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

                                    FORM 10-Q

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

                  For the Quarterly Period Ended June 30, 2002

              [ ] 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. a Yes [ X ]  No [  ]

As of August 9, 2002, there were 5,661,845 shares issued and 5,265,161 shares
outstanding of the Registrant's common stock, no par value.



<PAGE>

<TABLE>
<CAPTION>


                            Capital Bank Corporation

                                    CONTENTS

<S>                                                                                <C>
PART I - FINANCIAL INFORMATION                                                     Page No.

       Item 1. Financial Statements

       Condensed consolidated statements of financial condition at June 30, 2002
            (Unaudited) and December 31, 2001                                           1
       Condensed consolidated statements of income for the three months ended
            June 30, 2002 and 2001 (Unaudited)                                          2
       Condensed consolidated statements of income for the six months ended
            June 30, 2002 and 2001 (Unaudited)                                          3
       Condensed consolidated statements of comprehensive income for the
            three and six months ended June 30, 2002 and 2001 (Unaudited)               4
       Condensed consolidated statements of cash flows for the six months
            ended June 30, 2002 and 2001 (Unaudited)                                5 - 6
       Notes to consolidated financial statements                                   7 - 9

       Item 2. Management's Discussion and Analysis of Financial Condition and
            Results of Operations                                                  9 - 17

       Item 3. Quantitative and Qualitative Disclosures About Market Risk              17

PART II - OTHER INFORMATION

       Item 1. Legal Proceedings                                                       17

       Item 2. Changes in Securities and Use of Proceeds                               17

       Item 3. Defaults Upon Senior Securities                                         17

       Item 4. Submission of Matters to a Vote of Security Holders                17 - 18

       Item 5. Other Information                                                       18

       Item 6. Exhibits and Reports on Form 8-K                                   18 - 19

       Signatures                                                                      20

       Exhibits                                                                   21 - 22

</TABLE>


<PAGE>

<TABLE>
<CAPTION>

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2002 and December 31, 2001
                                                                  June 30,       December 31,
                                                                    2002            2001
---------------------------------------------------------------------------------------------
                                   (Dollars in thousands)       (Unaudited)
<S>                                                              <C>             <C>
ASSETS
Cash and due from banks:
     Interest earning                                            $  12,138       $   2,793
     Non-interest earning                                           17,117          12,380
Federal funds sold                                                   8,286             944
Investment securities - available for sale, at fair value          114,039          73,702
Loans-net of unearned income and deferred fees                     467,071         306,891
Allowance for loan losses                                           (6,873)         (4,286)
                                                                 ---------       ---------
        Net loans                                                  460,198         302,605
                                                                 ---------       ---------
Premises and equipment, net                                         10,569           5,009
Accrued interest receivable                                          2,847           1,853
Deposit premium and goodwill, net                                    6,732           4,105
Deferred tax assets                                                  4,407           2,033
Other assets                                                         5,641           1,317
                                                                 ---------       ---------
           Total assets                                          $ 641,974       $ 406,741
                                                                 =========       =========

LIABILITIES
Deposits:
     Demand, non-interest bearing                                $  38,523       $  28,470
     Savings and interest bearing demand deposits                  167,323         101,553
     Time deposits                                                 297,175         174,420
                                                                 ---------       ---------
        Total deposits                                             503,021         304,443
                                                                 ---------       ---------
Accrued interest payable                                               983             792
Repurchase agreements                                               12,881          11,167
Borrowings                                                          61,401          50,000
Other liabilities                                                    6,522           3,356
                                                                 ---------       ---------
           Total liabilities                                       584,808         369,758

SHAREHOLDERS' EQUITY
Common stock, no par value; 20,000,000 shares authorized;
     shares issued 2002 - 5,661,845 and 2001 - 3,658,689            56,324          34,805
Retained earnings, substantially restricted                          3,855           2,306
Accumulated other comprehensive income                               1,104             568
Treasury stock at cost, no par value; 2002 - 321,684 shares
     and 2001 - 61,350 shares                                       (4,117)           (696)
                                                                 ---------       ---------
           Total shareholders' equity                               57,166          36,983
                                                                 ---------       ---------
           Total liabilities and shareholders' equity            $ 641,974       $ 406,741
                                                                 =========       =========
</TABLE>


See Notes to Condensed Consolidated Financial Statements

                                       1
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<TABLE>
<CAPTION>

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, 2002 and 2001
                                                                   2002        2001
------------------------------------------------------------------------------------
                   (In thousands except per share data)               (Unaudited)
<S>                                                               <C>         <C>
Interest income:
     Loans and loan fees                                          $7,470      $5,402
     Investment securities                                         1,546       1,145
     Federal funds and other interest income                         124         169
                                                                  ------      ------
         Total interest income                                     9,140       6,716
                                                                  ------      ------

Interest expense:
     Deposits                                                      3,207       3,460
     Borrowings and repurchase agreements                            794         456
                                                                  ------      ------
         Total interest expense                                    4,001       3,916
                                                                  ------      ------
         Net interest income                                       5,139       2,800
Provision for loan losses                                            705         300
                                                                  ------      ------
         Net interest income after provision for loan losses       4,434       2,500

Noninterest income:
     Service charges and other fees                                  602         413
     Net gain on sale of securities available for sale               159          27
     Other noninterest income                                        787         694
                                                                  ------      ------
         Total noninterest income                                  1,548       1,134
                                                                  ------      ------

Noninterest expenses:
     Salaries and employee benefits                                2,239       1,584
     Occupancy                                                       378         289
     Data processing                                                 212         160
     Directors fees                                                   77          50
     Advertising                                                     123          94
     Furniture and equipment                                         270         188
     Amortization of intangibles                                     169         150
     Other expenses                                                  818         542
                                                                  ------      ------
         Total noninterest expenses                                4,286       3,057
                                                                  ------      ------
            Net income before income tax expense                   1,696         577
Income tax expense                                                   555         215
                                                                  ------      ------
            Net income                                            $1,141      $  362
                                                                  ======      ======

Earnings per share - basic                                        $ 0.21      $ 0.10
                                                                  ======      ======
Earnings per share - diluted                                      $ 0.20      $ 0.10
                                                                  ======      ======
</TABLE>


See Notes to Condensed Consolidated Financial Statements

                                       2

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<TABLE>
<CAPTION>

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended June 30, 2002 and 2001
                                                                    2002          2001
-----------------------------------------------------------------------------------------
                       (In thousands except per share data)             (Unaudited)
<S>                                                               <C>           <C>
Interest income:
     Loans and loan fees                                          $ 14,256      $ 10,940
     Investment securities                                           3,049         2,324
     Federal funds and other interest income                           207           327
                                                                  --------      --------
         Total interest income                                      17,512        13,591
                                                                  --------      --------

Interest expense:
     Deposits                                                        6,058         7,050
     Borrowings and repurchase agreements                            1,546           842
                                                                  --------      --------
         Total interest expense                                      7,604         7,892
                                                                  --------      --------
         Net interest income                                         9,908         5,699
Provision for loan losses                                            1,230           600
                                                                  --------      --------
         Net interest income after provision for loan losses         8,678         5,099

Noninterest income:
     Service charges and other fees                                  1,107           703
     Net gain on sale of securities available for sale                 243            77
     Other noninterest income                                        1,783         1,150
                                                                  --------      --------
         Total noninterest income                                    3,133         1,930
                                                                  --------      --------

Noninterest expenses:
     Salaries and employee benefits                                  4,442         3,094
     Occupancy                                                         746           563
     Data processing                                                   462           312
     Directors fees                                                    136           105
     Advertising                                                       322           203
     Furniture and equipment                                           565           372
     Amortization of intangibles                                       323           291
     Other expenses                                                  1,500           931
                                                                  --------      --------
         Total noninterest expenses                                  8,496         5,871
                                                                  --------      --------
            Net income before income tax expense                     3,315         1,158
Income tax expense (benefit)                                         1,232          (141)
                                                                  --------      --------
            Net income                                            $  2,083      $  1,299
                                                                  ========      ========

Earnings per share - basic                                        $   0.39      $   0.35
                                                                  ========      ========
Earnings per share - diluted                                      $   0.38      $   0.35
                                                                  ========      ========
</TABLE>

See Notes to Condensed Consolidated Financial Statements


                                       3

<PAGE>

<TABLE>
<CAPTION>

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
      INCOME
Three and Six Months Ended June 30, 2002 and 2001
                                                               2002           2001
------------------------------------------------------------------------------------
                                     (In thousands)                 (Unaudited)
<S>                                                           <C>           <C>
Three month period ended June 30, 2002 and 2001:
      Net income before comprehensive items                   $ 1,141       $   362
      Reclassification of gains recognized in net income         (159)          (27)
      Unrealized gains on securities available for sale,
            net of deferred tax effect                          1,516            23
                                                              -------       -------
         Comprehensive income                                 $ 2,498       $   358
                                                              =======       =======

Six month period ended June 30, 2002 and 2001:
      Net income before comprehensive items                   $ 2,083       $ 1,299
      Reclassification of gains recognized in net income         (243)          (77)
      Unrealized gains on securities available for sale,
            net of deferred tax effect                            779           143
                                                              -------       -------
         Comprehensive income                                 $ 2,619       $ 1,365
                                                              =======       =======

</TABLE>

See Notes to Condensed Consolidated Financial Statements


                                       4

<PAGE>

<TABLE>
<CAPTION>

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2002 and 2001
                                                                       2002          2001
--------------------------------------------------------------------------------------------
                                              (In thousands)              (Unaudited)
<S>                                                                 <C>            <C>
Cash Flows From Operating Activities
     Net income                                                     $  2,083       $  1,299
     Adjustments to reconcile net income to net cash
        provided by operating activities:
        Amortization of deposit premium                                  323            291
        Depreciation                                                     673            417
        Gain on sale of equipment                                         --             (3)
        Gains on sale of securities available for sale                  (243)           (77)
        Amortization/accretion of premiums/discounts on
            on securities, net                                           244           (149)
        Deferred income tax benefits                                     (43)          (815)
        Provision for loan losses                                      1,230            600
        Changes in assets and liabilities:
            Accrued interest receivable                                  170            344
            Other assets                                                (648)          (146)
            Accrued interest payable and other liabilities              (252)          (822)
                                                                    --------       --------
               Net cash provided by operating activities               3,537            939
                                                                    --------       --------
Cash Flows From Investing Activities
     Loan originations, net of principal repayments                  (25,476)       (25,882)
     Additions to premises and equipment                                (809)          (605)
     Proceeds from sale of equipment                                      --             38
     Net (purchase) sale of Federal Home Loan Bank stock                 858           (500)
     Purchase of securities available for sale                       (23,018)       (50,347)
     Proceeds from maturities of securities available for sale         8,926         26,232
     Proceeds from sale of securities available for sale              12,771          9,014
     Capitalized purchase costs                                          (29)           (57)
     Net cash acquired from purchase of subsidairy                     8,649             --
                                                                    --------       --------
               Net cash used in investing activities                 (18,128)       (42,107)
                                                                    --------       --------
Cash Flows From Financing Activities
     Net increase in deposits                                         42,337         16,994
     Net increase in repurchase agreements                             1,714          1,385
     Net increase (decrease) in borrowings                            (5,013)        15,000
     Cash dividends paid                                                (267)            --
     Issuance of common stock for options                                665             --
     Purchase of treasury stock                                       (3,421)          (180)
                                                                    --------       --------
               Net cash provided by financing activities            $ 36,015       $ 33,199
                                                                    --------       --------

                                                                   (continued on next page)
</TABLE>


See Notes to Condensed Consolidated Financial Statements

                                       5


<PAGE>

<TABLE>
<CAPTION>

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six Months Ended June 30, 2002 and 2001

                                                               2002              2001
-----------------------------------------------------------------------------------------
                                          (In thousands)            (Unaudited)

<S>                                                          <C>             <C>
                Net change in cash and cash equivalents      $  21,424       $  (7,969)
      Cash and cash equivalents:
         Beginning                                              16,117          28,426
                                                             ---------       ---------
         Ending                                              $  37,541       $  20,457
                                                             =========       =========


Supplemental Disclosure of Cash Flow Information
      Transfer from loans to real estate acquired
         through foreclosure                                 $     802       $      --
                                                             =========       =========
      Cash paid for:
         Income taxes                                        $   1,583       $     555
                                                             =========       =========
         Interest                                            $   7,413       $   7,863
                                                             =========       =========

      Dividends payable                                      $     267       $      --
                                                             =========       =========

      Purchase of First Community Financial Corp:
         Loans, net of reserves                              $(134,149)      $      --
         Investments                                           (39,001)             --
         Other assets acquired                                 (12,131)             --
         Goodwill and deposit premium                           (2,921)             --
         Deposits                                              156,241              --
         Borrowings                                             16,414              --
         Other liabilities assumed                               3,342              --
         Issuance of stock                                      20,854              --
                                                             ---------       ---------
            Net cash and cash equivalents acquired           $   8,649       $      --
                                                             =========       =========
</TABLE>

See Notes to Condensed Consolidated Financial Statements


                                       6

<PAGE>


Notes to the 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
subsidiaries,  Capital Bank (the "Bank") and Capital  Bank  Investment  Services
("CBIS"). The interim financial statements have been prepared in accordance with
generally accepted accounting principles.  Accordingly,  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 2001 Annual Report on Form 10-K. 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 six month  period  ended  June 30,  2002 are not
necessarily indicative of the results of operations that may be expected for the
year ended December 31, 2002.

The accounting policies followed are as set forth in Note 1 of the Notes to
Financial Statements in the 2001 Capital Bank Corporation annual report.

2.       Acquisition of First Community Financial Corporation

On  January  18th,  2001,  the  Company   acquired  First  Community   Financial
Corporation  ("First  Community")  in Burlington,  NC., the holding  company for
Community Savings Bank, Inc. ("Community Savings Bank").  Community Savings Bank
was  originally  chartered  in  1934,  and  its  market  area  consists  of  the
communities in Alamance County, North Carolina. Community Savings Bank primarily
engaged in soliciting  deposit  accounts from  businesses and the general public
and making commercial loans,  construction loans, residential real estate loans,
home equity line of credit loans,  consumer loans and various investments.  Each
First  Community  share of common  stock was  exchanged  for  1.30275  shares of
Capital  Bank  Corporation  common  stock plus $16.20  cash.  As a result of the
acquisition,  the Company issued an additional 1.9 million shares of stock.  The
transaction  was  accounted  for under the  purchase  method and is  intended to
qualify  as a  tax-free  reorganization  under  Section  368(a) of the  Internal
Revenue Code.

A summary of estimated fair values of assets acquired and liabilities assumed
were as follows:

(In thousands)
Loans receivable                                                  $ 134,149
Investments                                                          39,001
Premises and equipment                                                5,424
Goodwill                                                              2,139
Deposit premium                                                         782
Other assets                                                         12,957
Deposits                                                           (156,241)
Borrowings                                                          (16,414)
Other liabilities                                                    (3,342)
                                                                 -----------
    Investment in subsidiary, net of dividends to shareholders
    and capitalized acquisition costs                             $  18,455
                                                                 ===========



                                       7
<PAGE>

3.       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 only  components of other  comprehensive
income relate to unrealized  gains and losses on securities  available for sale,
net of the applicable income tax effect. The Company's  comprehensive net income
and information  concerning the Company's other  comprehensive  income items for
the three and six month periods ended June 30, 2002 and 2001 are as shown in the
Condensed Consolidated Statements of Comprehensive Income.

4.       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
Capital Bank  Corporation,  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
and six month periods ended June 30, 2002 and 2001.

<TABLE>
<CAPTION>
                                                                 2002           2001
                                                             --------------------------
                                                                     (Unaudited)
<S>                                                          <C>             <C>
(In thousands except number of shares)
Three month periods ended June 30, 2002 and 2001:

Income available to stockholders - basic and diluted         $    1,141      $      362
                                                             ==========      ==========
Shares used in the computation of earnings per share:
Weighted average number of shares outstanding - basic         5,457,320       3,723,785
Incremental shares from assumed exercise of stock
      options                                                   228,214          31,101
                                                             ----------      ----------
Weighted average number of shares outstanding - diluted       5,685,534       3,754,886
                                                             ==========      ==========
</TABLE>

<TABLE>
<CAPTION>

                                                                2002            2001
                                                             ---------------------------
                                                                    (Unaudited)
<S>                                                          <C>             <C>
(In thousands except number of shares)
Six month periods ended June 30, 2002 and 2001:

Income available to stockholders - basic and diluted         $    2,083      $    1,299
                                                             ==========      ==========
Shares used in the computation of earnings per share:
Weighted average number of shares outstanding - basic         5,330,157       3,728,288
Incremental shares from assumed exercise of stock
      options                                                   198,225          26,181
                                                                             ----------
Weighted average number of shares outstanding - diluted       5,528,382       3,754,469
                                                                             ==========
</TABLE>



Total options of 689,000 were used in the diluted calculation. All options
currently issued under


                                       8
<PAGE>

existing plans were included in the diluted calculation because the average fair
market  value of a common  share of stock  was  greater  than all of the  option
exercise prices.

5.       Income Taxes

Prior to the three month period ended March 31, 2001, the  Corporation  recorded
minimal net income tax  expenses.  This was due  primarily to the  generation of
consolidated   net   operating   losses  during  the  start  up  phase  and  the
establishment  of a valuation  allowance  against deferred tax assets until such
time as the Company  demonstrated  the  ability to utilize  those  deferred  tax
assets in the future.  Management determined during the three month period ended
March 31,  2001 that the  Company  would more likely than not be able to utilize
those assets in the future. Accordingly, during the period ended March 31, 2001,
the remaining  valuation  allowances were reversed and all reserved deferred tax
assets were recorded on the  consolidated  financial  statements of the Company,
resulting in a one time net tax benefit of $356,000.

Item 2

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

The  following  discussion  presents  an  overview  of the  unaudited  financial
statements  for the three and six month periods ended June 30, 2002 and 2001 for
Capital Bank  Corporation  and its wholly owned  subsidiaries,  Capital Bank and
Capital Bank Investment Services,  Inc. This discussion and analysis is intended
to provide  pertinent  information  concerning  financial  position,  results of
operations,  liquidity,  and capital resources. It should be read in conjunction
with the unaudited financial  statements and related footnotes contained in Part
I, Item 1 of this report.

Information set forth below contains various  forward-looking  statements within
the meaning of Section 27A of the  Securities Act of 1933 and Section 21E of the
Securities  Exchange  Act of 1934,  which  statements  represent  the  Company's
judgment  concerning the future and are subject to risks and uncertainties  that
could cause the Company's actual operating  results to differ  materially.  Such
forward-looking  statements  can be  identified  by the  use of  forward-looking
terminology,  such  as  "may",  "will",  "expect",   "anticipate",   "estimate",
"believe", or "continue", or the negative thereof or other variations thereof or
comparable   terminology.   The  Company  cautions  that  such   forward-looking
statements  are further  qualified  by  important  factors  that could cause the
Company's  actual  operating  results  to differ  materially  from  those in the
forward-looking  statements,  as well as the factors set forth in the  Company's
periodic reports and other filings with the SEC.

Overview

Capital  Bank  Corporation  (the  "Company")  is  a  financial  holding  company
incorporated  under the laws of North Carolina on August 10, 1998. The Company's
election to become a financial holding company was effective April 23, 2001. The
Company's  primary  function  is  to  serve  as  the  holding  company  for  its
wholly-owned  subsidiaries,  Capital Bank and Capital Bank Investment  Services,
Inc. Capital 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


                                       9
<PAGE>

subsidiaries.  At a special meeting of shareholders  held on March 26, 1999, the
shareholders  of Capital Bank approved the  reorganization  of Capital Bank into
Capital  Bank   Corporation.   In  the  holding  company   reorganization,   the
shareholders of Capital Bank each received a right to one share of Company stock
for each share of Capital Bank stock that they owned.

Prior to April 14, 2000, the Bank operated primarily throughout the central part
of North  Carolina  with branch  facilities  located in Raleigh  (1),  Cary (2),
Sanford (3), and Siler City (1). In April,  2000,  the Bank  acquired 5 branches
from another area  financial  institution  which was accounted for as a purchase
transaction.  The  transaction  included  branches in the eastern  part of North
Carolina including Oxford (2), Warrenton (1), Seaboard (1), and Woodland (1). In
June, 2000, the Bank opened a new branch and moved its corporate headquarters to
an office on Glenwood Avenue in Raleigh,  North  Carolina.  In January 2001, the
Bank opened an additional  branch in Raleigh bringing the total to 3 branches in
Raleigh.

On March 1, 2001, Capital Bank Corporation  announced that it had formed Capital
Bank Investment Services,  Inc. ("CBIS"),  an investment services subsidiary and
agreed to acquire an  independent  branch  brokerage  office located in Raleigh,
North Carolina.

CBIS  makes  available  a full  range  of  non-deposit  investment  services  to
individuals  and  corporations,  including  the  customers  of the  Bank.  These
investment services include full-service securities brokerage, asset management,
financial planning and retirement  services,  such as 401(k) plans, all provided
exclusively  through a strategic alliance with Raymond James Financial Services,
Inc.  ("Raymond  James").  These  services  will be  available in the offices of
Capital Bank through registered investment representatives.

On October 5, 2001, the Company  entered into a definitive  agreement to acquire
First Community Financial Corporation ("First Community") in Burlington, NC, the
holding  company for Community  Savings Bank, Inc.  ("Community  Savings Bank").
Community  Savings Bank operates in the communities in and around Burlington and
Graham  (Alamance  County),  and was  primarily  engaged in  soliciting  deposit
accounts from  businesses  and the general public and making  commercial  loans,
construction  loans,  residential real estate loans,  home equity line of credit
loans, consumer loans and various investments. The acquisition was approved at a
special  shareholder  meeting on January 17, 2002 and the transaction took place
effective the close of business on January 18, 2002.  Each First Community share
of common stock was  exchanged  for 1.30275  shares of Capital Bank  Corporation
common stock plus $16.20  cash.  The  transaction  was  accounted  for under the
purchase  method and is intended to qualify as a tax-free  reorganization  under
Section 368(a) of the Internal Revenue Code.

On May 1, 2002, the Company entered into a definitive  agreement to acquire High
Street   Corporation   ("High  Street")  in  Asheville,   NC.  High  Street  was
incorporated on October 30, 2001 to serve as the holding company for High Street
Banking Company ("High Street Bank").  High Street has had no significant assets
other than the  outstanding  capital stock of High Street Bank. High Street Bank
was originally  incorporated  on April 25, 1997, and its market area consists of
the communities of Asheville and Hickory,  North  Carolina.  High Street Bank is
primarily engaged in soliciting deposit accounts from businesses and the general
public and making commercial loans,  construction loans, residential real estate
loans, home equity line of credit loans, consumer loans and various investments.
Management  anticipates  that the  acquisition  will be  completed in the fourth
quarter of 2002.

                                       10
<PAGE>


As of June 30, 2002, High Street  Corporation had consolidated  assets of $165.2
million,  consolidated loans of $128.3 million,  consolidated deposits of $138.8
million and consolidated shareholders' equity of $15.1 million.

The Company has no operations other than those of its subsidiaries, Capital Bank
and Capital Bank Investment Services,  Inc. The Bank is a full-service community
bank and the Investment  Company is a full service brokerage firm. The Company's
profitability  depends  principally upon the net interest income,  provision for
loan losses,  non-interest income and non-interest  expenses of the Bank and the
net commissions generated by CBIS.

Financial Condition

Total  consolidated  assets of the Company at June 30, 2002 were $642.0  million
compared to $406.7 million at December 31, 2001, an increase of $235.2  million,
or 58%. On June 30, 2002, loans,  including loans held for sale of $1.5 million,
were $467.1 million,  up $160.2 million,  or 52%, compared to December 31, 2001.
Investment  securities  were $114.0  million  and  federal  funds sold were $8.3
million at June 30, 2002.  During the six month period ended June 30, 2002, cash
and cash equivalents,  including federal funds sold, increased by $21.4 million.
All increases  were primarily the result of the  acquisition of First  Community
and it's  subsidiary  bank,  Community  Savings  Bank, as of January 18, 2002 as
described  above and through  internal  growth of existing  branches.  Loans and
investments acquired aggregated $173.1 million.

Earning assets  represented  94% of total assets on June 30, 2002. The allowance
for loan losses on June 30, 2002 was $6.9 million and represented  approximately
1.47% of total loans.  Management  believes  that the amount of the allowance is
adequate at this time.

Deposits on June 30, 2002 were $503.0 million,  an increase of $198.6 million or
65% from December 31, 2001, primarily the result of deposits acquired from First
Community  of $156.2  million.  As a result,  the acquired  deposits  caused the
company's  deposit mix to change with higher rate CD's now representing a larger
portion of total deposits. The increase in CD's partially offset a trend towards
lower rate funds that the  Company had moved  towards  over the  previous  year.
Certificates  of  deposit  made up 59% of total  deposits  as of June  30,  2002
compared to 57% at December 31, 2001. During the six month period ended June 30,
2002,  certificates of deposit  increased by $122.8 million,  or 70% from $174.4
million to $297.2 million. At the same time, non-interest bearing demand deposit
accounts  increased  $10.1 million,  or 35%, from $28.5 million to $38.5 million
and savings  and  interest  bearing  demand  deposit  accounts  increased  $65.8
million,  or 65%,  from  $101.6  million to $167.3  million.  During  2001,  the
dependency  on  certificates  of deposit  declined  as the result of a conscious
effort on  management's  part to attract  lower cost core deposits such as money
market and interest bearing checking accounts along with an effort to reduce the
overall  rates paid on  certificates  of deposit  while  still  remaining  price
competitive. Management intends to continue with this strategy during 2002.

Borrowings increased from $50.0 million at December 31, 2001 to $61.4 million at
June 30, 2002,  as the Company  acquired  the  outstanding  borrowings  of First
Community,  amounting  to $16.4  million  at  acquisition,  along with the other
assets and liabilities of that company.  Both Capital Bank Corporation and First
Community  took advantage of the low rates offered by the Federal Home Loan Bank
during the latter part of 2001 and leveraged  those  additional  borrowings into
higher yielding investments.

                                       11
<PAGE>


Total consolidated  shareholders'  equity was $57.2 million at June 30, 2002, an
increase of $20.2 million from December 31, 2001,  due primarily to the issuance
of additional common stock as a part of the acquisition of First Community.

Results of Operations

For the three month period ended June 30, 2002, the Company  reported net income
of $1.1  million or $.20 per share - diluted  compared  to  $362,000 or $.10 per
share - diluted  for the same  period in 2001.  Net income  for 2002  included a
significantly  higher pretax income  primarily  attributable  to higher loan and
deposit  balances on which net interest and  noninterest  income are  generated.
These  increased  balances  were  principally  the  result  of  the  acquisition
described  above.  For the six month  period  ended June 30,  2002,  the Company
reported net income of $2.1 million or $.38 per share - diluted compared to $1.3
million or $.35 per share - diluted  for the same period in 2001.  Net  interest
income in the first six months of 2002 was $9.9 million, up 74% compared to $5.7
million in the same period of 2001 due primarily to increased  balances in loans
and deposits. Pretax income for the period ended June 30, 2002 was $1.7 million,
an increase of $1.1 million or 194% over the $577,000  recorded  during the same
period in 2001.  The  increase  in pretax  income  was  offset by a  significant
difference  in the amount of income taxes  recorded for the  different  periods.
During the period ended March 31, 2001, the Company recorded a one time reversal
of  valuation  allowances  on  deferred  income tax  assets  done as a result of
continued trends of profitability.  See Note 4 for additional information.  This
reversal,  net of current  tax  expense  for the  period,  resulted in a net tax
benefit of $356,000.  For the six month  period ended June 30, 2002,  income tax
expense was $1.2 million compared to a tax benefit of $141,000  recorded for the
same period in 2001.  During 2001,  the market  experienced  a rapid  decline in
short term interest rates which had a negative impact on interest margins as the
yield on the Company's  earning assets  adjusted  downward at a faster rate than
the interest rates paid on deposits.  As rates have stabilized  during the first
half of 2002, the average rate paid on deposits has adjusted  downward while the
yield on assets have remained  relatively stable resulting in an increase in the
overall net interest  spread.  The Company's  net interest  margin (net interest
income as a percentage  of average  earning  assets) for the three and six month
periods ended June 30, 2002 were 3.43% and 3.44%, compared to 3.24% and 3.37% in
the same periods in 2001.

The provisions for loan losses were $705,000 and $1.2 million, respectively, for
the three and six month periods ended June 30, 2002.  These provisions were used
to maintain the  allowance for loan losses at a prudent  level  considering  the
Company's  loan growth and credit  quality.  At June 30, 2002, the allowance for
loan  losses  was  1.47% of total  loans.  Loans 90 days or more  past due or in
nonaccrual  status totaled $4.1 million and  represented  .88% of total loans on
June 30, 2002.

Non-interest  income for the three and six month  periods  ended June 30,  2002,
were $1.5 million and $3.1 million,  respectively,  compared to $1.1 million and
$1.9 million for the same periods in 2001. The increase in  non-interest  income
is  primarily  attributable  to several  factors.  The  Company  increased  fees
associated  with  deposit  accounts  in the  second  quarter  of 2001 that had a
positive  impact on the 2002  balances.  In addition,  the mortgage  origination
department  experienced a large  increase in fees on sold loans as the result of
the lower interest rate environment and increased refinance  business.  Mortgage
loan origination fees increased from $925,000 in the first six months of 2001 to
$1.2 million for the same period in 2002. In addition,


                                       12
<PAGE>

the Company  started a new overdraft  checking  privilege  program called Bounce
Free  checking  program  during  the  second  quarter  of 2001  which  caused  a
substantial   increase  in  fee  income   during  the  2002  period.   Fees  for
non-sufficient funds, which include the new Bounce Free checking program income,
have increased from $424,000 in 2001 to $693,000 in 2002.  Finally,  the deposit
base on which fees are earned increased  substantially  during the first quarter
of 2002 as a result of the acquisition.

Non-interest expense for the three and six month periods ended June 30, 2002 was
$4.3 million and $8.5 million  compared to $3.1 million and $5.9 million for the
same periods in 2001.  Salaries and employee benefits,  representing the largest
expense category, increased from $1.6 million and $3.1 million for the three and
six month  periods in 2001 to $2.2 million and $4.4 million for the same periods
in 2002. This increase reflects an increase in the number of personnel  employed
by the Company due to the acquisition and as a result of management intention to
maintain  adequate staffing levels to meet customer needs and keep pace with its
expected growth.  As of June 30, 2002, the Company had 175 full-time  equivalent
employees  compared to 129 for the same  period in 2001.  Occupancy  costs,  the
second highest component of non-interest  expenses,  increased from $289,000 and
$563,000  for the three and six month  periods in 2001 to $378,000  and $746,000
for the same period in 2002.  This  increase is  primarily  associated  with the
acquisition of the 4 additional branches received as part of the First Community
transaction.  Although management expects non-interest expense to increase on an
absolute  basis  as the  Company  continues  its  growth,  these  expenses  as a
percentage of asset size and operating  revenue are anticipated to decrease over
time.

Income tax expense was $555,000 and $1.2 million  during the three and six month
periods  ended June 30, 2002 compared to an expense of $215,000 and a benefit of
$141,000  during the same periods in 2001. At June 30, 2002, the Company had net
deferred tax assets of $4.4 million resulting from timing differences associated
primarily with the deductibility of certain expenses  reflected on the financial
statements.  Prior to 2001,  the Company was unable to use deferred tax benefits
and recorded deferred tax assets only to the extent those amounts offset current
taxes. During March 2001, previously recorded valuation allowances were reversed
and deferred tax assets were recorded on the consolidated  financial  statements
of the Company, resulting in a one-time net tax benefit of $356,000.



                                       13
<PAGE>


Asset Quality

Determining  the allowance  for loan losses is based on a number of factors.  At
the inception of each commercial loan,  management assesses the relative risk of
the loan and assigns a  corresponding  risk grade. To insure that credit quality
is maintained after a loan is booked,  the Bank has a loan review department and
a loan  review  process  which  includes an  internal  senior  level Loan Review
Community  which meets each month.  Account  officers  obtain updated  financial
information  on  all  large  commercial  loan   relationships  and  review  each
relationship with the Committee on an annual basis. In addition, an outside firm
performs a review that covers the largest commercial  relationships as well as a
sample  of  loans  from the  consumer,  mortgage  and  smaller  commercial  loan
portfolios  each year.  The firm reviews  underwriting,  documentation  and risk
grading  analysis.  The goal of these  reviews is to determine if the  Company's
risk assessments are accurate and that its loan review process is appropriate.

The Bank calculates the amount of allowance needed to cover the 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. 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.

Based on this allowance calculation, management charged operations in the amount
of $1.2 million for the six months ended June 30, 2002 to provide for probable
losses related to uncollectible loans. In addition, an allowance of $2.6 million
was acquired by the Bank from Community Savings Bank. At the end of June 30,
2002, the loan loss reserve was 1.47% of gross loans, compared to 1.51% as of
June 30, 2001. The following table presents an analysis of changes in the
allowance for loan losses for the three and six month periods ended June 30,
2002 and 2001:


                                       14
<PAGE>

<TABLE>
<CAPTION>

                                                                       Three Months                   Six Months
                                                                       Ended June 30,                Ended June 30,
                                                                    2002           2001           2002           2001
                                                                ------------   ------------   ------------   ------------
<S>                                                                 <C>            <C>            <C>            <C>
 (In thousands)
 Allowance for loan losses, beginning of period                     $ 6,750        $ 3,754        $ 4,287        $ 3,463
 Net charge-offs:
       Loans charged off:
       Commercial                                                       584              4          1,244             13
       Consumer                                                         183             14            231             19
                                                                ------------   ------------   ------------   ------------
            Total charge-offs                                           767             18          1,475             32
                                                                ------------   ------------   ------------   ------------
       Recoveries of loans previously charged off:
       Commercial                                                       154              -            155              -
       Consumer                                                          31              2             36              7
                                                                ------------   ------------   ------------   ------------
            Total recoveries                                            185              2            191              7
                                                                ------------   ------------   ------------   ------------
            Total net charge-offs                                       582             16          1,284             25
                                                                ------------   ------------   ------------   ------------
       Loss provisions charged to operations                            705            300          1,230            600
 Allowances transferred during acquisition                                -              -          2,640              -
                                                                ------------   ------------   ------------   ------------
 Allowance for loan losses, end of period                           $ 6,873        $ 4,038        $ 6,873        $ 4,038
                                                                ============   ============   ============   ============

 Net chargeoffs to average loans during the period                    0.13%          0.01%          0.28%          0.01%
 Allowance as a percent of gross loans                                1.47%          1.51%          1.47%          1.51%
</TABLE>


Due to a weakened economy the Company experienced higher loan charge offs in the
three and six month periods ended June 30, 2002 when compared to the same
periods in the prior year. In the second quarter of 2002, the Bank charged-off
$767,000, an increase of $749,000 over the same period last year. This increase
is primarily related to commercial loans in default.

The Bank has also experienced a significant increase in non-performing loans. At
the end of the second quarter of 2002, non-performing loans as a percentage of
total assets increased to .74% from .40% in the second quarter of 2001. This
increase is primarily due to the current economic downturn. The following table
presents an analysis of nonperforming assets as of June 30, 2002 and 2001:


                                       15
<PAGE>


                                                              Period
                                                           Ended June 30,
                                                        2002           2001
                                                       ------         ------
 (In thousands)
Nonperforming assets:
       Nonaccrual loans:
       Commercial real estate                          $1,716         $1,317
       Commercial                                         395             --
       Consumer                                           322             --
       Equity lines                                        49             65
       Mortgage                                         1,606            127
                                                       ------         ------
            Total nonacrual loans                       4,088          1,509
       Loans past due 90 days or more and still
       accruing interest:
       Consumer                                            --              2
                                                       ------         ------
            Total nonperforming loans                   4,088          1,511
       Foreclosed property held                           669             --
                                                       ------         ------
            Total nonperforming assets                 $4,757         $1,511
                                                       ======         ======

 Nonperforming loans to total loans                      0.88%          0.56%
 Nonperforming assets to total assets                    0.74%          0.40%
 Allowance coverage of nonperforming loans                168%           267%


Liquidity and Capital Resources

The Company's liquidity management involves planning to meet the Company's
anticipated funding needs at a reasonable cost. Liquidity management is guided
by policies formulated by the Company's senior management and the
Asset/Liability Management Committee of the Board of Directors. The Company had
$37.5 million in its most liquid assets, cash and cash equivalents, at quarter
end. The Company's principal sources of funds are deposits, Federal Home Loan
Bank borrowings and capital. Core deposits (total deposits less certificates of
deposits in the amount of $100,000 or more), one of the most stable sources of
liquidity, together with equity capital, funded 76% of total assets at June 30,
2002. In addition, the Company has the ability to take advantage of various
other funding programs available from the Federal Home Loan Bank of Atlanta.

Shareholders' equity was $57.2 million or $10.70 per share at June 30, 2002.
Management believes this level of shareholders' equity provides adequate capital
to support the Company's growth for at least the next 12 months and to maintain
a well-capitalized position. At June 30, 2002, Capital Bank Corporation had a
Tier 1 capital ratio of 9.65%, a total risk-based capital ratio of 10.90% and a
leverage ratio of 7.77%. These ratios exceed the federal regulatory minimum
requirements for a "well-capitalized" bank.


                                       16
<PAGE>


Effects of Inflation

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

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

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

The Company has not experienced any material change in its portfolio risk from
December 31, 2001 to June 30, 2002.

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

During the three month period ended June 30, 2002, 13,254 shares of Capital Bank
Corporation common stock were issued to certain individuals who exercised stock
options.

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

None

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

On May 23, 2002, the annual meeting of stockholders of the Company was held to
consider and vote upon three issues; the election of Class I, II, and III
directors, the approval of the combination of our existing option plans into one
Equity Incentive Plan, and the ratification of the appointment of
PricewaterhouseCoopers LLP as the Company's independent auditors for the fiscal
year ended December 31, 2002. All items were approved by the stockholders. Of
the 5,487,419 shares eligible to vote, 4,416,572 were voted as shown on the
following tables:


                                  17
<PAGE>


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

Class II Directors:
William R. Gilliam            4,408,903          7,669        4,416,572
Robert L. Jones               4,405,538         11,034        4,416,572
Samuel J. Wornom, III         4,407,470          9,102        4,416,572

Class III Director:
Charles A. LeGrand            4,409,070          7,502        4,416,572

Class I Director:
James D. Moser, Jr.           4,409,420          7,152        4,416,572



Approval of the combination of our existing option plans into one Equity
Incentive Plan and the reservation of 250,000 additional shares for issuance
under the plan.


                  For            Against           Abstain            Total
            ------------------------------------------------------------------

               4,011,808         366,765           37,999          4,416,572


Vote concerning the ratification of the appointment of PricewaterhouseCoopers
LLP as the independent auditors for the fiscal year ended December 31, 2002:


                  For            Against           Abstain            Total
            --------------------------------------------------------------------

               4,408,209           3,997            4,366          4,416,572







In each case, the vote required to approve the action was obtained.

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

None

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

 (a)     Exhibits
         --------
          Exhibit 99.1 Certification of Pursuant to 18 U.S.C. Section 1350, as
             Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
          Exhibit 99.2 Certification of Pursuant to 18 U.S.C. Section 1350, as
             Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 (b)      Reports on Form 8-K
          -------------------
         During May 2002, a Current Report on Form 8-K, dated May 1, 2002, was
         filed with the Commission by the Company. This report included
         information about a definitive agreement entered into by the Company to
         merge with High Street Corporation ("High Street"), the holding company
         for High Street Bank, pursuant to which High Street will




                                       18
<PAGE>

         merge with and into the Company,  with the Company being the surviving
         corporation.  The report also included or incorporated  the following:
         (i) a joint press release  distributed  May 1, 2002 and (ii) a copy of
         the Merger Agreement  between the Company and High Street dated May 1,
         2002.



                                       19
<PAGE>





                                   Signatures

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



                                      CAPITAL BANK CORPORATION


Date:  August 14, 2002                By: /s/ Allen T. Nelson, Jr.
                                          -----------------------------------
                                           Allen T. Nelson, Jr.,
                                           Executive Vice President and CFO



                                       20