Exhibit 10.1

                              EMPLOYMENT AGREEMENT

      This Employment Agreement ("Agreement"), dated as of April 21, 2004, is
made and entered into by Capital Bank (hereinafter the "Bank"), and B. Grant
Yarber (hereinafter the "Employee").

      The Bank desires to employ Employee and Employee desires to accept such
employment on the terms set forth below.

      In consideration of the mutual promises set forth below and other good and
valuable consideration, the receipt and sufficiency of which the parties
acknowledge, the Bank and Employee agree as follows:

      1. Employment. The Bank employs Employee and Employee accepts employment
on the terms and conditions set forth in this Agreement.

      2. Nature of Employment. Effective May 1, 2004, Employee shall serve as
President and Chief Executive Officer of Capital Bank Corporation ("CBC") and
Capital Bank and shall have such responsibilities and authority consistent with
each such position as may be reasonably assigned to him by the Bank and CBC.
Employee shall devote his full time and attention and best efforts to perform
successfully his duties and advance the Bank's interests. Employee shall abide
by the Bank's policies, procedures, and practices as they may exist from time to
time.

      During this employment, Employee shall have no other employment of any
nature whatsoever without the prior consent of the Bank; provided, however, this
Agreement shall not prohibit Employee from personally owning and dealing in
stocks, bonds, securities, real estate, commodities or other investment
properties for his own benefit or those of his immediate family.

      3. Compensation and Benefits.

            (a) Base Salary. Effective May 1, 2004, Employee's annual base
salary for all services rendered shall be Two Hundred Forty Thousand Dollars
($240,000) (less applicable withholdings), payable in accordance with the Bank's
policies, procedures, and practices as they may exist from time to time.
Employee's salary periodically may be reviewed and adjusted at the Bank's
discretion in accordance with the Bank's policies, procedures and practices as
they may exist from time to time.

            (b) Incentive Plan. Employee shall be eligible to participate in the
Bank's Management Incentive Plan in accordance with the applicable terms,
conditions, and eligibility requirements of that Plan, some of which are in the
plan administrator's discretion, as they may exist from time to time.

            (c) Benefits. Employee may participate in any medical insurance or
other employee benefit plans and programs which may be made available from time
to time to other Bank employees at Employee's level; provided, however, that
Employee's participation in such benefit plans and programs is subject to the
applicable terms, conditions, and eligibility requirements of those plans and
programs, some of which are within the plan administrator's discretion, as they
may exist from time to time.


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                                                                    Exhibit 10.1

            (d) Automobile. Employee shall be entitled to use an automobile
provided by the Bank in accordance with the Bank's policies and practices as
they may exist from time to time.

            (e) Expenses. Employee shall be reimbursed by the Bank for any
reasonable and necessary business expenses incurred by Employee on behalf of the
Bank or in connection with Employee's performance of his duties hereunder. Such
reimbursement shall be in accordance with the Bank's practices or policies as
they may exist from time to time.

            (f) Vacation. Employee shall be entitled to four (4) weeks of
vacation during calendar year 2004 and thereafter vacation entitlement shall be
in accordance with the Bank's policies. Such vacation shall be taken in
accordance with the Bank's policies and practices as they may exist from time to
time.

      4. Termination of Employment and Post-Termination Compensation.

            (a) With Notice. Either the Bank or Employee may terminate the
employment relationship at any time for any reason or no reason by giving thirty
(30) days' written notice to the other party.

            (b) Cause, Disability, or Death. The Bank may terminate Employee's
employment immediately for "Disability," "Cause," or in the event of Employee's
death. For purposes of this Agreement, Disability shall mean Employee's mental
or physical inability to perform the essential functions of his duties
satisfactorily for a period of one hundred eighty (180) consecutive days or one
hundred eighty (180) days within a 365-day period as determined by the Bank in
its reasonable discretion and in accordance with applicable law. For purposes of
this Agreement, "Cause" shall mean: (i) any act of Employee involving
dishonesty; (ii) any material violation by Employee of any Bank rule,
regulation, or policy; (iii) gross negligence committed by Employee; (iv)
material failure of Employee to perform his duties hereunder; or (v) Employee's
breach of any of the express obligations of this Agreement.

            (c) Post-Termination Compensation.

                  (i) In the event of termination for Cause, the Bank's
      obligation to compensate Employee ceases on the date of termination except
      as to the amounts of salary due at that time.

                  (ii) In the event of a termination for death or Disability,
      the Bank shall arrange through insurance or otherwise for payment to
      Employee or Employee's estate an amount equal to his then current annual
      base salary plus the amount of bonus paid to Employee, if any, in the
      prior bonus year prorated by the number of full months in the current
      bonus year through date of death or Disability, such payment to be less
      applicable withholdings.

                  (iii) If there has been no Change in Control and the Bank
      terminates Employee's employment without Cause or Employee terminates his
      employment for Good Reason (as defined below), then Employee upon his
      execution of an enforceable general release in a form prepared by the Bank
      shall be entitled to (A) receive a gross amount equal to his then current
      annual base salary plus the amount of bonus paid to Employee, if any, in


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                                                                    Exhibit 10.1

      the prior bonus year payable in substantially equal amounts over the
      twelve (12) month period following such termination, provided however that
      in the event that Employee has not accepted subsequent employment at any
      time during the 12-month period following his termination with a total
      annual compensation package that, in the aggregate is substantially equal
      to or greater than his annual salary plus bonus at the time of his
      termination with the Bank, Employee shall continue to receive the
      installment payments in the same amount until the earlier of the period
      ending twenty-four (24) months following his termination (i.e., up to an
      additional 12 months of payments) or the date he accepts such subsequent
      employment; and (B) for the period of time Employee receives payments
      pursuant to Section 4(c)(iii)(A), receive reimbursement for COBRA premiums
      (less the amount Employee would have paid in premiums had he remained an
      active employee) that he actually pays to continue his coverage under the
      Bank's group health plan. Employee must immediately notify the Bank upon
      acceptance of any subsequent employment and, in any month for which he
      seeks installment payments beyond the twelve (12) month period following
      his termination, provide the Bank with verification satisfactory to the
      Bank of his employment status and total compensation package. If Employee
      fails to do so, then the Bank will be relieved of its obligations to
      continue payments under this paragraph.

      For purposes of this Section 4(c), Good Reason shall mean the occurrence
      of any of the following events or conditions without Employee's prior
      written consent and prior to a Change in Control:

                  (A) a change in Employee's status, title, position, or
      responsibilities (including reporting responsibilities) which represents a
      material adverse change from his status, title, position, or
      responsibilities in effect immediately prior thereto; the assignment to
      Employee of any duties or responsibilities which are materially
      inconsistent with his status, title, position or responsibilities; or any
      removal of Employee from or failure to reappoint or re-elect him to any of
      such positions, status, or title (including positions, titles, and
      responsibilities with any affiliate), except in connection with the
      termination of his employment for Disability, Cause, or death, or by
      Employee other than for Good Reason;

                  (B) the Bank's requiring Employee to be based at any place
      outside a thirty (30) mile radius from its headquarters at 4901 Glenwood
      Avenue, Raleigh, North Carolina, except for reasonably required travel on
      the Bank's business;

                  (C) any material breach by the Bank of any express provision
      of this Agreement.

      5. Change in Control.

            (a) Definition. For purposes of this Agreement, "Change in Control"
shall mean any of the following:

                  (i) Any "person" (as such term is used in Section 13(d)(3) or
      14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act"))
      acquiring "beneficial ownership") (as such term is used in Rule 13d-3
      under the Act), directly or indirectly, of securities of Capital Bank
      Corporation, the parent holding company of the Bank ("CBC") representing
      fifty percent (50%) or more of the combined voting power of CBC's then
      outstanding voting securities (the "Voting Power"), but excluding for this
      purpose an


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                                                                    Exhibit 10.1

      acquisition by CBC or an "affiliate" (as defined in Rule 12b-2 under the
      Act) or by an employee benefit plan of CBC or of an affiliate.

                  (ii) The individuals who constitute the Board of Directors of
      CBC ("Board") on the effective date hereof or their successors duly
      appointed in the ordinary course (collectively, the "Incumbent Directors")
      cease to constitute at least a majority of the Board. Any director whose
      nomination is approved by a majority of the Incumbent Directors shall be
      considered an Incumbent Director; provided, however, that no Director
      whose initial assumption of office is in connection with an actual or
      threatened election contest relating to the election of the directors of
      CBC shall be considered an Incumbent Director.

                  (iii) The shareholders of CBC approve a reorganization, share
      exchange, merger or consolidation related to CBC or the Bank following
      which the owners of the Voting Power of CBC immediately prior to the
      closing of such transaction do not beneficially own, directly or
      indirectly, more than fifty percent (50%) of the Voting Power of the Bank.

                  (iv) The shareholders of the Bank approve a complete
      liquidation or dissolution of the Bank, or a sale or other disposition of
      all or substantially all of the capital stock or assets of the Bank, but
      excluding for this purpose any sale or disposition of all or substantially
      all of the capital stock or assets of the Bank to an "affiliate" (as
      defined in Rule 12b-2 under the Act) of CBC.

Change in Control shall not include a transaction, or series of transactions,
whereby CBC or the Bank becomes a subsidiary of a holding company if the
shareholders of the holding company are substantially the same as the
shareholders of CBC prior to such transaction or series of series of
transactions.

            (b) Change in Control Termination. After the occurrence of a Change
in Control, Employee shall be entitled to receive payments and benefits pursuant
to this Agreement in the following circumstances:

                  (i) if within the period beginning ninety (90) days prior to
      and ending three (3) years after the occurrence of a Change in Control,
      the Bank terminates Employee's employment for any reason other than Cause,
      Disability, or death; or

                  (ii) if within three (3) years after the occurrence of a
      Change in Control, Employee terminates his employment with the Bank for
      "Good Reason." For purposes of this Section 5(b), "Good Reason" shall mean
      the occurrence after a Change in Control of any of the following events or
      conditions:

                        (A) a change in Employee's status, title, position, or
            responsibilities (including reporting responsibilities) which
            represents a material adverse change from his status, title,
            position, or responsibilities in effect immediately prior thereto;
            the assignment to Employee of any duties or responsibilities which
            are materially inconsistent with his status, title, position or
            responsibilities; or any removal of Employee from or failure to
            reappoint or re-elect him to any of such positions, status, or
            title, except in connection with the


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                                                                    Exhibit 10.1

            termination of his employment for Disability, Cause, or death, or by
            Employee other than for Good Reason. For purposes of this section, a
            change in Employee's status, title, position, etc., shall also
            include his position and responsibilities with respect to CBC;

                        (B) a reduction in Employee's base salary;

                        (C) the Bank's requiring Employee to be based at any
            place outside a thirty (30) mile radius from 4901 Glenwood Avenue,
            Raleigh, North Carolina, except for reasonably required travel on
            the Bank's business which is not substantially greater than such
            travel requirements prior to the Change in Control;

                        (D) the failure by the Bank to continue in effect any
            compensation, welfare, or benefit plan or other perquisite in which
            Employee is participating at the time of a Change in Control without
            substituting plans providing Employee with substantially similar or
            greater benefits taken in the aggregate, or the taking of any action
            by the Bank which would adversely affect Employee's participation in
            or materially reduce Employee's benefits under, any of such plans or
            deprive Employee of any material fringe benefit enjoyed by Employee
            at the time of the Change in Control;

                        (E) any material breach by the Bank of any express
            provision of this Agreement; or

                        (F) the failure of CBC to obtain an agreement,
            satisfactory to Employee, from any successor or assign of CBC to
            assume and agree to perform this Agreement.

            (c) Change in Control Benefits. In the event that Employee's
employment with the Bank terminates under any of the circumstances described
above in this Section 5 at any time, Employee shall be entitled to receive all
accrued compensation and any pro rata bonuses to which he may be entitled and
which Employee may have earned up to the date of termination and, upon
Employee's execution of an enforceable general release in a form prepared by the
Bank, severance payments and benefits according to the following schedule and
terms:

                  (i) a severance payment equal to: 2.99 times the amount of
      Employee's then current annual base salary plus the amount of bonus paid
      to Employee, if any, in the prior bonus year, in the event the termination
      occurs no later than twelve (12) months after the occurrence of a Change
      in Control; 2.0 times the amount of Employee's then current annual base
      salary plus the amount of bonus paid to Employee, if any, in the prior
      bonus year, in the event the termination occurs more than twelve (12)
      months but within (up to and including) twenty-four (24) months after the
      occurrence of a Change in Control; or 1.0 times the amount of Employee's
      then current annual base salary plus the amount of bonus paid to Employee,
      if any, in the prior bonus year, in the event the termination occurs more
      than twenty-four (24) months but within (up to and including) thirty-six
      (36) months after the occurrence of a Change in Control. The severance
      payment shall be paid in substantially equal monthly installments without
      interest, commencing one month after the date of termination.


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                                                                    Exhibit 10.1

                  (ii) a continuation of benefits for the period of time
      Employee receives the severance benefits described in Section 5(c)(i)
      above as follows: During such time, the Bank shall maintain and Employee
      shall be entitled to participate in all life insurance, retirement,
      health, accidental death and dismemberment, and disability plans and other
      benefit programs and other services paid by the Bank for Employee in which
      Employee participated immediately prior to the termination, provided that
      Employee's continued participation is possible under the applicable terms,
      conditions and eligibility requirements of such plans and programs.
      Employee's continued participation in such plans and programs shall be at
      no greater cost to Employee than the cost he bore for such participation
      immediately prior to termination. If Employee's participation in any such
      plan or program is barred, the Bank shall arrange upon comparable terms,
      and at no greater cost to Employee than the cost he bore for such plans
      and programs prior to termination, to provide Employee with benefits
      substantially similar to, or greater than, those which he is entitled to
      receive under any such plan or program; and

                  (iii) a lump sum payment (or otherwise as specified by
      Employee to the extent permitted by the applicable plan) of any and all
      amounts contributed to a Bank pension or retirement plan which Employee is
      entitled to under the terms of any such plan. In the event Employee fails
      to execute the general release described above, he shall receive any such
      payments in accordance with the payment provisions of the applicable
      plan(s).

            (d) Limitation on Payments. To the extent that any of the payments
      and benefits provided for under this Agreement or otherwise payable to
      Employee constitute "parachute payments" within the meaning of Section
      280G of the Internal Revenue Code of 1986, as amended (the "Code"), and
      but for this Section 5 would be subject to the excise tax imposed by
      Section 4999 of the Code, the Bank shall reduce the aggregate amount of
      such payments and benefits such that the present value thereof (as
      determined under the Code and the applicable regulations) is equal to 2.99
      times Employee's "base amount" as defined in Section 280G(b)(3) of the
      Code.

      6. Proprietary Information And Property. Employee shall not, at any time
during or following employment with the Bank, disclose or use, except in the
course of his employment with the Bank or as may be required by law, any
confidential or proprietary information of the Bank received by Employee while
employed hereunder, whether such information is in Employee's memory or embodied
in writing or other physical form.

      Confidential or proprietary information is information which is not
generally available to the general public, or Bank's competitors, or
ascertainable through common sense or general business knowledge; including, but
not limited to data, compilations, methods, financial data, financial plans,
business plans, product plans, lists of actual or potential customers, and
marketing information regarding executives and employees.

      All records, files or other objects maintained by or under the control,
custody or possession of the Bank or its agents in their capacity as agents
shall be and remain the Bank's property. Upon termination of his employment,
Employee shall return to the Bank all property (including, but not limited to,
credit cards, keys, company car, cell phones, computer hardware and software,
records, files, manuals and other documents in whatever form they exist, whether
electronic, hard copy or otherwise and all copies, notes or summaries thereof)
which he received in connection with his employment. At the Bank's request,
Employee shall bring current all such records, files or documents before
returning them.


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                                                                    Exhibit 10.1

      Upon notice of cessation of his employment with the Bank, Employee shall
fully cooperate with the Bank in winding up his pending work and transferring
his work to those individuals designated by the Bank.

      7. Survival. The terms and conditions of Section 6 shall survive
termination of this Agreement and/or Employee's employment and shall not be
affected by any change or modification of this Agreement unless specific
reference is made to such sections.

      8. Remedies. Employee agrees that his breach or threatened violation of
Section 6, will result in immediate and irreparable harm to the Bank for which
legal remedies would be inadequate. Therefore, in addition to any legal or other
relief to which the Bank may be entitled, (a) the Bank may seek legal and
equitable relief, including but not limited to, preliminary and permanent
injunctive relief, (b) the Bank will be released of its obligations under this
Agreement to make any payments to Employee, including but not limited to, those
payable pursuant to Sections 4 and/or 5, and (c) Employee will indemnify the
Bank for all expenses, including attorneys' fees, in seeking to enforce these
paragraphs.

      9. Waiver Of Breach. The Bank's or Employee's waiver of any breach of a
provision of this Agreement shall not waive any subsequent breach by the other
party.

      10. Entire Agreement. Except as provided in this Agreement, this
Agreement: (i) supersedes all other understandings and agreements, oral or
written, between the parties with respect to the subject matter of this
Agreement; and (ii) constitutes the sole agreement between the parties with
respect to this subject matter. Each party acknowledges that: (i) no
representations, inducements, promises or agreements, oral or written, have been
made by any party or by anyone acting on behalf of any party, which are not
embodied in this Agreement; and (ii) no agreement, statement or promise not
contained in this Agreement shall be valid. No change or modification of this
Agreement shall be valid or binding upon the parties unless such change or
modification is in writing and is signed by the parties.

      11. Severability. If a court of competent jurisdiction holds that any
provision or sub-part thereof contained in this Agreement is invalid, illegal or
unenforceable, that invalidity, illegality or unenforceability shall not affect
any other provision in this Agreement. Additionally, if any of the provisions,
clauses or phrases set forth in Section 6 of this Agreement are held
unenforceable by a court of competent jurisdiction, then the parties desire that
such provision, clause or phrase be "blue-penciled" or rewritten by the court to
the extent necessary to render it enforceable.

      12. Parties Bound. The terms, provisions, covenants and agreements
contained in this Agreement shall apply to, be binding upon and inure to the
benefit of the Bank's successors and assigns. Employee may not assign this
Agreement without the Bank's prior written consent.

      13. Governing Law. This Agreement and the employment relationship created
by it shall be governed by North Carolina law. The parties hereby consent to
exclusive jurisdiction in North Carolina for the purpose of any litigation
relating to this Agreement and agree that any litigation by or involving them
relating to this Agreement shall be conducted in the court of Wake County or the
federal court of the United States for the Eastern District of North Carolina.


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                                                                    Exhibit 10.1

IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and
year written below.

                          EMPLOYEE

                          /s/ B. Grant Yarber                    April 29, 2004
                          ----------------------------------     --------------
                          B. Grant Yarber                        Date


                          CAPITAL BANK

                          By: /s/ O.A. Keller, III, Chairman     April 28, 2004
                             -------------------------------     --------------
                                                                 Date


                          CAPITAL BANK CORPORATION

                          By: /s/ O.A. Keller, III, Chairman     April 28, 2004
                             -------------------------------     --------------
                                                                 Date


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