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

                                    FORM 10-Q

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

                  For the Quarterly Period Ended March 31, 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.   Yes [ X ]    No [   ]

As of May 03, 2002,  there were  5,661,884  shares issued and  5,368,960  shares
outstanding of the Registrant's common stock, no par value.

<PAGE>

                            Capital Bank Corporation

                                    CONTENTS

<TABLE>
<CAPTION>
<S>                                                                                      <C>

PART I - FINANCIAL INFORMATION                                                           Page No.

       Item 1. Financial Statements

       Condensed consolidated statements of financial condition at March 31, 2002
            (Unaudited) and December 31, 2001                                                   1
       Condensed consolidated statements of income for the three months ended
            March 31, 2002 and 2001 (Unaudited)                                                 2
       Condensed consolidated statements of comprehensive income for the three
            months ended March 31, 2002 and 2001 (Unaudited)                                    3
       Condensed consolidated statements of cash flows for the three months ended
            March 31, 2002 and 2001 (Unaudited)                                             4 - 5
       Notes to consolidated financial statements                                           6 - 8

       Item 2. Management's Discussion and Analysis of Financial Condition and
               Results of Operations                                                       8 - 15

       Item 3. Quantitative and Qualitative Disclosures About Market Risk                      15

PART II - OTHER INFORMATION

       Item 1. Legal Proceedings                                                               15

       Item 2. Changes in Securities and Use of Proceeds                                       15

       Item 3. Defaults Upon Senior Securities                                                 15

       Item 4. Submission of Matters to a Vote of Security Holders                        15 - 16

       Item 5. Other Information                                                               16

       Item 6. Exhibits and Reports on Form 8-K                                                16


       Signatures                                                                              17

</TABLE>


<PAGE>

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 2002 and December 31, 2001

<TABLE>
<CAPTION>
                                                                              March 31,     December 31,
                                                                                2002            2001
-------------------------------------------------------------------------------------------------------
                                (Dollars in thousands)                      (Unaudited)
<S>                                                                         <C>               <C>
ASSETS
         Cash and due from banks:
               Interest earning                                             $  12,872         $   2,793
               Non-interest earning                                            15,469            12,380
         Federal funds sold                                                    21,352               944
         Investment securities - available for sale, at fair value            111,150            73,702
         Loans-net of unearned income and deferred fees                       453,243           306,891
         Allowance for loan losses                                             (6,750)           (4,286)
                                                                            ---------         ---------
                  Net loans                                                   446,493           302,605
                                                                            ---------         ---------
         Premises and equipment, net                                           10,336             5,009
         Accrued interest receivable                                            3,113             1,853
         Goodwill                                                               2,898               567
         Deposit premium, net                                                   4,168             3,538
         Deferred tax assets                                                    5,340             2,033
         Other assets                                                           8,304             1,317
                                                                            ---------         ---------
                     Total assets                                           $ 641,495         $ 406,741
                                                                            =========         =========

         LIABILITIES
         Deposits:
               Demand, non-interest bearing                                 $  32,702         $  28,470
               Savings and interest bearing demand deposits                   152,102           101,553
               Time deposits                                                  297,315           174,420
                                                                            ---------         ---------
                  Total deposits                                              482,119           304,443
                                                                            ---------         ---------
         Accrued interest payable                                               1,052               792
         Repurchase agreements                                                 13,612            11,167
         Borrowings                                                            81,408            50,000
         Other liabilities                                                      8,039             3,356
                                                                            ---------         ---------
                     Total liabilities                                        586,230           369,758

         SHAREHOLDERS' EQUITY
         Common stock, no par value; 20,000,000 shares authorized;
               shares issued 2002 - 5,648,591 and 2001 - 3,658,689             56,223            34,805
         Retained earnings, substantially restricted                            2,979             2,306
         Accumulated other comprehensive income (loss)                           (253)              568
         Treasury stock at cost, no par value; 2002 - 292,884 shares
               and 2001 - 61,350 shares                                        (3,684)             (696)
                                                                            ---------         ---------
                     Total shareholders' equity                                55,265            36,983
                                                                            ---------         ---------

                     Total liabilities and shareholders' equity             $ 641,495         $ 406,741
                                                                            =========         =========

</TABLE>
See Notes to Condensed Consolidated Financial Statements

                                      -1-


<PAGE>

CAPITAL BANK CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                     2002           2001
------------------------------------------------------------------------------------------
                 (In thousands except per share data)                     (Unaudited)
<S>                                                                 <C>            <C>
Interest income:
      Loans and loan fees                                           $ 6,786        $ 5,538
      Investment securities                                           1,503          1,179
      Federal funds and other interest income                            83            158
                                                                    -------        -------
         Total interest income                                        8,372          6,875
                                                                    -------        -------

Interest expense:
      Deposits                                                        2,851          3,590
      Borrowings and repurchase agreements                              752            386
                                                                    -------        -------
         Total interest expense                                       3,603          3,976
                                                                    -------        -------
         Net interest income                                          4,769          2,899
Provision for loan losses                                               525            300
                                                                    -------        -------
         Net interest income after provision for loan losses          4,244          2,599

Noninterest income:
      Service charges and other fees                                    505            290
      Net gain on sale of securities                                     84             50
      Other noninterest income                                          996            456
                                                                    -------        -------
         Total noninterest income                                     1,585            796
                                                                    -------        -------

Noninterest expenses:
      Salaries and employee benefits                                  2,203          1,510
      Occupancy                                                         368            274
      Data processing                                                   250            152
      Directors fees                                                     59             55
      Advertising                                                       199            109
      Furniture and equipment                                           295            184
      Amortization of intangibles                                       154            141
      Other expenses                                                    682            389
                                                                    -------        -------
         Total noninterest expenses                                   4,210          2,814
                                                                    -------        -------
            Net income before income tax expense                      1,619            581
Income tax expense (benefit)                                            677           (356)
                                                                    -------        -------
            Net income                                              $   942        $   937
                                                                    =======        =======
Earnings per share - basic and diluted                              $  0.18        $  0.25
                                                                    =======        =======
</TABLE>


See Notes to Condensed Consolidated Financial Statements


                                   -2-

<PAGE>


CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
      INCOME

<TABLE>
<CAPTION>

Three Months Ended March 31, 2002 and 2001
                                                                    2002            2001
------------------------------------------------------------------------------------------
                   (In thousands)                                       (Unaudited)
<S>                                                                <C>             <C>

Net income before comprehensive items                              $   942         $   937
Reclassification of gains recognized in net income                     (84)            (50)
Unrealized gains (losses) on securities available for sale,
      net of deferred tax effect                                      (737)            120
                                                                   -------         -------
   Comprehensive income                                            $   121         $ 1,007
                                                                   =======         =======
</TABLE>

See Notes to Condensed Consolidated Financial Statements

                                      -3-


<PAGE>


CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2002 and 2001

<TABLE>
<CAPTION>

                                                                          2002             2001
-------------------------------------------------------------------------------------------------
                          (In thousands)                                       (Unaudited)
 <S>                                                                    <C>              <C>
 Cash Flows From Operating Activities
       Net income                                                       $    942         $    937
       Adjustments to reconcile net income to net cash
          provided by operating activities:
          Amortization of deposit premium and goodwill                       154              141
          Depreciation                                                       434              207
          Gain on sale of equipment                                           --               (1)
          Gains on sale of securities available for sale                     (84)             (50)
          Amortization of premium on securities, net                           4              (76)
          Deferred income tax benefits                                      (296)            (694)
          Provision for loan losses                                          525              300
          Changes in assets and liabilities:
             Accrued interest receivable                                     (96)              15
             Other assets                                                 (4,113)             (98)
             Accrued interest payable and other liabilities                1,332             (622)
                                                                        --------         --------
                 Net cash provided by (used in) operating
                 activities                                               (1,198)              59
                                                                        --------         --------
 Cash Flows From Investing Activities
       Loan originations, net of principal repayments                    (10,264)         (19,465)
       Additions to premises and equipment                                  (337)            (518)
       Proceeds from sale of equipment                                        --               27
       Purchase of Federal Home Loan Bank stock                             (250)            (250)
       Purchase of securities available for sale                          (5,387)         (26,715)
       Proceeds from maturities of securities available for sale           4,491           12,410
       Proceeds from sale of securities available for sale                 1,442            6,050
       Capitalized purchase costs                                            (20)             (14)
       Net cash acquired from purchase of subsidairy                       8,649               --
                                                                        --------         --------
                 Net cash used in investing activities                    (1,676)         (28,475)
                                                                        --------         --------
 Cash Flows From Financing Activities
       Net increase in deposits                                           21,435            9,914
       Net increase (decrease) in repurchase agreements                    2,445           (1,110)
       Net increase in borrowings                                         14,994           10,000
       Issuance of common stock for options                                  564               --
       Purchase of treasury stock                                         (2,988)              --
                                                                        --------         --------
                 Net cash provided by financing activities              $ 36,450         $ 18,804
                                                                        --------         --------


                                   (continued)
</TABLE>

See Notes to Condensed Consolidated Financial Statements


                                      -4-


<PAGE>


CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three Months Ended March 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                  2002               2001
------------------------------------------------------------------------------------------
                         (In thousands)                                (Unaudited)

<S>                                                            <C>               <C>
                Net change in cash and cash equivalents        $  33,576         $  (9,612)
      Cash and cash equivalents:
         Beginning                                                16,117            28,426
                                                               ---------         ---------
         Ending                                                $  49,693         $  18,814
                                                               =========         =========

Supplemental Disclosure of Cash Flow Information
      Cash paid for:
         Income taxes                                          $     438         $     215
                                                               =========         =========
         Interest                                              $   3,343         $   3,906
                                                               =========         =========

      Dividends payable                                        $     269         $      --
                                                               =========         =========

      Purchase of First Community Financial Corp:
         Loans, net of reserves                                $(134,149)        $      --
         Investments                                             (39,001)               --
         Other assets acquired                                   (11,957)               --
         Goodwill and deposit premium                             (3,095)               --
         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


                                      -5-

<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 three month  period ended March 31, 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 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 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.  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. 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.

The  following  table  reflects  the  unaudited  pro forma  combined  results of
operations  for the three month periods ended March 31, 2002 and 2001,  assuming
the acquisition had occurred at the beginning of fiscal 2001:

                            2002          2001
                            ----          ----
(In thousands)
Net interest income        $5,052        $4,680
Net income                    837         1,128

The pro forma net income for the three  month  period  ended March 31, 2002 does
not reflect  approximately  $5.5 million in merger related  costs,  net of taxes
incurred by First Community.  In


                                      -6-

<PAGE>

management's  opinion,  these  unaudited pro forma  amounts are not  necessarily
indicative of what actual combined  results of operations might have been if the
acquisition had been effective at the beginning of fiscal 2001.

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                                                                  2,313
Deposit premium                                                             782
Other assets                                                             12,783
Deposits                                                               (156,241)
Borrowings                                                              (16,414)
Other liabilities                                                        (3,342)
                                                                      ---------
    Investment in subsidiary, net of dividends to shareholders
    and capitalized acquisition costs                                 $  18,455
                                                                      =========

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  month  periods  ended  March  31,  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
month periods ended March 31, 2002 and 2001.

                                      -7-


<PAGE>

<TABLE>
<CAPTION>
                                                                  2002              2001
                                                                  ----              ----
(In thousands except number of shares)                                 (Unaudited)
Three month periods ended March 31, 2002 and 2001:

<S>                                                            <C>               <C>
Income available to stockholders - basic and diluted           $      942        $      937
                                                               ==========        ==========
Shares used in the computation of earnings per share:
Weighted average number of shares outstanding - basic           5,201,581         3,732,840
Incremental shares from assumed exercise of stock
      options                                                     168,235            21,260
                                                               ----------        ----------
Weighted average number of shares outstanding - diluted         5,369,816         3,754,100
                                                               ==========        ==========
</TABLE>

Total options of 616,200 were used in the diluted  calculation.  An aggregate of
approximately  72,900  options  were not  included  in the  diluted  calculation
because the option  exercise price exceeded the average fair market value of the
associated shares.

5. Income Taxes

Prior to the three month period ended March 31, 2001, the  Corporation  recorded
minimal  income  tax  expense.  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 month periods ended March 31, 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

                                      -8-


<PAGE>

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  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  communities  in Alamance  County,  North
Carolina,  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

                                      -9-


<PAGE>

under the purchase  method
and is intended to qualify as a tax-free  reorganization under Section 368(a) of
the Internal Revenue Code.

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 March 31, 2002 were $641.5 million
compared to $406.7 million at December 31, 2001, an increase of $234.8  million,
or 58%. On March 31, 2002, loans, including loans held for sale of $2.4 million,
were $453.2 million,  up $146.4 million,  or 48%, compared to December 31, 2001.
Investment  securities  were $111.2  million  and federal  funds sold were $21.4
million at March 31,  2002.  During the three month period ended March 31, 2002,
cash and cash  equivalents,  including  federal  funds sold,  increased by $33.6
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.  Loans and  investments  acquired  aggregated  $173.1
million.  In addition,  the Company experienced  significant  internal growth in
loans over the quarter.

Earning assets  represented 93% of total assets on March 31, 2002. The allowance
for loan losses on March 31, 2002 was $6.8 million and represented approximately
1.49% of total loans.  Management  believes  that the amount of the allowance is
adequate at this time.

Deposits on March 31, 2002 were $482.1 million, an increase of $177.7 million or
58.0% from  December 31, 2001,  primarily  the result of deposits  acquired from
First Community of $156.2 million.  As a result of the acquired deposits,  there
was a shift in deposit mix toward higher rate  certificates of deposit  balances
from lower rate demand deposits and interest bearing demand deposits, offsetting
a trend  towards  lower rate funds that the Company had moved  towards  over the
previous year. Certificates of deposit made up 62% of total deposits as of March
31, 2002  compared to 57% at December  31,  2001.  During the three month period
ended March 31, 2002,  certificates of deposit  increased by $122.9 million,  or
70% from  $174.4  million  to $297.3  million.  At the same  time,  non-interest
bearing  demand  deposit  accounts  increased  $4.2 million,  or 15%, from $28.5
million to $32.7  million  and  savings  and  interest  bearing  demand  deposit
accounts increased $50.5 million, or 50%, from $101.6 million to $152.1 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 $81.4 million at
March 31, 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.

                                      -10-


<PAGE>

Total consolidated  shareholders' equity was $55.3 million at March 31, 2002, an
increase of $18.3 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 March 31, 2002, the Company reported net income
of  $942,000  or $.18 per share  compared  to $937,000 or $.25 per share 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.  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 netted a tax
benefit of $356,000  for the three  months  ended March 31, 2001, a $1.0 million
difference  from the  $677,000  expense  recorded  for the same  period in 2002.
Pretax income for the period ended March 31, 2002 was $1.6 million,  an increase
of $1.0  million or 179% over the  $581,000  recorded  during the same period in
2001. Net interest income was $4.8 million in the first quarter of 2002, up $1.9
million or 65% over the same period in 2001 due primarily to increased  balances
in loans and deposits.  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,  the rate paid on
deposits has adjusted  down while the assets have  remained  somewhat  static to
increase the overall net interest spread. The Company's net interest margin (net
interest  income as a percentage of average  earning assets) for the three month
period  ended March 31, 2002 was 3.46%  compared to 3.51% for the same period in
2001.

The provisions for loan losses were $525,000 and $300,000, respectively, for the
three month periods ended March 31, 2002 and 2001. These provisions were used to
maintain  the  allowance  for loan  losses at a prudent  level  considering  the
Company's  loan growth.  At March 31, 2002,  the  allowance  for loan losses was
1.49% of total  loans.  Loans 90 days or more past due or in  nonaccrual  status
totaled $5.9 million and represented 1.29% of total loans on March 31, 2002.

Non-interest  income for the three month period  ended March 31, 2002,  was $1.6
million  compared  to  $796,000  for the same  period 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 as the result of the
lower interest rate environment and increased refinance business.  Mortgage loan
origination  fees  increased  from $375,000 in the first three months of 2001 to
$655,000 for the same period in 2002. The Company also started a new 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
$163,000 in 2001 to $313,000 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.

                                      -11-

Non-interest  expense for the three month  period  ended March 31, 2002 was $4.2
million  compared  to $2.8  million for the same  period in 2001.  Salaries  and
employee benefits,  representing the largest expense category during the period,
increased  from $1.5  million for the three month period in 2001 to $2.2 million
for the same period 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 March 31, 2002,  the Company had
171 full-time  equivalent employees compared to 124 for the same period in 2001.
The increase in personnel costs also includes  increases in commissions  paid to
Mortgage  Origination's  personnel as the associated fee income has increased by
75%.  Occupancy  costs, the second highest  component of non-interest  expenses,
increased  from  $274,000 for the three month period in 2001 to $368,000 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  $677,000  during the three month  period ended March 31,
2002 compared to a benefit of $356,000  during the same period in 2001. At March
31, 2002, the Company had net deferred tax assets of $5.3 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 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.

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 the loan is booked,  the Bank holds an internal Loan Review
Committee  meeting each month.  The account officer  obtains  updated  financial
information on all large commercial loan  relationships and makes a presentation
to this  Committee on an annual basis.  In addition,  an outside firm performs a
review that covers the largest commercial relationships in the Bank and 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 risk grade is still  accurate
and that the methodology 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  $525,000  for the first  quarter  ended March 31, 2002 to provide for
probable losses related to uncollectible

                                      -12-


<PAGE>

loans. In addition,  loss provisions of $2,640,000 were  transferred to the Bank
from  Community  Savings  Bank during the  acquisition.  At the end of March 31,
2002,  the loan loss reserve was 1.49% of gross  loans,  compared to 1.43% as of
March 31,  2001.  The  following  table  presents  an analysis of changes in the
allowance  for loan losses for the three month  periods ended March 31, 2002 and
2001:

                                                              Three Months
                                                             Ended March 31,
                                                          2002           2001
                                                          ----           ----
(In thousands)
Allowance for loan losses, beginning of period           $4,287         $3,463
Net charge-offs:
      Loans charged off:
      Commercial                                            660              9
      Consumer                                               48              5
                                                         ------         ------
           Total charge-offs                                708             14
                                                         ------         ------
      Recoveries of loans previously charged off:
      Commercial                                              1             --
      Consumer                                                5              5
                                                         ------         ------
           Total recoveries                                   6              5
                                                         ------         ------
           Total net charge-offs                            702              9
                                                         ------         ------
      Loss provisions charged to operations                 525            300
Loss provisions transferred during acquisition            2,640             --
                                                         ------         ------
Allowance for loan losses, end of period                 $6,750         $3,754
                                                         ======         ======

Net chargeoffs to average loans during the period          0.17%          0.00%
Allowance as a percent of gross loans                      1.49%          1.43%

Due to a  weakened  economy,  the first  quarter  ended  March 31,  2002  showed
substantially  higher  charged-off  loans than the same period last year. In the
first quarter of 2002, the Bank  charged-off  $702,000,  an increase of $693,000
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 first  quarter of 2002,  non-performing  loans as a percentage of
total  assets  increased  to .92% from .09% in the first  quarter of 2001.  This
increase is primarily due to the current economic downturn.  The following table
presents an analysis of nonperforming assets as of March 31, 2002 and 2001:

                                      -13-


<PAGE>


                                                            Three Months
                                                           Ended March 31,
                                                        2002             2001
                                                        ----             ----
(In thousands)
Nonperforming assets:
      Nonaccrual loans:
      Commercial real estate                          $  1,214         $    233
      Commercial                                         2,395               38
      Consumer                                             593               14
      Equity lines                                          68               --
      Mortgage                                           1,573               43
                                                        ------          -------
           Total nonacrual loans                         5,843              328
      Loans past due 90 days or more and still
      accruing interest:
      Consumer                                              25                1
                                                        ------          -------
           Total nonperforming loans                     5,868              329
      Foreclosed property held                             756               --
                                                        ------          -------
           Total nonperforming assets                 $  6,624         $    329
                                                      ========         ========

Nonperforming loans to total loans                        1.29%            0.13%
Allowance coverage of nonperforming loans               115.03%         1141.03%
Nonperforming assets to total assets                      1.03%            0.09%


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
$49.7 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 72% of total assets at March 31,
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 $55.3  million or $10.32 per share at March 31,  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 March 31, 2002, Capital Bank Corporation had a
Tier 1 capital ratio of 10.0%, a total risk-based  capital ratio of 11.2%, and a
leverage  ratio of 8.2%.  These  ratios  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.

                                      -14-


<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 March 31, 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
------    -----------------------------------------

As a result of the acquisition of First Community Financial Corporation, Capital
Bank  Corporation  issued  1,904,442  shares  of  its  common  stock  which  was
subsequently  distributed to the  shareholder of First Community in exchange for
its stock.

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

None

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

On January 17, 2002, a special  meeting of  stockholders of the Company was held
to consider  and vote upon two issues;  to approve  the merger  agreement  dated
October 4, 2001 between Capital Bank  Corporation and First Community  Financial
Corporation  whereby Capital Bank Corporation  would acquire First Community and
to approve the  issuance of up to 2,600,000  shares of Capital Bank  Corporation
stock as a part of the merger  transaction.  Of the 3,622,235 shares eligible to
vote, 2,380,375 were voted as shown on the following tables:

                                      -15-

<PAGE>


<TABLE>
<CAPTION>
                                     For             Against           Abstain         Total
                                     ---             -------           -------         -----

<S>                               <C>                 <C>               <C>          <C>
Approval of merger                2,334,299           41,176            4,900        2,380,375

Approval of stock issuance        2,330,499           45,576            4,300        2,380,375

</TABLE>


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
         --------
         None

 (b)     Reports on Form 8-K
         -------------------
         None

                                   Signatures

                                      -16-


<PAGE>

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



                                        CAPITAL BANK CORPORATION


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


                                      -17-