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 September 30, 1999

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

                  For the Transition Period From _____ to ____

                         Commission File Number 0-30062

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

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

                            4400 Falls of Neuse Road
                          Raleigh, North Carolina 27609

               (Address of Principal executive offices) (Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days.   x  Yes       No
                                   -----    -----

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

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

        Consolidated statements of financial condition at September 30, 1999 (Unaudited)
              and December 31, 1998                                                                  1

        Consolidated statements of income (loss) for the three months ended
              September 30, 1999 and September 30, 1998 (Unaudited)                                  2

        Consolidated statements of loss for the nine months ended
              September 30, 1999 and September 30, 1998 (Unaudited)                                  3

        Consolidated statements of cash flows for the nine months ended
             September 30, 1999 and September 30, 1998 (Unaudited)                                   4

        Notes to consolidated financial statements                                               5 - 7

        Item 2. Management's Discussion and Analysis of Financial Condition and
              Results of Operations                                                             7 - 12

        Item 3. Quantitative and Qualitative Disclosures About Market Risk                          12

PART II - OTHER INFORMATION

        Item 1. Legal Proceedings                                                                   12

        Item 2. Changes in Securities and Use of Proceeds                                           12

        Item 3. Defaults Upon Senior Securities                                                     12

        Item 4. Submission of Matters to a Vote of Security Holders                                 12

        Item 5. Other Information                                                                   12

        Item 6. Exhibits and Reports on Form 8-K                                                    13


        Signatures                                                                                  14
</TABLE>
<PAGE>

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED  STATEMENTS OF FINANCIAL CONDITION
September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
                                                                                 September 30,            December 31,
ASSETS                                                                               1999                    1998
-----------------------------------------------------------------------------------------------------------------------
                                         (In thousands except per share data)     (Unaudited)
<S>                                                                                    <C>                    <C>
Cash and due from banks                                                                $ 14,156               $ 10,365
Federal funds sold                                                                        7,920                 16,400
Investment securities
      Available for sale, at fair value                                                  46,108                 34,066
      Held-to-maturity, at amortized cost                                                     -                  3,560
                                                                             -------------------     ------------------
         Total investment securities                                                     46,108                 37,626
                                                                             -------------------     ------------------
Loans-net of unearned income                                                            138,386                110,779
Allowance for loan losses                                                                (2,054)                (1,457)
                                                                             -------------------     ------------------
         Net loans                                                                      136,332                109,322
                                                                             -------------------     ------------------
Premises and equipment, net                                                               3,157                  2,592
Accrued interest receivable                                                               1,142                    853
Deposit premium and goodwill, net                                                         1,671                  1,833
Other assets                                                                                835                  1,002
                                                                             -------------------     ------------------
            Total assets                                                              $ 211,321              $ 179,993
                                                                             ===================     ==================
LIABILITIES
Deposits
      Demand, non-interest bearing                                                      $ 9,621                $ 7,539
      Savings and interest bearing demand deposits                                       37,276                 35,689
      Time deposits                                                                     104,581                 94,115
                                                                             -------------------     ------------------
         Total deposits                                                                 151,478                137,343
                                                                            -------------------     ------------------
Accrued interest payable                                                                    621                    501
Repurchase agreements                                                                     5,608                  2,501
Borrowings                                                                               20,000                  5,066
Other liabilities                                                                         2,319                  1,075
                                                                             -------------------     ------------------
            Total liabilities                                                           180,026                146,486
STOCKHOLDERS' EQUITY
Common stock, no par value; 20,000,000 shares
      authorized; 3,658,689 shares issued and outstanding                                34,806                 34,788
Accumulated deficit                                                                      (2,670)                (1,255)
Unearned ESOP shares                                                                          -                    (66)
Deferred stock awards                                                                         -                   (195)
Accumulated other comprehensive income (loss)                                              (841)                   235
                                                                             -------------------     ------------------
            Total stockholders' equity                                                   31,295                 33,507
                                                                             -------------------     ------------------
            Total liabilities and stockholders' equity                                $ 211,321              $ 179,993
                                                                             ==================      =================
</TABLE>
See Notes to Consolidated Financial Statements

                                    -1-
<PAGE>
CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
                                                                                    1999                   1998
----------------------------------------------------------------------------------------------------------------------
                                         (In thousands except per share data)              (Unaudited)
<S>                                                                                     <C>                 <C>
Interest income:
      Loans and loan fees                                                               $   2,847           $   1,940
      Investment securities                                                                   710                 520
      Federal funds and other interest income                                                 205                 252
                                                                                        ---------           ---------
         Total interest income                                                              3,762               2,712
                                                                                        ---------           ---------
Interest expense:
      Deposits                                                                              1,700               1,430
      Borrowings and repurchase agreements                                                    294                   4
                                                                                        ---------           ---------
         Total interest expense                                                             1,994               1,434
                                                                                        ---------           ---------
         Net interest income                                                                1,768               1,278

      Provision for loan losses                                                               225                 203
                                                                                        ---------           ---------
         Net interest income after provision for loan losses                                1,543               1,075
Noninterest income:
      Service charges and other fees                                                          114                  80
      Other noninterest income                                                                220                 230
                                                                                        ---------           ---------
         Total noninterest income                                                             334                 310
                                                                                        ---------           ---------
Noninterest expenses:
      Salaries and employee benefits                                                          999                 814
      Occupancy                                                                               133                  96
      Data processing                                                                          92                  86
      Directors fees                                                                           64                  80
      Advertising                                                                              58                  58
      Furniture and equipment                                                                  77                  74
      Amortization of intangibles                                                              54                  54
      Other expenses                                                                          215                 288
                                                                                        ---------           ---------
         Total noninterest expenses                                                         1,692               1,550
                                                                                        ---------           ---------
            Net income (loss) before tax expense                                              185                (165)
      Income tax expense (benefit)                                                              -                   2
                                                                                        ---------           ---------
            Net income (loss)                                                           $     185           $    (167)
                                                                                        =========           =========
Earnings per share - basic and diluted                                                  $    0.05           $   (0.05)
                                                                                        =========           =========
Dividends per share                                                                     $      -            $    0.05
                                                                                        =========           =========
</TABLE>
See Notes to Consolidated Financial Statements

                                       -2-
<PAGE>
CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF LOSS
Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
                                                                   1999          1998
-----------------------------------------------------------------------------------------------------------------------
       (In thousands except per share data)                            (Unaudited)
Interest income:
<S>                                                              <C>           <C>
      Loans and loan fees                                        $  7,760      $  5,002
      Investment securities                                         2,183         1,581
      Federal funds and other interest income                         457           849
                                                                 --------      --------
         Total interest income                                     10,400         7,432
                                                                 --------      --------
Interest expense:
      Deposits                                                      4,871         3,861
      Borrowings and repurchase agreements                            644            13
                                                                 --------      --------
         Total interest expense                                     5,515         3,874
                                                                 --------      --------
         Net interest income                                        4,885         3,558
      Provision for loan losses                                       624           548
                                                                 --------      --------
         Net interest income after provision for loan losses        4,261         3,010

Noninterest income:
      Service charges and other fees                                  319           214
      Other noninterest income                                        587           316
                                                                 --------      --------
         Total noninterest income                                     906           530
                                                                 --------      --------
Noninterest expenses:
      Salaries and employee benefits                                2,845         2,134
      Occupancy                                                       371           264
      Data processing                                                 255           198
      Directors fees                                                  189           220
      Advertising                                                     188           165
      Furniture and equipment                                         210           193
      Amortization of intangibles                                     162           162
      Merger related expenses                                       1,647          --
      Other expenses                                                  572           759
                                                                 --------      --------
         Total noninterest expenses                                 6,439         4,095
                                                                 --------      --------
            Net loss before tax expense                            (1,272)         (555)

      Income tax expense (benefit)                                    (40)            6
                                                                 --------      --------

            Net loss                                             $ (1,232)     $   (561)
                                                                 ========      ========
Earnings per share - basic and diluted                           $  (0.34)     $  (0.16)
                                                                 ========      ========
Dividends per share                                              $   0.05      $   0.10
                                                                 ========      ========
</TABLE>
See Notes to Consolidated Financial Statements

                                       -3-
<PAGE>
CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
                                                                       1999         1998
                                (In thousands)                            (Unaudited)
<S>                                                                 <C>           <C>
Cash Flows From Operating Activities
      Net loss                                                      $ (1,232)     $   (561)
      Adjustments to reconcile net loss to net cash provided
         by (used in) operating activities:
         Amortization of deposit premium and goodwill                    162           162
         Depreciation                                                    288           190
         Amortization of premium on securities, net                       36             8
         MRP and ESOP compensation                                       279           125
         Provision for loan losses                                       624           548
         Gain on sale of loans                                          --              (2)
         Changes in assets and liabilities:
            Accrued interest receivable                                 (289)          (74)
            Other assets                                                 167          (755)
            Accrued interest payable and other liabilities             1,364          (376)
                                                                    --------      --------
                Net cash provided by (used in) operating
                  activities                                           1,399          (735)
                                                                    --------      --------
Cash Flows From Investing Activities
      Loan originations, net of principal repayments                 (27,634)      (35,866)
      Additions to premises and equipment                               (853)       (1,860)
      Purchase of Federal Home Loan Bank stock                          (395)          (63)
      Purchase of securities available for sale                      (18,244)      (13,245)
      Proceeds from sales of securities available for sale              --           2,995
      Proceeds from maturities of securities available for sale        5,485         7,392
      Proceeds from maturities of securities held to maturity          3,560         6,000
                                                                    --------      --------
                Net cash used in investing activities                (38,081)      (34,647)
                                                                    --------      --------

Cash Flows From Financing Activities
      Net increase in deposits                                        14,135        33,782
      Net increase in repurchase agreements                            3,107          --
      Net increase (decrease) in borrowings                           14,934           (51)
      Cash dividends                                                    (183)         (361)
                                                                    --------      --------
                Net cash provided by financing activities             31,993        33,370
                                                                    --------      --------

                Net change in cash and cash equivalents               (4,689)       (2,012)
      Cash and cash equivalents:
         Beginning                                                    26,765        30,046
                                                                    --------      --------
         Ending                                                     $ 22,076      $ 28,034
                                                                    ========      ========
</TABLE>
                                      -4-
<PAGE>
Notes to the Consolidated Financial Statements

1.       Significant Accounting Policies and Interim Reporting

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

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

2.       Changes in Operating Structure

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

Prior to March 31,  1999,  the Bank  operated  through its  corporate  office in
Raleigh,  North Carolina,  two branches in Cary, North Carolina and two branches
in Sanford,  North Carolina.  At a special meeting of shareholders held on March
26, 1999,  the  shareholders  of Capital Bank  approved  the  reorganization  of
Capital Bank into a bank holding company named "Capital Bank  Corporation"  (the
"Company").  In the holding company reorganization,  the shareholders of Capital
Bank each  received  a right to one  share of  Company  stock for each  share of
Capital  Bank stock that they owned.  Thus,  the  shareholders  of Capital  Bank
before  the  holding  company  reorganization  are now the  shareholders  of the
Company. In addition, on March 31, 1999 the Company completed its acquisition of
Home Savings Bank of Siler City SSB, Inc. in a stock-for-stock exchange in which
the Company issued  1,181,038 shares of its Common Stock. On July 16, 1999, Home
Savings Bank merged with Capital Bank to form one subsidiary  under Capital Bank
Corporation.  In conjunction  with the merger,  the common stock of Home Savings
Bank was retired.  As used in this report,  the term "Company" refers to Capital
Bank  Corporation  and its subsidiary,  Capital Bank,  after the holding company
reorganization.

As a result of the reorganization, acquisition, and subsequent merger, which was
accounted  for as a  pooling-of-interests  transaction,  all  amounts  in  these
statements  are  restated  to  reflect a  consolidated  basis as if the  current
organization had been in place during both operating periods.

                                      -5-
<PAGE>
3.       Comprehensive Loss

Comprehensive  income (loss) includes net income (loss) and all other changes to
the Company's  equity,  with the  exception of  transactions  with  shareholders
("Other  Comprehensive   Income").   The  Company's  only  components  of  other
comprehensive  income  relate  to  unrealized  gains and  losses  on  securities
available for sale. The Company's total  comprehensive  net loss and information
concerning the Company's other comprehensive income items for the three and nine
month periods ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
                                                                      1999          1998
                                                                     --------------------
                        (In thousands)                                    (Unaudited)

<S>                                                                  <C>          <C>
Three month period ended September 30, 1999 and 1998:
      Net income (loss) before comprehensive items                   $   185      $  (167)
      Unrealized gains on securities available for sale                  183          251
                                                                     -------      -------

      Comprehensive net income                                       $   368      $    84
                                                                     =======      =======
Nine month period ended September 30, 1999 and 1998:

      Net loss before comprehensive items                            $(1,232)     $  (561)
      Unrealized gains/(losses) on securities available for sale      (1,076)         318
                                                                     -------      -------

      Comprehensive net loss                                         $(2,308)     $  (243)
                                                                     =======      =======
</TABLE>
1.       Earnings Per Share

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

                                      -6-
<PAGE>
4.        Earnings Per Share (Continued)
<TABLE>
<CAPTION>
                                                                1999            1998
                                                            ----------------------------
(In thousands except number of shares)                              (Unaudited)
<S>                                                         <C>              <C>

Three month period ended September 30, 1999 and 1998:
Income available to stockholders - basic and diluted        $       185      $      (167)
                                                            ===========      ===========
Shares used in the computation of earnings per share:
Weighted average number of shares outstanding - basic         3,675,036        3,632,365
Incremental shares from assumed exercise of stock
      options - antidilutive during loss periods                  7,147              n/a
                                                            -----------      -----------
Weighted average number of shares outstanding - diluted       3,682,183        3,632,365
                                                            ===========      ===========

Nine month period ended September 30, 1999 and 1998:
Income available to stockholders - basic and diluted        $    (1,232)     $      (561)
                                                            ===========      ===========
Shares used in the computation of earnings per share:
Weighted average number of shares outstanding - basic         3,674,605        3,634,932
Incremental shares from assumed exercise of stock
      options - antidilutive during loss periods                    n/a              n/a
                                                            -----------      -----------
Weighted average number of shares outstanding - diluted       3,674,605        3,634,932
                                                            ===========      ===========
</TABLE>
Item 2

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

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

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

                                      -7-
<PAGE>
Overview

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

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

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

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

On July 16,  1999,  Home  Savings  Bank  merged  with  Capital  Bank to form one
subsidiary under Capital Bank Corporation.  In conjunction with the merger,  the
common stock of Home Savings Bank was retired.

The Company has no operations other than those of its subsidiary,  Capital Bank.
The Bank is a full-service  community bank. The Company's  profitability depends
principally upon the net interest income, provision for loan losses, noninterest
income and noninterest expenses of the bank.

Financial Condition

Total  consolidated  assets of the Company for the quarter  ended  September 30,
1999 were $211.3  million  compared to $180.0  million at December 31, 1998,  an
increase of $31.3  million,  or 17%. On September  30,  1999,  loans were $138.4
million,  up $27.6 million,  or 25%,  compared to December 31, 1998.  Investment
securities were $46.1 million and Federal funds sold were $7.9 million at period
end.  During the nine month period,  Federal funds sold declined by $8.5 million
as this asset category was redeployed into higher yielding loans and securities.
Earning  assets  represented  95% of total  assets on September  30,  1999.  The
allowance for loan losses on September 30, 1999 was $2.1 million and represented
approximately  1.48% of total loans.  Management believes that the amount of the
allowance is adequate at this time.

Deposits on September 30, 1999 were $151.5 million, an increase of $14.1 million
or 10% from  December  31,  1998.  Borrowings  increased  from $5.0  million  at
December 31, 1998 to $20.0 million at September 30, 1999 to provide  funding for
certain fixed rate commercial  mortgages and to increase liquidity for potential
Year 2000 cash needs. Total consolidated stockholders' equity was $ 31.3 million
at  September  30,  1999,  a decrease of $2.2  million  from  December 31, 1998,
primarily  due to net losses and declines in the market  value of available  for
sale securities.
                                      -8-
<PAGE>
Results of Operations

For the three month period ended  September 30, 1999,  the Company  reported net
income of $185,000 or $.05 per share  compared to a loss of $167,000 or $.05 per
share in the third  quarter of 1998.  For the nine month period ended  September
30,  1999,  the  Company  reported a net loss of $1.2  million or $.34 per share
compared  to a loss of  $561,000  or $.16 per share for the same period in 1998.
Included in the loss for the nine month  period  ended  September  30, 1999 were
certain  nonrecurring  charges related to the  establishment of the bank holding
company and the  acquisition  of Home Savings of $1.6 million.  Excluding  those
costs,  the Company had consolidated net income from operations of approximately
$414,000 or $0.11 per share for the nine month period ended September 30, 1999.

Net interest  income in the third quarter was $1.8  million,  up 38% compared to
$1.3  million in the third  quarter of 1998.  For the nine  month  period  ended
September 30, 1999,  net interest  income was $4.9  million,  up 37% compared to
$3.6 million for the same period in 1998. The Company's net interest margin (net
interest  income as a percentage of average  earning assets) was 3.63% and 3.53%
for the three and nine month periods ended September 30, 1999, respectively.

The  provision  for loan losses was $225,000 and $624,000 for the three and nine
month periods ended September 30, 1999, respectively. This provision was used to
build the  allowance for loan losses to a prudent level to support the Company's
actual loan growth.  At September  30, 1999,  the  allowance for loan losses was
1.48% of total  loans.  Loans 30 days or more  past  due  totaled  $876,000  and
represented .63% of total loans on September 30, 1999.

Non-interest  income for the three and nine month  periods  ended  September 30,
1999,  were  $334,000  and  $906,000,  respectively,  compared to  $310,000  and
$530,000 for the same periods in 1998. The increases in  non-interest  income is
primarily  attributable  to mortgage  origination  fees and loan  servicing fees
associated with accounts  receivable  financing.  These two business  activities
were new revenue sources in latter part of 1998.

Non-interest  expenses for the three and nine month periods ended  September 30,
1999, were $1.7 million and $6.4 million, respectively, compared to $1.6 million
and $4.1 million for the same periods in 1998.  Salaries and employee  benefits,
representing  the largest  expense  category,  increased  from $814,000 and $2.1
million  for the three  and nine  month  periods  in 1998 to  $999,000  and $2.8
million for the same periods in 1999. These increases reflect an increase in the
number of  personnel  employed  by the  Company  as the  Company  must  maintain
adequate  staffing  levels in order to meet customer needs and to keep pace with
its  expected  growth.  As of  September  30, 1999 the Company had 74  full-time
equivalent   employees.   Nonrecurring  charges  related  to  the  Home  Savings
acquisition and the setup of the Capital Bank  Corporation  bank holding company
represented  the second largest  expense  category.  Those expenses  amounted to
approximately  $1.6 million for the nine month period ended  September 30, 1999.
Occupancy costs, the third highest component of non-interest expenses, increased
from  $96,000  and  $264,000  for the three and nine  month  periods  in 1998 to
$133,000  and  $371,000  for the same  periods  in  1999.  These  increases  are
primarily  associated with the leasing of additional office space as a result of
growth in the  lending  area and the related  growth in the number of  personnel
needed in that department.  Although  management expects  noninterest expense to
increase  on an  absolute  basis as the  Company  continues  its  growth,  these
expenses as a percentage  of asset size,  currently  and  operating  revenue are
anticipated to decrease over time.
                                      -9-
<PAGE>
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
$22.1 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 79% of total assets at September
30, 1999. In addition,  the Company has the ability to take advantage of various
other funding programs available from the Federal Home Loan Bank of Atlanta.

Stockholder's equity was $31.3 million or $8.55 per share at September 30, 1999.
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 September 30, 1999, Capital Bank had a leverage
ratio of 14.8%, a Tier 1 capital ratio of 21.6%, and a total risk-based  capital
ratio  of  22.9%.  These  ratios  far  exceed  the  federal  regulatory  minimum
requirements for a  "well-capitalized"  bank.  Management's  challenge is to use
this  capital  to  implement  a  prudent  growth  strategy  of  branch  and bank
acquisitions while growing the existing branch structure through quality service
and responsiveness to its customers' needs,  although there is no assurance that
the Company will meet these objectives.

Effects of Inflation

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

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

Year 2000

As the Year 2000 approaches,  an important  business issue has emerged regarding
whether or not existing computer systems and other operating systems can process
this date value  properly.  The problem is the result of computer  programs  and
related  logic which use a two digit value to define a particular  calendar year
(i.e. 99 for 1999). When this logic is used,  computer systems can not recognize
the two digit code "00"  associated  with the Year 2000 as coming  after 99. The
issue is  significant  because many computer  systems  deployed  throughout  the
business world, not just in banks, use software which contain the two digit date
logic.
                                      -10-
<PAGE>
Capital Bank  Corporation  uses two outside data processing  companies  (service
bureaus)  to provide  computer  processing  systems  for their  primary  banking
products including loans, deposits, ATM's, check processing and general ledger.

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

In addition to the service  bureaus,  the Company  utilizes  personal  computers
configured into seven local area networks  (LANS) which are, in turn,  connected
to each other  through a wide area network  (WAN).  All key  equipment  has been
purchased  new  since  1997 and has  subsequently  been  tested  for  Year  2000
readiness  by an  independent  consultant.  The test results  indicate  that all
equipment will function properly into the Year 2000.

In addition to the  service  bureau  applications,  the  Company  uses  software
distributed  through the LAN/WAN network for functions such as word  processing,
E-mail, spreadsheet,  teller transactions,  document preparation and new account
setup.  All these  software  products are purchased or licensed from third party
vendors.  It should be noted that  Capital  Bank  Corporation  does not write or
develop any of its own  computer  applications  and all key third party  vendors
have provided the Company with written  certification  or information that their
software is Year 2000 ready.

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

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

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

The  Company  has  budgeted  $93,000  for the Year  2000  program  and has spent
approximately $80,000 to date.
                                      -11-

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

Based on the information now available, the Company anticipates that the systems
it uses will  properly  process  dates in the year 2000 and  beyond and that the
costs  incurred in achieving full year 2000  compliance  will not be material to
the Company's results of operation, liquidity or capital resources.

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

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

Part II - Other Information

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

There are no material pending legal  proceedings to which the Company is a party
or 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
------            -----------------------------------------

None

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

None

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

None

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

None

                                     -12-
<PAGE>

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

 (a)     Exhibits
         --------

27.01    Financial Data Schedule

 (b)     Reports on Form 8-K
         -------------------

         No  reports on form 8-K were  filed  during the period  covered by this
         report.
                                      -13-
<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:  November 5, 1999                  By: /s/ Allen T. Nelson, Jr.,
                                            --------------------------
                                             Allen T. Nelson, Jr.,



                                      -14-