----------     ----------     ----------     ----------     ----------
Balance at March 31, 2004                  6,571,132     $   67,724     $    1,500     $    6,216     $   75,440
                                          ==========     ==========     ==========     ==========     ==========

Balance at January 1, 2005                 6,612,787     $   68,341     $      305     $    9,092     $   77,738
Repurchase of outstanding common stock       (50,000)    $     (892)    $       --     $       --           (892)
Issuance of common stock
   for options exercised                       2,255             19             --             --             19
Net income                                        --             --             --          1,555          1,555
Other comprehensive loss                          --             --         (1,061)            --         (1,061)
                                                                                                      ----------
   Comprehensive income                                                                                      494
                                                                                                      ----------
Dividends ($0.06 per share)                       --             --             --           (394)          (394)
                                          ----------     ----------     ----------     ----------     ----------
Balance at March 31, 2005                  6,565,042     $   67,468     $     (756)    $   10,253     $   76,965
                                          ==========     ==========     ==========     ==========     ==========
</TABLE>

See Notes to Condensed Consolidated Financial Statements


                                      -3-
<PAGE>

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                                   2005         2004
-------------------------------------------------------------------------------------
                                             (In thousands)           (Unaudited)
<S>                                                             <C>          <C>
Cash Flows From Operating Activities
   Net income                                                   $  1,555     $  1,380
   Adjustments to reconcile net income to net cash
      provided by operating activities:
      Amortization of deposit premium                                 54           65
      Depreciation                                                   362          362
      Net gains on sale of securities available for sale              (6)         (13)
      Change in held for sale loans                               (1,550)       2,613
      Amortization of premiums on securities, net                     76          173
      Deferred income tax expense                                    135          272
      Provision (credit) for loan losses                            (250)         116
      Changes in assets and liabilities:
        Accrued interest receivable and other assets              (1,243)         257
        Accrued interest payable and other liabilities             2,457          413
      Other operating activities, net                                 --            9
                                                                --------     --------
          Net cash provided by operating activities                1,590        5,647
                                                                --------     --------
Cash Flows From Investing Activities
   Loan (originations) repayments, net                             8,280      (19,893)
   Additions to premises and equipment                              (445)        (770)
   Net (purchase) sales of Federal Home Loan Bank stock              (47)         852
   Purchase of securities available for sale                      (7,491)     (17,643)
   Purchase of securities held to maturity                          (973)          --
   Proceeds from maturities of securities available for sale       4,637        9,009
   Proceeds from sales of securities available for sale            2,430       16,013
   Proceeds from maturities of securities held to maturity           261           --
   Other investing activities, net                                    --            7
                                                                --------     --------
          Net cash provided by (used in)
          investing activities                                     6,652      (12,425)
                                                                --------     --------
Cash Flows From Financing Activities
   Net increase in deposits                                        7,202       49,198
   Net decrease in repurchase agreements                          (2,409)      (1,092)
   Net decrease in borrowings                                     (1,456)     (17,068)
   Cash dividends paid                                              (397)        (328)
   Issuance of common stock for options                               19          343
   Purchase of common stock                                         (892)          --
                                                                --------     --------
          Net cash provided by financing activities                2,067       31,053
                                                                --------     --------
          Net change in cash and cash equivalents                 10,309       24,275
   Cash and cash equivalents:
      Beginning of period                                         23,011       25,610
                                                                --------     --------
      Ending at March 31                                        $ 33,320     $ 49,885
                                                                ========     ========
</TABLE>

                                                        (continued on next page)

See Notes to Condensed Consolidated Financial Statements


                                      -4-
<PAGE>

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three Months Ended March 31, 2005 and 2004

                                                              2005        2004
--------------------------------------------------------------------------------
                                      (In thousands)             (Unaudited)

Supplemental Disclosure of Cash Flow Information
   Transfer from loans to real estate acquired
      through foreclosure                                   $    116    $    310
                                                            ========    ========

   Dividends payable                                        $    394    $    329
                                                            ========    ========

   Cash paid for:
      Income taxes                                          $    223    $     63
                                                            ========    ========

      Interest                                              $  4,414    $  3,875
                                                            ========    ========

See Notes to Condensed Consolidated Financial Statements


                                      -5-
<PAGE>

Notes to Condensed Consolidated Financial Statements

1. Significant Accounting Policies and Interim Reporting

The accompanying  unaudited condensed  consolidated financial statements include
the accounts of Capital Bank  Corporation  (the  "Company") and its wholly owned
subsidiary,  Capital Bank (the "Bank"). In addition, the Company has interest in
two trusts,  Capital Bank  Statutory  Trust I and II  (hereinafter  collectively
referred to as the  "Trusts").  The Trusts have not been  consolidated  with the
financial  statements of the Company. The interim financial statements have been
prepared in accordance with generally accepted  accounting  principles.  They do
not include all of the information and footnotes  required by generally accepted
accounting  principles for complete financial statements and therefore should be
read in  conjunction  with the audited  financial  statements  and  accompanying
footnotes  in the  Company's  Annual  Report  on Form  10-K for the  year  ended
December 31, 2004, as amended.  In the opinion of  management,  all  adjustments
necessary  for a fair  presentation  of the  financial  position  and results of
operations  for the periods  presented  have been  included and all  significant
intercompany transactions have been eliminated in consolidation.  The results of
operations  for the three month period ended March 31, 2005 are not  necessarily
indicative of the results of operations  that may be expected for the year ended
December 31, 2005.

The balance  sheet at  December  31, 2004 has been  derived  from the  Company's
audited  consolidated  financial  statements  contained in the Company's  Annual
Report on Form 10-K for the year ended December 31, 2004, as amended.

The  accounting  policies  followed  are as set  forth in Note 1 of the Notes to
Financial  Statements in the  Company's  Annual Report on Form 10-K for the year
ended December 31, 2004, as amended.

2. Comprehensive Income

Comprehensive  income includes net income and all other changes to the Company's
equity,   with  the  exception  of  transactions   with   shareholders   ("other
comprehensive  income"). The Company's  comprehensive income for the three month
period ended March 31, 2005 and 2004 are as shown in the Company's  Consolidated
Statements of Changes in  Shareholder's  Equity for the three months ended March
31,  2005  and  2004  (unaudited).   The  Company's  only  components  of  other
comprehensive  income  relate  to  unrealized  gains and  losses  on  securities
available for sale, net of the applicable income tax effect and are as follows:

<TABLE>
<CAPTION>
                                                                  As of March 31,
                                                                 2005         2004
                                                              ---------------------
(Dollars in thousands)                                              (Unaudited)
<S>                                                           <C>          <C>
Unrealized (losses) gains on securities available for sale    $ (1,721)    $  1,852
Reclassification of gains recognized in net income                  (6)         (13)
Income tax benefit (expense)                                       666         (716)
                                                              --------     --------
Other comprehensive income (loss)                             $ (1,061)    $  1,123
                                                              ========     ========
</TABLE>


                                      -6-
<PAGE>

3. Earnings Per Share

The Company is required  to report  both 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.  Diluted EPS  assumes the  conversion,  exercise or
issuance of all  potential  common  stock  instruments,  such as stock  options,
unless the effect is to reduce a loss or increase  earnings  per share.  For the
Company,  EPS is adjusted for outstanding stock options using the treasury stock
method  in  order to  compute  diluted  EPS.  The  following  tables  provide  a
computation  and  reconciliation  of basic and  diluted  EPS for the three month
periods ended March 31, 2005 and 2004, respectively:

<TABLE>
<CAPTION>
                                                                  2005           2004
                                                              --------------------------
(Dollars in thousands)                                                (Unaudited)
<S>                                                           <C>            <C>
Three month periods ended March 31, 2005 and 2004:

   Income available to shareholders - basic and diluted       $     1,555    $     1,380
                                                              ===========    ===========
Shares used in the computation of earnings per share:
   Weighted average number of shares outstanding - basic        6,754,576      6,688,946
   Incremental shares from assumed exercise of stock
      options                                                     187,200        197,621
                                                              -----------    -----------
   Weighted average number of shares outstanding - diluted      6,941,776      6,886,567
                                                              ===========    ===========
</TABLE>

Options to purchase  approximately  692,000  shares of common stock were used in
the diluted  calculation  for the first  quarter of 2005. An aggregate of 36,250
options  were not included in the diluted  calculation  because the option price
exceeded the average fair market value of the associated  shares of common stock
during the first quarter of 2005.

4. Stock Based Compensation

The Company has a stock  option  plan under  which  options to purchase  Company
common stock may be granted periodically to certain employees. Grants of options
are made by the Board of Directors  or its  Compensation  Committee.  All grants
must be at no less  than  fair  market  value  on the  date  of  grant,  must be
exercised  no later than 10 years from the date of grant,  and may be subject to
certain vesting provisions.

The Company  accounts for stock options under the  provisions of APB Opinion No.
25 ("APB 25"),  Accounting  for Stock Issued to  Employees.  However,  under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123 ("FAS
123"),  Accounting  for  Stock-Based  Compensation,  the  Company is required to
disclose the pro forma effects on net income as if it had recorded  compensation
based on the fair value of options granted.  The fair value of each option grant
is estimated on the date of grant using the Black-Scholes  option-pricing  model
with  certain  assumptions.  Option  pricing  models  require  the use of highly
subjective  assumptions,  including  expected stock price  volatility,  which if
changed can materially affect fair value estimates.

Under    SFAS   No.    148   ("FAS    148"),    Accounting    for    Stock-Based
Compensation--Transition and Disclosure,  companies are required to disclose for
each period for which an income statement is


                                      -7-
<PAGE>

presented  an  accounting  policy  footnote  that  includes:  (i) the  method of
accounting  for  stock  options;  (ii)  total  stock  compensation  cost that is
recognized in the income  statement and would have been  recognized  had FAS 123
been adopted for  recognition  purposes as of its effective  date; and (iii) pro
forma net income and earnings per share (where  applicable) that would have been
reported had FAS 123 been adopted for  recognition  purposes as of its effective
date. These  disclosures are required to be made in annual financial  statements
and in quarterly  information provided to shareholders without regard to whether
the entity has adopted FAS 123 for recognition purposes.

The Company  granted  1,000  options to purchase its shares of common stock at a
weighted  average price of $18.37 during the first three months of 2005. For the
three month period ended March 31, 2005, the following table  summarizes the net
income and stock-based compensation expense, as reported,  compared to pro forma
amounts had the fair value method been applied:

                                                               2005       2004
                                                             ------------------
(Dollars in thousands)                                           (Unaudited)
Three month periods ended March 31, 2005 and 2004:

Net income, as reported                                      $ 1,555    $ 1,380
Add: Stock-based employee compensation expenses included
   in reported net income, net of tax effects                     --         --
Deduct: Total stock-based employee compensation expense
   determined under fair value based method for all awards,
   net of related tax effects                                    (48)       (42)
                                                             ------------------
Pro forma net income                                         $ 1,507    $ 1,338
                                                             ==================

Earnings per share:
Basic - as reported                                          $  0.23    $  0.21
Basic - pro forma                                            $  0.22    $  0.20
Diluted - as reported                                        $  0.22    $  0.20
Diluted - pro forma                                          $  0.22    $  0.19

The  implementation of SFAS 123R has been delayed and will not take effect until
January 1, 2006. Additional details on the impact for the Company is included in
the Company's Annual Report on Form 10-K, as amended,  in footnote 1 to the Note
to Consolidated Financial Statements.

5. Investment Securities

The  following  table  shows the gross  unrealized  losses and fair value of the
Company's  investments  with  unrealized  losses  that  are  not  deemed  to  be
other-than-temporarily impaired, aggregated by investment category and length of
time that  individual  securities  have  been in a  continuous  unrealized  loss
position, at March 31, 2005:


                                      -8-
<PAGE>

<TABLE>
<CAPTION>
                                                 (Unaudited)
(Dollars in thousands)           Less Than 12 Months    12 Months or Greater           Total
                               ----------------------------------------------------------------------
                                           Unrealized              Unrealized              Unrealized
Description of Security        Fair Value    Losses    Fair Value    Losses    Fair Value    Losses
-----------------------------------------------------------------------------------------------------
<S>                             <C>         <C>         <C>         <C>         <C>         <C>
Available for sale
Direct obligations of U.S.
   government agencies          $ 15,891    $    192    $ 16,842    $    674    $ 32,733    $    866
Municipal bonds                    2,204          33       2,409         100       4,613         133
Federal agency mortgage-
   backed securities              53,358         531      15,433         463      68,791         994
                                --------------------------------------------------------------------
                                  71,453         756      34,684       1,237     106,137       1,993
                                --------------------------------------------------------------------
Held to maturity
Direct obligations of U.S.
   government agencies             4,927          71          --          --       4,927          71
Municipal bonds                      293           7          --          --         293           7
Federal agency mortgage-
   backed securities               7,650         126          --          --       7,650         126
                                --------------------------------------------------------------------
                                  12,870         204          --          --      12,870         204
                                --------------------------------------------------------------------
                                $ 84,323    $    960    $ 34,684    $  1,237    $119,007    $  2,197
                                ====================================================================
</TABLE>

Government   Agency   Obligations.   The  unrealized  losses  on  the  Company's
investments in direct obligations of U.S. government agencies were the result of
interest rate  increases.  The  contractual  terms of these  investments  do not
permit the issuer to settle the securities at a price  materially  less than the
amortized cost of the investment. Because the Company has the ability and intent
to hold these investments until a recovery of fair value, which may be maturity,
the Company does not consider  these  investments  to be  other-than-temporarily
impaired at March 31, 2005.

Federal  Agency  Mortgage-Backed   Securities.  The  unrealized  losses  on  the
Company's investment in agency mortgage-backed securities issued by FNMA, FHLMC,
and GNMA were caused by interest rate increases.  The Company  purchased most of
these  investments  at either a  discount  or a premium  relative  to their face
amount,  and the  contractual  cash  flows of each is  guaranteed  by the issuer
organization.  Accordingly,  it is  expected  that the  securities  would not be
settled at a price  materially  less than the  amortized  cost of the  Company's
investment.  Because the decline in market value is  attributable  to changes in
interest rates and not credit quality and because the Company has the ability to
hold these  investments  until a recovery of fair value,  which may be maturity,
the Company does not consider  these  investments  to be  other-than-temporarily
impaired at March 31, 2005.

6. Loans

The composition of the loan portfolio by loan  classification  at March 31, 2005
and December 31, 2004 is as follows:


                                      -9-
<PAGE>

                                                       March 31,    December 31,
(Dollars in thousands)                                   2005          2004
                                                       ---------    ---------

Commercial                                             $ 527,306    $ 531,834
Consumer                                                  31,990       34,865
Home equity lines                                         61,989       61,925
Residential mortgages                                     26,287       26,020
                                                       ---------    ---------
                                                         647,572      654,644
Plus deferred loan costs, net                                350          223
                                                       ---------    ---------
                                                       $ 647,922    $ 654,867
                                                       =========    =========

Loans held for sale as of March 31, 2005 and December 31, 2004 were $4.9 million
and $3.4 million,  respectively,  and were included in the residential  mortgage
category.

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 month period ended March 31, 2005 and 2004 for Capital
Bank  Corporation  (the  "Company")  and  its  wholly  owned  subsidiary.   This
discussion and analysis is intended to provide pertinent information  concerning
financial position, results of operations,  liquidity, and capital resources for
the  periods  covered  and  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,  as  amended,  and
Section 21E of the  Securities  Exchange Act of 1934, as amended (the  "Exchange
Act"), 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 in this discussion and analysis,  and the Company's  periodic  reports
and other filings with the Securities and Exchange Commission ("the SEC").

Risk Factors

You should  consider  the  following  material  risk  factors  carefully  before
deciding to invest in Capital Bank Corporation securities.  Additional risks and
uncertainties  not  presently  known  to us,  that we may  currently  deem to be
immaterial or that are similar to those faced by other companies in our industry
or business  in general,  such as  competitive  conditions,  may also impact our
business  operations.  If any of the events described below occur, the Company's
business,  financial  condition,  or results of  operations  could be materially
adversely  affected.  In that event,  the trading price of the Company's  common
stock may  decline,  in which case the value of your  investment  may decline as
well.


                                      -10-
<PAGE>

Our Results Are Impacted by the Economic  Conditions of Our Principal  Operating
Regions

Our operations are concentrated  throughout  Central and Western North Carolina.
As a result of this geographic  concentration,  our results may correlate to the
economic conditions in these areas.  Deterioration in economic conditions in any
of these market areas,  particularly in the industries on which these geographic
areas  depend,  may adversely  affect the quality of our loan  portfolio and the
demand  for  our  products  and  services,  and  accordingly,   our  results  of
operations.

We Are Exposed to Risks in Connection with the Loans We Make

A significant source of risk for us arises from the possibility that losses will
be  sustained  because  borrowers,  guarantors  and related  parties may fail to
perform in accordance  with the terms of their loans. We have  underwriting  and
credit  monitoring  procedures and credit policies,  including the establishment
and review of the allowance for loan losses,  that we believe are appropriate to
minimize this risk by assessing the likelihood of nonperformance,  tracking loan
performance and diversifying  our loan portfolio.  Such policies and procedures,
however,  may not  prevent  unexpected  losses that could  adversely  affect our
results of operations.

We Compete With Larger Companies for Business

The banking and financial  services business in our market areas continues to be
a competitive field and is becoming more competitive as a result of:

      o     Changes in regulations;

      o     Changes in technology and product delivery systems; and

      o     The  accelerating  pace of  consolidation  among financial  services
            providers.

We may not be able to compete  effectively  in our  markets,  and our results of
operations  could be  adversely  affected  by the  nature  or pace of  change in
competition.  We compete for loans, deposits and customers with various bank and
nonbank financial services providers,  many of which have substantially  greater
resources  including higher total assets and  capitalization,  greater access to
capital markets and a broader offering of financial services.

Our Trading Volume Has Been Low Compared With Larger Banks

The trading volume in the Company's  common stock on the NASDAQ  National Market
has been comparable to other similarly-sized banks.  Nevertheless,  this trading
is  relatively  low when compared  with more  seasoned  companies  listed on the
NASDAQ  National  Market  or  other  consolidated  reporting  systems  or  stock
exchanges.  Thus,  the market in the  Company's  common  stock may be limited in
scope relative to other companies.

We Depend Heavily on Our Key Management Personnel

The Company's  success  depends in part on its ability to retain key  executives
and to attract and retain  additional  qualified  management  personnel who have
experience  both in  sophisticated  banking  matters and in operating a small to
mid-size bank.  Competition for such personnel is strong in the banking industry
and we may not be  successful  in  attracting  or  retaining  the  personnel  we
require.  We expect to  effectively  compete in this area by offering  financial
packages that include  incentive-based  compensation and the opportunity to join
in the rewarding work of building a growing bank.


                                      -11-
<PAGE>

Technological Advances Impact Our Business

The  banking  industry  is  undergoing   technological   changes  with  frequent
introductions  of new  technology-driven  products and services.  In addition to
improving  customer  services,   the  effective  use  of  technology   increases
efficiency and enables  financial  institutions  to reduce costs.  The Company's
future success will depend,  in part, on our ability to address the needs of our
customers by using technology to provide products and services that will satisfy
customer demands for convenience as well as to create additional efficiencies in
our operations.  Many of our competitors have  substantially  greater  resources
than  we do to  invest  in  technological  improvements.  We may  not be able to
effectively   implement   new   technology-driven   products   and  services  or
successfully market such products and services to our customers.

Government  Regulations  May  Prevent  or Impair Our  Ability to Pay  Dividends,
Engage in Acquisitions  or Operate in Other Ways Current and future  legislation
and the policies  established by federal and state  regulatory  authorities will
affect our operations. We are subject to supervision and periodic examination by
the Federal Deposit  Insurance  Corporation and the North Carolina State Banking
Commission.  Banking  regulations,  designed  primarily  for the  protection  of
depositors,  may limit our  growth  and the  return to you,  our  investors,  by
restricting certain of our activities, such as:

      o     The payment of dividends to our shareholders;

      o     Possible mergers with or acquisitions of or by other institutions;

      o     Our desired investments;

      o     Loans and interest rates on loans;

      o     Interest rates paid on our deposits;

      o     The possible expansion of our branch offices; and/or

      o     Our ability to provide securities or trust services.

We  also  are  subject  to  capitalization   guidelines  set  forth  in  federal
legislation,  and could be subject to enforcement  actions to the extent that we
are found by regulatory examiners to be undercapitalized. We cannot predict what
changes,  if any,  will be made to existing  federal and state  legislation  and
regulations or the effect that such changes may have on our future  business and
earnings  prospects.   The  cost  of  compliance  with  regulatory  requirements
including  those imposed by the SEC may adversely  affect our ability to operate
profitably.

There Are Potential Risks Associated With Future Acquisitions and Expansions

We intend to continue to explore  expanding our branch system through  selective
acquisitions  of existing  banks or bank branches in the Research  Triangle area
and other North Carolina markets.  We cannot say with any certainty that we will
be  able  to  consummate,  or if  consummated,  successfully  integrate,  future
acquisitions,  or that we will not incur  disruptions or unexpected  expenses in
integrating such acquisitions.  In the ordinary course of business,  we evaluate
potential  acquisitions  that would  bolster  our  ability to cater to the small
business,  individual and  residential  lending  markets in North  Carolina.  In
attempting  to make  such  acquisitions,  we  anticipate  competing  with  other
financial  institutions,  many of which have greater  financial and  operational
resources.  In addition,  since the consideration for an acquired bank or branch
may involve  cash,  notes or the  issuance of shares of common  stock,  existing
shareholders  could  experience  dilution  in the  value of their  shares of the
Company's common stock in connection with such acquisitions.


                                      -12-
<PAGE>

Any given acquisition, if and when consummated, may adversely affect our results
of operations or overall financial condition.

We may also expand our branch  network  through de novo  branches in existing or
new markets. These de novo branches will have expenses in excess of revenues for
varying  periods  after  opening  which could  decrease the  Company's  reported
earnings.

Compliance  with  Changing   Regulation  of  Corporate   Governance  and  Public
Disclosure May Result in Additional Risks and Expenses

Changing laws,  regulations and standards  relating to corporate  governance and
public  disclosure,  including  the  Sarbanes-Oxley  Act of 2002 and new federal
securities regulations, are creating uncertainty for us. These laws, regulations
and standards  are subject to varying  interpretations  in many cases,  and as a
result,  their  application  in practice may evolve over time as new guidance is
provided by regulatory  and governing  bodies,  which could result in continuing
uncertainty  regarding  compliance  matters  and higher  costs  necessitated  by
ongoing  revisions to disclosure and governance  practices.  We are committed to
maintaining high standards of corporate  governance and public disclosure.  As a
result, our efforts to comply with evolving laws, regulations and standards have
resulted in, and are likely to continue to result in,  increased  expenses and a
diversion of management time and attention. In particular, our efforts to comply
with Section 404 of the Sarbanes-Oxley  Act of 2002 and the related  regulations
regarding   management's  required  assessment  of  our  internal  control  over
financial  reporting and our external  auditors'  audit of that  assessment  has
required the commitment of significant  financial and managerial  resources.  We
expect  these  efforts  to  require  the  continued  commitment  of  significant
resources.  Further, the members of our Board of Directors, members of the Audit
or Compensation  committees,  our Chief Executive  Officer,  our Chief Financial
Officer and certain other of our executive officers could face an increased risk
of personal  liability in connection with the performance of their duties.  As a
result, our ability to attract and retain executive officers and qualified Board
and committee members could be more difficult.  In addition,  it may become more
difficult and more expensive to obtain director and officer liability insurance.

Overview

Capital Bank Corporation is a financial holding company  incorporated  under the
laws of the state of North  Carolina on August 10, 1998.  The Company's  primary
function is to serve as the holding  company  for its  wholly-owned  subsidiary,
Capital Bank (the "Bank"). In addition,  the Company has interest in two trusts,
Capital Bank Statutory Trust I and II (hereinafter  collectively  referred to as
the  "Trusts").  The  Trusts  have not  been  consolidated  with  the  financial
statements of the Company. The Bank was incorporated under the laws of the State
of North Carolina on May 30, 1997 and commenced  operations as a state-chartered
banking  corporation  on June 20, 1997.  The Bank is not a member of the Federal
Reserve System and has no subsidiaries.

Capital  Bank is a  community  bank  engaged in the general  commercial  banking
business in Wake,  Chatham,  Granville,  Alamance,  Lee, Buncombe,  Guilford and
Catawba Counties of North Carolina. Wake County has a diversified economic base,
comprised primarily of services,  retail trade, government and manufacturing and
includes the City of Raleigh,  the state capital.  Lee,  Granville,  and Chatham
counties are significant centers for various industries,  including agriculture,
manufacturing,  lumber  and  tobacco.  Alamance  and  Guilford  counties  have a
diversified  economic base,  comprised primarily of manufacturing,  agriculture,
retail and


                                      -13-
<PAGE>

wholesale  trade,  government,  services and utilities.  Catawba  County,  which
includes  Hickory,  is a regional center for  manufacturing and wholesale trade.
The  economic  base of  Buncombe  County is  comprised  primarily  of  services,
medical,   tourism  and  manufacturing  industries  and  includes  the  city  of
Asheville.

The Bank  offers a full  range of banking  services,  including  the  following:
checking  accounts;  savings  accounts;  NOW  accounts;  money market  accounts;
certificates  of  deposit;  loans  for real  estate,  construction,  businesses,
agriculture,  personal uses, home improvement and automobiles; home equity lines
of credit;  consumer loans;  individual retirement accounts; safe deposit boxes;
bank  money  orders;  internet  banking;   electronic  funds  transfer  services
including wire  transfers;  traveler's  checks;  various  investments;  and free
notary services to all Bank customers.  In addition, the Bank provides automated
teller machine access to its customers for cash withdrawals  through  nationwide
ATM  networks.  At present,  the Bank does not  provide the  services of a trust
department.

The Bank offers  non-insured  investment  products  and services by Capital Bank
Financial  Services  through a  partnership  with Capital  Investment  Group,  a
leading  Raleigh,   North  Carolina  based   broker-dealer.   The  Bank  employs
commission-based   financial  advisors  to  offer   full-service   brokerage  to
individual and corporate customers.

The  Trusts  were  formed  for the  sole  purpose  of  issuing  trust  preferred
securities.  The  proceeds  from such  issuances  were  loaned to the Company in
exchange for  subordinated  debentures  ("the  Debentures"),  which are the sole
assets  of the  Trust.  A  portion  of the  proceeds  from the  issuance  of the
Debentures  were used by the  Company to  repurchase  shares of  Company  common
stock.  The Company's  obligation  under the  Debentures  constitutes a full and
unconditional  guarantee  by the  Company of the Trust's  obligations  under the
trust preferred securities.  The Trusts have no operations other than those that
are incidental to the issuance of the trust preferred securities.

The Company has no operations other than those of its subsidiaries.

Executive Summary

As discussed in more detail  below,  the following is a brief summary of certain
of our significant quarterly results:

      o     The Company recorded an increase in net income for the first quarter
            2005  compared  to the first  quarter  of 2004.  Net  income for the
            quarter was $1.6 million, or $0.22 per fully diluted share, compared
            to $1.4  million,  or $0.20 per fully  diluted  share,  in the first
            quarter of 2004.

      o     For the three  months  ended  March 31,  2005,  the  credit for loan
            losses was  $(250,000)  compared to a provision  of $116,000 for the
            three  months ended March 31, 2004.  Net  charge-offs  for the three
            months ended March 31, 2005 were $99,000 or 0.06% of average  loans,
            compared  to  $508,000,  or 0.32% of  average  loans,  for the three
            months  ended  March  31,  2004.  The  significant  decline  in  the
            provision  expense during the quarter was primarily due to a decline
            in the volume of charged-off loans and a decrease in the size of the
            loan portfolio in the first quarter.


                                      -14-
<PAGE>

      o     Net interest income increased  $637,000,  or approximately 10%, from
            $6.3 million for the three month  period  ended March 31,  2004,  to
            $6.9 million for the same period in 2005. The Company's net interest
            margin  increased  compared  to  first  quarter  of 2004 by 34 basis
            points  to 3.53% in first  quarter  of  2005.  Net  interest  margin
            improved  primarily  due to seven 25 basis  point  increases  in the
            Federal Reserve Open Market Committee's benchmark federal funds rate
            beginning on June 30, 2004.

      o     Noninterest  income for the three month period ended March 31, 2005,
            was $1.3  million  compared  to $1.6  million for the same period in
            2004, a decrease of 16%. The largest single component of the decline
            was due to gains of $108,000  recorded in the first  quarter of 2004
            on the sale of  repossessed  property  compared to losses of $17,000
            during the same period of 2005.

      o     Noninterest  expense was $6.2  million  for the three  month  period
            ended March 31, 2005 compared to $5.6 million for the same period of
            2004.  Increases  in salaries  and  employee  benefits,  the largest
            noninterest expense category,  were the primary cause of the overall
            noninterest  expense  increase as those costs moved to $3.1  million
            for the three month  period  ended March 31, 2005 from $2.8  million
            for the same period in 2004.  This  increase was primarily due to an
            increase  in the number of  personnel  employed  by the  Company and
            management's   intention  to  maintain  adequate  staffing  to  meet
            customer's needs and keep pace with expected growth.

Financial Condition

Total  consolidated  assets of the Company at March 31, 2005 were $887.3 million
compared to $882.3 million at December 31, 2004, an increase of $5.0 million, or
almost 1%. Overall growth in the balance sheet was due to modest internal growth
resulting  primarily from a successful  core deposit  campaign  during the first
quarter of 2005.

On March 31, 2005,  loans,  including loans held for sale of $4.9 million,  were
$647.9  million,  down $6.9  million,  or 1%, from  December 31,  2004.  The net
decrease  is  due to  lower  than  anticipated  loan  growth  coupled  with  the
prepayment  by certain  customers of their  outstanding  loans from the Company.
While  many  customers  sought  fixed rate loans in  anticipation  of  continued
increases in interest  rates on variable  rate loans,  the Company  continued to
price  fixed rate loans at rates  which  provide  an  appropriate  spread to its
funding  costs.  As a  result,  the  Company  has  lost  several  loans to other
institutions  willing  to  provide  lower  rates.  The  actual  number  of notes
originated  during the  quarter  was higher  than the number  originated  in the
fourth quarter.

At March 31, 2005, investment securities were $160.0 million, down $614,000 from
December 31, 2004. The decline primarily  reflects a drop in the market value of
bonds in the  portfolio as market rates  increased  along with  increases in the
federal  funds rate.  Federal  funds sold and short term  investments  were $4.6
million, up $4.6 million from December 31, 2004. At year end, the Company was in
a federal funds purchased  position,  however increases in deposits later in the
quarter  and a decrease  in the loan  portfolio  over the first  quarter of 2005
resulted in additional short term liquidity at quarter end.

Earning  assets  represented  91.6% of total  assets as of March 31,  2005.  The
allowance for loan losses as of March 31, 2005 was $10.4 million and represented
approximately 1.60% of total


                                      -15-
<PAGE>

loans and 1.61% of loans excluding those held for sale at the end of the period.
The allowance  for loan losses  decreased  $349,000,  from the December 31, 2004
balance of $10.7 million.  Management  believes that the amount of the allowance
is adequate to absorb  probable  losses  inherent in the current loan portfolio.
See "Asset Quality" for further discussion of the allowance for loan losses.

Deposits as of March 31, 2005 were $662.2 million,  an increase of $7.2 million,
or 1%, from  December 31, 2004.  The overall net growth was primarily the result
of strong internal  growth fueled by a successful  core deposit  campaign during
the first  quarter.  One of the  Company's  highest  priorities  for 2005 is the
growth of non-time deposits  including demand deposit accounts ("DDA") and money
market accounts.  During the first three months of 2005, the Company experienced
a net decrease of $1.1 million,  or 0.3%,  in  certificates  of deposit  ("CDs")
compared to December 31, 2004. In the first  quarter of 2004,  the Company had a
deposit  campaign which  originated a significant  number of thirteen month CDs.
These thirteen month CDs will continue to mature through early May. In addition,
the Company has not aggressively  priced certain maturing CDs where the customer
has no other  banking  relationship  with the Company.  Certificates  of deposit
represented  59.6% of total  deposits  at March 31,  2005  compared  to 60.4% at
December 31, 2004.

Noninterest  bearing  DDAs  decreased  to $64.7  million  at March 31,  2005,  a
decrease of $929,000, or 1%, from $65.7 million at December 31, 2004. During the
first quarter of 2005, the Company  focused on gathering  money market  accounts
and,  accordingly,  the  Bank  began an  advertising  and  promotional  campaign
designed  to  attract  more of those  types  of  deposits.  As a  result  of the
campaign, savings, interest bearing DDAs, and money market accounts increased to
$202.7  million at March 31,  2005,  an  increase of $9.2  million,  or 5%, from
$193.4 million at December 31, 2004.

Total consolidated  shareholders' equity was $77.0 million as of March 31, 2005,
a decrease of $773,000 from December 31, 2004.  Retained  earnings  increased by
$1.2 million reflecting the net income during the three month period ended March
31, 2005 less  dividends  paid during that same time,  offset by a $1.1  million
decline in accumulated other comprehensive  income due to declines in the market
value of the  investment  portfolio.  Common  stock  decreased  by $873,000 as a
result of repurchases of the Company's stock pursuant to an approved  repurchase
plan. See Part I - Consolidated  Statements of Changes in  Shareholders'  Equity
for  additional  information  and  Part  II  Item 2 for  details  of  the  share
repurchase.

Results of Operations

Three month period ended March 31, 2005
---------------------------------------

For the three month period ended March 31, 2005, the Company reported net income
of $1.6  million,  or $.22 per  diluted  share,  compared  to net income of $1.4
million or $.20 per diluted  share,  for the three month  period ended March 31,
2004.  The improved  net income was due to improved  net interest  margins and a
lower provision for loan losses for the comparable periods.

Net interest income increased $637,000,  or approximately 10%, from $6.3 million
for the three month period  ended March 31,  2004,  to $6.9 million for the same
period in 2005. Average earning assets increased $6.6 million period over period
while average  interest  bearing  liabilities  decreased  $3.2 million.  The net
interest margin on a fully taxable equivalent basis increased 34


                                      -16-
<PAGE>

basis  points  quarter-over-quarter  to 3.53% for the three month  period  ended
March 31, 2005 from 3.19% for the same time period for 2004. The increase in the
net interest  margin is  primarily  attributed  to  increases  in the  benchmark
federal funds rates as determined by the Federal  Reserve Open Market  Committee
("FOMC"),  resulting in seven corresponding increases in the prime interest rate
starting on June 30, 2004. The Company's  balance sheet remains  asset-sensitive
and, as a result,  its interest earning assets reprice quicker than its interest
bearing  liabilities.  Since June 30, 2004 the Bank has increased its prime rate
by 175 basis  points to 5.75% in response to FOMC rate  increases.  The FOMC met
again on May 3, 2005 and increased rates by another 25 basis points.

The following  table shows the Company's  effective  yield on earning assets and
cost of funds.  Yields and costs are computed by dividing  income or expense for
the year by the respective daily average asset or liability balance.


                                      -17-
<PAGE>

      Average Balances, Interest Earned or Paid, and Interest Yields/Rates
                   Three Months Ended March 31, 2005 and 2004
              (Taxable Equivalent Basis - Dollars in Thousands) (1)

<TABLE>
<CAPTION>
                                                          2005                                   2004
                                          --------------------------------------------------------------------------
                                           Average       Amount       Average     Average       Amount       Average
                                           Balance       Earned        Rate       Balance       Earned        Rate
                                          --------------------------------------------------------------------------
<S>                                       <C>          <C>              <C>      <C>          <C>              <C>
Assets
Loans receivable: (2)
  Commercial                              $ 533,246    $   7,927        6.03%    $ 482,844    $   6,344        5.26%
  Consumer                                   31,823          567        7.23%       39,149          663        6.77%
  Home equity                                61,913          874        5.73%       59,299          722        4.87%
  Residential mortgages (3)                  25,447          374        5.96%       47,972          742        6.19%
                                          -------------------------------------------------------------------------
Total loans                                 652,429        9,742        6.06%      629,264        8,471        5.38%
Investment securities (4)                   157,963        1,861        4.78%      162,290        1,886        4.65%
Federal funds sold and other
    interest on short term investments        2,571           17        2.68%       14,847           42        1.13%
                                          -------------------------------------------------------------------------
Total interest earning assets               812,963    $  11,620        5.80%      806,401    $  10,399        5.16%
                                                       =====================                  =====================
Cash and due from banks                      22,466                                 24,022
Other assets                                 55,346                                 51,765
Allowance for loan losses                   (10,863)                               (11,715)
                                          ---------                              ---------
Total assets                              $ 879,912                              $ 870,473
                                          =========                              =========

Liabilities and Equity
Savings deposits                          $  15,751    $      10        0.26%    $  17,287    $      11        0.25%
Interest-bearing demand deposits            174,133          638        1.49%      184,229          493        1.07%
Time deposits                               395,926        2,534        2.60%      387,597        2,358        2.43%
                                          -------------------------------------------------------------------------
Total interest bearing deposits             585,810        3,182        2.20%      589,113        2,862        1.94%
Borrowed funds                              106,541        1,019        3.88%      110,760          869        3.14%
Trust preferred debt                         20,620          276        5.43%       20,620          216        4.19%
Repurchase agreements                        15,480           73        1.91%       11,183           15        0.54%
                                          -------------------------------------------------------------------------
  Total interest-bearing liabilities        728,451    $   4,550        2.53%      731,676    $   3,962        2.17%
                                                       =====================                  =====================
Non-interest bearing deposits                61,977                                 55,919
Other liabilities                            11,008                                  8,399
                                          ---------                              ---------
Total liabilities                           801,436                                795,994
Shareholders' equity                         78,476                                 74,479
                                          ---------                              ---------
 Total liabilities and equity             $ 879,912                              $ 870,473
                                          =========                              =========

Net interest spread (5)                                                 3.26%                                  2.99%

Tax equivalent adjustment                              $     164                              $     168

Net interest income and net
  interest margin (6)                                  $   7,070        3.53%                 $   6,437        3.19%
</TABLE>

(1)   The taxable equivalent basis is computed using a blended federal and state
      tax rate of approximately 38%.

(2)   Loans  receivable  include  nonaccrual loans for which accrual of interest
      has not been recorded.

(3)   Includes loans held for sale.

(4)   The average balance for investment  securities exclude the effect of their
      mark-to-market adjustment, if any.

(5)   Net interest spread represents the difference between the average yield on
      interest-earning   assets  and  the  average   cost  of   interest-bearing
      liabilities.

(6)   Net interest margin  represents the net interest income divided by average
      interest-earning assets.


                                      -18-
<PAGE>

Yields on commercial  loans,  home equity and consumer loans  increased 77 basis
points, 86 basis points and 46 basis points, respectively,  in the first quarter
of 2005  compared to the same period in 2004.  Higher yields in 2005 reflect the
increase  in the prime  rate  charged  by the Bank  between  those two  periods.
Variable rate loans made up  approximately  69.3% of the total loan portfolio at
March 31, 2005 compared to 67.3% at March 31, 2004.

The yield on investment  securities on a  tax-equivalent  basis  increased  from
4.65% in the first  quarter of 2004 to 4.78% in the first  quarter of 2005.  The
investment yield in 2004 was negatively affected by higher premium amortizations
on mortgage backed  securities  ("MBS") as the average expected lives of the MBS
portfolio  were  shortened  due to  significant  prepayments  of the  underlying
mortgage loans.  MBS premium  amortizations  were  approximately  $76,000 in the
first quarter of 2005 compared to approximately  $169,000 for the same period in
the prior year.  Longer term rates have increased much less  significantly  than
short-term rates. The majority of the investment portfolio is in longer maturity
investments  and,  as a result,  the  Company's  yield on  investments  will not
increase rapidly if long term rates begin to increase.

The rate paid on CDs increased  from 2.43% to 2.60% from March 31, 2004 compared
to the same  period in 2005,  a 17 basis point rise,  as new  certificates  were
opened at higher rates due to the rising  interest  rate  environment.  Rates on
shorter  maturity CDs have increased  significantly  with the FOMC interest rate
increases and management  anticipates  the Bank's CD funding costs will increase
on a quarterly basis going forward,  especially as the thirteen month CDs mature
and are repriced.

The rate on borrowings  increased year over year from 3.15% to 3.88%. In July of
2003,  the Bank entered into interest  rate swap  agreements on $25.0 million of
the outstanding Federal Home Loan Bank advances to swap fixed rate borrowings to
a variable  rate.  The net effect of the swaps has been to reduce  interest and,
accordingly,  the net  effective  rate  paid on those  advances.  As  short-term
interest rates have  increased  following the FOMC rate  increases,  the overall
effective yield on borrowings has increased.  The increases in short-term  rates
are also responsible for the increase in the cost of the Company's  subordinated
debentures.

For the three month period ended March 31, 2005,  the credit for loan losses was
$(250,000)  compared to a provision  of $116,000  for the same period in 2004, a
decrease of approximately  $366,000.  The decline in 2005 was primarily due to a
reduction  in charge offs during the three month  period  ended March 31,  2005,
which  dropped to $99,000  from  $508,000  recorded  in the same period of 2004,
improvements  in the risk rating  classifications  of certain loans contained in
the portfolio and overall  reduction of the loan  portfolio as discussed  above.
See "Asset Quality" for further discussion of the allowance for loan losses.

Noninterest  income for the three month period  ended March 31,  2004,  was $1.3
million  compared to $1.6  million  for the same  period in 2004,  a decrease of
$261,000, or 16%. The largest single component of this decrease was a decline of
$119,000,  or 23% in other noninterest  income.  This decrease was the result of
net gains of approximately $108,000 on sales of repossessed property recorded in
the first  quarter of 2004 compared to net losses of  approximately  $17,000 for
the same  period  in 2005.  Mortgage  production,  another  large  component  of
noninterest  income,  was impacted by industry  wide lower  origination  volumes
caused by higher mortgage interest rates. Mortgage revenues fell 19% to $272,000
in the first  quarter of 2005 from  $337,000  earned in the three  month  period
ended March 31, 2004. Deposit service charges and other fees also decreased


                                      -19-
<PAGE>

from  $727,000  as of March 31,  2004 to $657,000 as of the same period in 2005.
This decrease is primarily  due to a decrease in the number of deposit  accounts
on which the fees are being  charged  due to the sale of three  branches  in the
latter part of 2004. Non-sufficient funds ("NSF") fees, one of the components of
deposit service  charges and other fees,  decreased to $441,000 during the three
months ended March 31, 2005 from $474,000 during the same period in 2004, also a
result of the decline in the number of deposit  accounts on which these fees are
charged as a result of the branch  sale and also a decrease in the number of NSF
occurrences.  ATM  fees,  which  are fees  charged  to  individuals  who are not
customers of the Bank,  were not affected by the branch sale and increased  32%,
from  $72,000 in the three month  period  ended March 31, 2004 to $95,000 in the
three month period ended March 31, 2005.

Noninterest  expense  for the three month  period  ended March 31, 2005 was $6.2
million compared to $5.6 million for the corresponding  period in 2004. Salaries
and employee benefits,  representing the largest  noninterest  expense category,
increased to $3.1 million for the three month period ended March 31, 2005,  from
$2.8 million for the same period in 2004. This increase  reflects an increase in
the number of personnel  employed by the Company  consistent  with  management's
intention to maintain  adequate  staffing levels to meet customer needs and keep
pace with expected  growth.  As of March 31, 2005, the Company had 241 full-time
equivalent  employees ("FTEs") compared to 204 for the same date in 2004 and 227
at December  31, 2004.  Almost a third of the  increased  FTEs are  commissioned
positions added in the mortgage and retail brokerage areas.

Increases  in  noninterest  expense  also  reflect  a  significant  increase  in
professional fees. Professional fees increased 56%, or $115,000, to $322,000 for
the three month period ended March 31, 2005 from $207,000 for the same period in
2004.  Specific items within this category  include legal  collection  expenses,
which increased  approximately $54,000 to $89,000 for the period ended March 31,
2005 from $35,000 for the same period in 2004 and  consulting,  which  increased
approximately  $54,000 to $80,000 in 2005 from $26,000 in the  comparable  prior
year period.

Occupancy costs, the second largest component of noninterest expenses, increased
$42,000, or 7%, to $614,000 for the three month period ended March 31, 2005 from
$572,000 for the same period in 2004.  This  increase is primarily the result of
an increased number of locations as the Company has expanded its branch presence
into  Greensboro  and Wake Forest,  North  Carolina and has added an  additional
branch in the  Asheville,  North  Carolina  area  during the third  quarter.  In
addition,  the  Company  moved  its  operations  center  to a  new  facility  to
centralize the operations and credit  administration  functions during the early
part of 2004.  The Bank also opened a new branch in Pittsboro  during the second
quarter of 2005 and plans to relocate  another branch in Cary late in the second
quarter of 2005.

The  Company's  effective  tax  rate for the  first  quarter  of 2005 was  33.7%
compared to 34.8% for the comparable  period of 2004.  The Company  forecasts it
taxable and  non-taxable  income and  calculates  the effective tax rate for the
entire year which is then applied to the three month period.  The changes in the
effective  tax rate are due to changes in  forecasted  levels of taxable and tax
exempt income and the decline for these comparable  periods  primarily  reflects
the addition of nontaxable income as the result of a purchase of bank owned life
insurance in the latter part of 2004.


                                      -20-
<PAGE>

The Company  recorded  an income tax expense of $791,000  during the three month
period ended March 31, 2005  compared to an expense of $737,000  during the same
period in 2004.  At March 31,  2005,  the Company had net deferred tax assets of
$6.5 million  resulting from timing  differences  associated  primarily with the
deductibility of certain expenses reflected on the financial  statements and the
mark-to-market of unrealized security losses.

Asset Quality

Determining the allowance for loan losses is based on a number of factors,  many
of which are subject to judgments made by management. At the origination of each
commercial loan, management assesses the relative risk of the loan and assigns a
corresponding  risk grade.  To ascertain  that the credit  quality is maintained
after the loan is booked, the Bank has a procedure whereby a loan review officer
performs  an annual  review of all loans that exceed a  predetermined  threshold
amount,  all unsecured  loans over a  predetermined  loan amount,  a sampling of
loans within a lender's authority, and a sampling of the entire loan pool. Loans
are  reviewed  for  credit   quality,   sufficiency  of  credit  and  collateral
documentation,  proper loan approval,  covenant, policy and procedure adherence,
and continuing  accuracy of the loan grade. This officer reports directly to the
Chief  Credit  Officer  and will report on a sampling of loans each month to the
Loan Committee of the Bank's Board of Directors. On an as needed basis, the Bank
will hire an outside  third  party firm to review the Bank's loan  portfolio  to
ensure quality standards and reasonableness of risk assessment.

The Company  calculates the amount of allowance  needed to cover probable losses
in the portfolio by applying a reserve  percentage to each risk grade.  Consumer
loans and mortgages are not risk graded,  but a percentage is reserved for these
loans based on historical  losses.  The reserve  percentages have been developed
based on historical losses and industry trends. In addition to this quantitative
analysis,  a qualitative  assessment of the general economic  trends,  portfolio
concentration and the trend of delinquencies are taken into  consideration.  The
allowance is adjusted  accordingly to an amount that management believes will be
adequate  to  absorb   probable   losses  on  existing  loans  that  may  become
uncollectible.

The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely.  Based
on this  allowance  calculation,  management  recorded  a  credit  provision  of
$250,000 for the three month period ended March 31, 2005  compared to an expense
of $116,000 for the same period in the prior year.  The  significant  decline in
the provision  expense  during the quarter was primarily due to a decline in the
volume of  charged-off  loans and a decrease  in the size of the loan  portfolio
from  December 31, 2004 to March 31, 2005.  In addition,  the  quantitative  and
qualitative  analysis  of  reserves  showed an overall  improvement  in the risk
inherent in the portfolio,  despite the increase in  nonperforming  loans.  Loan
loss reserves were 1.60% and 1.64% of gross loans, respectively, as of March 31,
2005 and December 31, 2004.  Loan loss reserves as a percent of loans  excluding
loans held for sale were 1.61% and 1.65% as of March 31, 2005 and  December  31,
2004,  respectively.  The following table presents an analysis of changes in the
allowance  for loan losses for the three month  period  ended March 31, 2005 and
2004, respectively:


                                      -21-
<PAGE>

                                                              Three Months
                                                             Ended March 31,
                                                           2005          2004
                                                         --------      --------
(Dollars in thousands)
Allowance for loan losses, beginning of period           $ 10,721      $ 11,613
Net charge-offs:
    Loans charged off:
    Commercial                                                 96           447
    Consumer                                                  159           185
    Mortgage                                                   51            --
                                                         --------      --------
         Total charge-offs                                    306           632
                                                         --------      --------
    Recoveries of loans previously charged off:
    Commercial                                                201            54
    Consumer                                                    6             4
    Mortgage                                                   --            66
                                                         --------      --------
         Total recoveries                                     207           124
                                                         --------      --------
         Total net charge-offs                                 99           508
                                                         --------      --------
    Loss provisions (credits) charged to operations          (250)          116
                                                         --------      --------
Allowance for loan losses, end of period                 $ 10,372      $ 11,221
                                                         ========      ========

Net charge-offs to average loans during the
period (annualized)                                          0.06%         0.32%
Allowance as a percent of gross loans                        1.60%         1.75%
Allowance as a percent of gross loans excluding
    loans held for sale                                      1.61%         1.75%

Net charge-offs have declined, as management has allocated significant resources
to  improving  the  overall  credit  quality of the loan  portfolio.  Management
believes these efforts will result in lower net charge-offs  during 2005 than in
2004 and 2003,  however,  material  changes in economic and other  factors could
effect net charge-offs for 2005.

The following table presents an analysis of nonperforming assets as of March 31,
2005 and 2004 and December 31, 2004:


                                      -22-
<PAGE>

                                                   March 31,        December 31,
                                               2005        2004        2004
                                             --------    --------    --------
(Dollars in thousands)
Nonaccrual loans:
   Commercial and commercial real estate     $  5,797    $  3,339    $  3,964
   Mortgage                                     1,880       1,980       1,898
   Construction                                 2,374         580       1,622
   Consumer                                       195         252         312
   Equity lines                                   323         326         415
                                             --------    --------    --------
      Total nonaccrual loans                   10,569       6,477       8,211
   Foreclosed property held                       431         416         418
                                             --------    --------    --------
      Total nonperforming assets             $ 11,000    $  6,893    $  8,629
                                             ========    ========    ========

Nonperforming loans to total loans               1.63%       1.01%       1.32%
Nonperforming assets to total assets             1.24%       0.77%       0.98%
Allowance coverage of nonperforming loans          98%        173%        131%

On March 31,  2005,  nonperforming  assets were $11.0  million,  a $2.3  million
increase from year end 2004. The majority of the Company's  nonperforming  loans
are  secured by real  estate and to a lesser  extent the  Company  relies on the
support  of  guarantors.  The  Company  monitors  the  value  of the  underlying
collateral  and the liquidity of the  guarantors on a periodic  basis.  Based on
this review and analysis,  the Company does not currently anticipate significant
losses  associated  with the  nonperforming  loans or the  increase  during  the
quarter in nonperforming loans.

The increase in nonperforming loans during the quarter was largely  attributable
to five customers. These loans are primarily secured by real estate and, in some
instances  the  Company is  receiving  payments on the loans.  One loan  reached
nonperforming status largely due to delays in preparing and closing on a renewed
note after the current note matured in the fourth quarter of 2004.

A loan is considered impaired, based on current information and events, if it is
probable  that the Bank will be unable to  collect  the  scheduled  payments  of
principal and interest when due according to the  contractual  terms of the loan
agreement.  Uncollateralized  loans are  measured  for  impairment  based on the
present  value of  expected  future  cash  flows  discounted  at the  historical
effective interest rate, while all  collateral-dependent  loans are measured for
impairment  based on the fair value of the  collateral.  There were no  impaired
loans at March 31, 2005 or December  31, 2004  compared to $3.0 million at March
31, 2004. Average impaired loans during the first quarter of 2004 were also $3.0
million.

The Bank uses several  factors in  determining  if a loan is impaired.  Internal
asset  classification  procedures  include  a review  of  significant  loans and
lending relationships by both management and third party credit review firms and
includes  the  accumulation  of  related  data  such  as  loan  payment  status,
borrowers'  financial data and borrowers'  operating factors such as cash flows,
operating income or loss. The Company's  determination of the allowance for loan
losses is subject to  management's  judgment and  analysis of many  internal and
external  factors.  While  management  is  comfortable  with the adequacy of the
current allowance,  changes in factors and management's future evaluation of the
adequacy of the allowance for loan losses will change.


                                      -23-
<PAGE>

Foreclosed  property  increased  to $431,000 at March 31, 2005 from  $416,000 at
March  31,  2004.  The  Company  is  actively  marketing  all of its  foreclosed
property. All foreclosed assets are recorded at the lower of cost or market.

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 Company's Board of Directors.  The
Company had $33.3 million in its most liquid assets,  cash and cash equivalents,
as of March  31,  2005.  The  Company's  principal  sources  of  funds  are loan
repayments,  deposits,  Federal Home Loan Bank  borrowings and capital and, to a
lesser  extent,  investment  repayments.  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 68.1% of total
assets at March 31, 2005  compared to 67.7% at December 31,  2004.  In addition,
the Company has the ability to take advantage of various other funding  programs
available  from the  Federal  Home  Loan Bank of  Atlanta,  as well as access to
funding  through  various  brokered  deposit  programs,  federal funds lines and
security repurchase agreements.

The  management  of equity is a  critical  aspect of capital  management  in any
business. The determination of the appropriate amount of equity is affected by a
wide number of factors. The primary factor for a regulated financial institution
is the amount of capital needed to meet regulatory requirements,  although other
factors,  such as the "risk  equity" the  business  requires  and balance  sheet
leverage, also affect the determination.

During  the  second  quarter of 2004,  the Board of  Directors  approved a stock
repurchase  plan  authorizing  the  repurchase  of up to  50,000  shares  of the
Company's  stock.  In  December  2004,  the  Board  of  Directors  approved  the
repurchase  of an  additional  100,000  shares in December  2004.  The principal
purpose of the stock repurchase program is to manage the equity capital relative
to the  growth  of the  Company,  to offset  the  dilutive  effect  of  employee
equity-based  compensation  and to  enhance  long term  shareholder  value.  The
repurchase  program  will be affected  through  regular  open-market  purchases.
During the first  quarter of 2005,  the Company  repurchased  50,000 shares at a
weighted  average price of $17.84 per share.  See Part II, Item 2 for details of
the Company's share repurchases.

To be  categorized as well  capitalized,  the Company and the Bank must maintain
minimum amounts and ratios.  The Company's  actual capital amounts and ratios as
of March 31, 2005 and the minimum  requirements  are  presented in the following
table:


                                      -24-
<PAGE>

<TABLE>
<CAPTION>
                                                                         Minimum
                                                                   Requirements To Be
                                                  Actual            Well Capitalized
                                            -------------------    -------------------
(Dollars in thousands)                       Amount     Ratio       Amount     Ratio
                                            --------  ---------    --------  ---------
<S>                                         <C>         <C>        <C>         <C>
      Capital Bank Corporation
      ------------------------
Total Capital (to Risk Weighted Assets)     $93,480     12.47%     $74,966     10.00%
Tier I Capital (to Risk Weighted Assets)     84,093     11.22%      44,980      6.00%
Tier I Capital (to Average Assets)           84,093      9.71%      43,314      5.00%

           Capital Bank
           ------------
Total Capital (to Risk Weighted Assets)     $88,373     11.81%     $74,816     10.00%
Tier I Capital (to Risk Weighted Assets)     79,005     10.56%      44,890      6.00%
Tier I Capital (to Average Assets)           79,005      9.14%      43,240      5.00%
</TABLE>

Consolidated  capital ratios improved from December 31, 2004 due to the increase
in capital  associated with the Company's first quarter earnings.  Total capital
to risk  weighted  assets,  Tier I capital  to risk  weighted  assets and Tier I
capital to average assets on a  consolidated  basis as of December 31, 2004 were
12.33%, 11.08% and 9.61%, respectively.

Shareholders'  equity was $77.0 million, or $11.72 per share, at March 31, 2005.
Management believes this level of shareholders' equity provides adequate capital
to support the Company's growth and to maintain a well capitalized position.

Item 3   Quantitative and Qualitative Disclosures About Market Risk
------   ----------------------------------------------------------

The Company has not experienced any material change in the risk of its portfolio
of interest  earning assets and interest  bearing  liabilities from December 31,
2004 to March 31, 2005.

Item 4   Controls and Procedures
------   -----------------------

The Company  maintains  disclosure  controls and procedures that are designed to
ensure that information  required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods required by
the SEC's  rules  and  forms,  and that  such  information  is  accumulated  and
communicated to the Company's management,  including its Chief Executive Officer
("CEO") and Chief Financial  Officer  ("CFO"),  as appropriate,  to allow timely
decisions regarding disclosure.  Management  necessarily applied its judgment in
assessing  the costs and benefits of such  controls and  procedures,  which,  by
their  nature,  can provide only  reasonable  assurance  regarding  management's
control objectives.

As  required  by  paragraph  (b) of Rule  13a-15  under  the  Exchange  Act,  an
evaluation was carried out under the supervision and with the  participation  of
the Company's management, including the CEO and CFO, of the effectiveness of the
design and operation of the Company's  disclosure  controls and procedures as of
the end of the period covered by this report.  Based upon that  evaluation,  the
CEO and CFO concluded that the Company's  disclosure controls and procedures are
effective  in timely  alerting  them to  material  information  relating  to the
Company that is required to be included in our Exchange Act filings.


                                      -25-
<PAGE>

Changes in Internal Control

There were no changes in the Company's internal control over financial reporting
(as defined in Rules  13a-15(f) and 15d-15(f) of the Exchange Act) that occurred
during the period  covered by this report that have  materially  affected or are
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.  Management has implemented changes in internal controls as
a result of  remediation  of matters  identified  through its review of internal
controls over financial  reporting as required under Section 404 of the Sarbanes
Oxley Act,  however it does not  believe  any of the  changes  implemented  were
material in nature.

Part II - Other Information

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

There are no material pending legal  proceedings to which the Company is a party
or to 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   Unregistered Sale of Equity Securities and Use of Proceeds
------   ----------------------------------------------------------

<TABLE>
<CAPTION>
                       Issuer Purchase of Equity Securities
                       ------------------------------------
                                                    Total Number
                                                      of Shares        Maximum Number
                                                     Purchased as      of Shares That
                                                   Part of Publicly      May Yet Be
                  Total Number    Average Price       Announced       Purchased Under
                   of Shares        Paid per           Plans or           Plans or
Month of           Purchased          Share            Programs           Programs
---------------   -------------------------------------------------------------------
<S>                   <C>           <C>                 <C>               <C>
January 2005              --        $      --               --            150,000
February 2005         20,000            18.80           20,000            130,000
March 2005            30,000            17.20           30,000            100,000
                   -------------------------------------------
                      50,000            17.84           50,000
                   ===========================================
</TABLE>

On June 28, 2004,  the  Corporation  announced  that the Board of Directors  had
authorized a program for the  repurchase of up to 50,000 shares of common stock.
All of these shares were repurchased in the first quarter of 2005.

On December 22, 2004, the Corporation  announced that the Board of Directors had
authorized the repurchase of up to an additional 100,000 shares of common stock.

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

None

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

None

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

None


                                      -26-
<PAGE>

Item 6            Exhibits
------            --------

  Exhibit 4.1     In accordance with Item  601(b)(4)(iii)(A)  of Regulation S-K,
                  certain   instruments   respecting   long-term   debt  of  the
                  registrant  have been  omitted  but will be  furnished  to the
                  Commission upon request.

  Exhibit 10.1    Agreement  between  Capital Bank and Karen H.  Priester  dated
                  April 25, 2005  (incorporated  herein by  reference to Exhibit
                  10.1 to the Capital Bank  Corporation  Current  Report on Form
                  8-K, as filed with the Securities Exchange Commission on April
                  28, 2005)

  Exhibit 31.1    Certification  of B. Grant Yarber  pursuant to Rule  13a-14(a)
                  and  15d-14(a),  as adopted  pursuant  to  Section  302 of the
                  Sarbanes-Oxley Act of 2002

  Exhibit 31.2    Certification of Richard W. Edwards pursuant to Rule 13a-14(a)
                  and  15d-14(a),  as adopted  pursuant  to  Section  302 of the
                  Sarbanes-Oxley Act of 2002

  Exhibit 32.1    Certification of B. Grant Yarber pursuant to 18 U.S.C. Section
                  1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002  [This  exhibit  is being  furnished  pursuant  to
                  Section 906 of the Sarbanes-  Oxley Act of 2002 and shall not,
                  except to the  extent  required  by that act,  be deemed to be
                  incorporated  by reference into any document or filed herewith
                  for purposes of liability under the Securities Exchange Act of
                  1934, as amended or the Securities Act of 1933, as amended, as
                  the case may be.]

  Exhibit 32.2    Certification  of Richard  W.  Edwards  pursuant  to 18 U.S.C.
                  Section  1350,  as  Adopted  Pursuant  to  Section  906 of the
                  Sarbanes-Oxley  Act of 2002 [This  exhibit is being  furnished
                  pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 and
                  shall  not,  except to the  extent  required  by that act,  be
                  deemed to be  incorporated  by reference  into any document or
                  filed herewith for purposes of liability  under the Securities
                  Exchange  Act of 1934,  as  amended or the  Securities  Act of
                  1933, as amended, as the case may be.]


                                      -27-
<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: May 9, 2005                                  By: /s/ Richard W. Edwards
                                                       ----------------------
                                                   Richard W. Edwards
                                                   Chief Financial Officer


                                      -28-
<PAGE>

                                  Exhibit Index

--------------------------------------------------------------------------------
Exhibit 4.1       In accordance with Item  601(b)(4)(iii)(A)  of Regulation S-K,
                  certain   instruments   respecting   long-term   debt  of  the
                  registrant  have been  omitted  but will be  furnished  to the
                  Commission upon request.
--------------------------------------------------------------------------------
Exhibit 10.1      Agreement  between  Capital Bank and Karen H.  Priester  dated
                  April 25, 2005  (incorporated  herein by  reference to Exhibit
                  10.1 to the Capital Bank  Corporation  Current  Report on Form
                  8-K, as filed with the Securities Exchange Commission on April
                  28, 2005)
--------------------------------------------------------------------------------
Exhibit 31.1      Certification  of B. Grant Yarber  pursuant to Rule  13a-14(a)
                  and  15d-14(a),  as adopted  pursuant  to  Section  302 of the
                  Sarbanes-Oxley Act of 2002
--------------------------------------------------------------------------------
Exhibit 31.2      Certification of Richard W. Edwards pursuant to Rule 13a-14(a)
                  and  15d-14(a),  as adopted  pursuant  to  Section  302 of the
                  Sarbanes-Oxley Act of 2002
--------------------------------------------------------------------------------
Exhibit 32.1      Certification of B. Grant Yarber pursuant to 18 U.S.C. Section
                  1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002  [This  exhibit  is being  furnished  pursuant  to
                  Section 906 of the  Sarbanes-Oxley  Act of 2002 and shall not,
                  except to the  extent  required  by that act,  be deemed to be
                  incorporated  by reference into any document or filed herewith
                  for purposes of liability under the Securities Exchange Act of
                  1934, as amended,  or the  Securities Act of 1933, as amended,
                  as the case may be.]
--------------------------------------------------------------------------------
Exhibit 32.2      Certification  of Richard  W.  Edwards  pursuant  to 18 U.S.C.
                  Section  1350,  as  Adopted  Pursuant  to  Section  906 of the
                  Sarbanes-Oxley  Act of 2002 [This  exhibit is being  furnished
                  pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 and
                  shall  not,  except to the  extent  required  by that act,  be
                  deemed to be  incorporated  by reference  into any document or
                  filed herewith for purposes of liability  under the Securities
                  Exchange Act of 1934,  as amended,  or the  Securities  Act of
                  1933, as amended, as the case may be.]
--------------------------------------------------------------------------------


                                      -29-