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, 2000

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

                  For the Transition Period From _____ to ____

                         Commission File Number 0-30062


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

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


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

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


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

As of November 10, 2000,  there were issued and outstanding  3,658,689 shares of
the Registrant's common stock, no par value.



<PAGE>


                            Capital Bank Corporation

                                    CONTENTS



PART I - FINANCIAL INFORMATION                                          Page No.

        Item 1. Condensed Financial Statements

        Consolidated  statements  of  financial  condition at September 30,
               2000 (Unaudited) and December 31, 1999                          1

        Consolidated  statements of income (loss) for the three months
               ended September 30, 2000 and September 30, 1999 (Unaudited)     2

        Consolidated statements of income (loss) for the nine months ended     3
               September 30, 2000 and September 30, 1999 (Unaudited)

        Consolidated statements of comprehensive income (loss) for the three
            months ended September 30, 2000 and September 30, 1999 (Unaudited) 4

        Consolidated statements of comprehensive income (loss) for the nine
            months ended September 30, 2000 and September 30, 1999 (Unaudited) 4

        Consolidated statements of cash flows for the nine months ended      5-6
               September 30, 2000 and September 30, 1999 (Unaudited)


        Notes  to consolidated financial statements                          7-9

        Item 2. Management's Discussion and Analysis of Financial
                Condition and Results of Operations                         9-13


        Item 3. Quantitative and Qualitative Disclosures About Market Risk    13


PART II - OTHER INFORMATION

        Item 1. Legal Proceedings                                             13

        Item 2. Changes in Securities and Use of Proceeds                     13

        Item 3. Defaults Upon Senior Securities                               13

        Item 4. Submission of Matters to a Vote of Security Holders           14

        Item 5. Other Information                                             14

        Item 6. Exhibits and Reports on Form 8-K                              14


        Signatures                                                            15


<PAGE>
CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 2000 and December 31, 1999

<TABLE>
<CAPTION>
                                                                                  September 30,        December 31,
                                                                                      2000                1999
-------------------------------------------------------------------------------------------------------------------
                                                                           (In thousands)        (Unaudited)
<S>                                                                                <C>                  <C>
ASSETS
Cash and due from banks:
        Interest earning                                                            $ 11,451             $ 3,541
        Non-interest earning                                                           8,661               6,161
Federal funds sold                                                                     3,460               1,960
Investment securities - available for sale, at fair value                             54,687              46,581
Loans-net of unearned income and deferred fees                                       232,373             159,329
Allowance for loan losses                                                             (3,169)             (2,328)
                                                                                -------------       -------------
              Net loans                                                              229,204             157,001
                                                                                -------------       -------------
Premises and equipment, net                                                            5,154               3,501
Accrued interest receivable                                                            2,388               1,244
Deposit premium and goodwill, net                                                      4,756               1,617
Other assets                                                                           1,905                 731
                                                                                -------------       -------------
                    Total assets                                                   $ 321,666           $ 222,337
                                                                                =============       =============

LIABILITIES
Deposits:
        Demand, non-interest bearing                                                $ 20,506            $ 10,923
        Savings and interest bearing demand deposits                                  64,408              42,144
        Time deposits                                                                181,869             110,178
                                                                                -------------       -------------
              Total deposits                                                         266,783             163,245
                                                                                -------------       -------------
Accrued interest payable                                                                 881                 671
Repurchase agreements                                                                  7,475               4,818
Borrowings                                                                            10,000              20,000
Other liabilities                                                                      3,281               2,477
                                                                                -------------       -------------
                    Total liabilities                                                288,420             191,211

STOCKHOLDERS' EQUITY
Common stock, no par value; 20,000,000 shares
        authorized; 3,658,689 shares issued and outstanding                           34,806              34,806
Accumulated deficit                                                                     (740)             (2,287)
Accumulated other comprehensive income (loss)                                           (820)             (1,393)
                                                                                -------------       -------------
                    Total stockholders' equity                                        33,246              31,126
                                                                                -------------       -------------
                    Total liabilities and stockholders' equity                     $ 321,666           $ 222,337
                                                                                =============       =============
</TABLE>


See Notes to Condensed Consolidated Financial Statements


                                       1

<PAGE>

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, 2000 and 1999

<TABLE>
<CAPTION>

                                                                              2000                        1999
-----------------------------------------------------------------------------------------------------------------
                                  (In thousands except per share data)                      (Unaudited)
Interest income:
<S>                                                                            <C>                       <C>
        Loans and loan fees                                                    $ 5,179                   $ 2,847
        Investment securities                                                      898                       710
        Federal funds and other interest income                                    322                       205
                                                                      -----------------         -----------------
              Total interest income                                              6,399                     3,762
                                                                      -----------------         -----------------

Interest expense:
        Deposits                                                                 3,291                     1,700
        Borrowings and repurchase agreements                                       279                       294
                                                                      -----------------         -----------------
              Total interest expense                                             3,570                     1,994
                                                                      -----------------         -----------------
              Net interest income                                                2,829                     1,768
Provision for loan losses                                                          255                       225
                                                                      -----------------         -----------------
              Net interest income after provision for loan losses                2,574                     1,543

Noninterest income:
        Service charges and other fees                                             265                       114
        Other noninterest income                                                   374                       220
                                                                      -----------------         -----------------
              Total noninterest income                                             639                       334
                                                                      -----------------         -----------------

Noninterest expenses:
        Salaries and employee benefits                                           1,483                       999
        Occupancy                                                                  239                       133
        Data processing                                                            171                        92
        Directors fees                                                              58                        64
        Advertising                                                                117                        58
        Furniture and equipment                                                    143                        77
        Amortization of intangibles                                                141                        54
        Other expenses                                                             261                       215
                                                                      -----------------         -----------------
              Total noninterest expenses                                         2,613                     1,692
                                                                      -----------------         -----------------
                   Net income before income tax expense                            600                       185
Income tax expense                                                                   -                         -
                                                                      -----------------         -----------------
                   Net income                                                    $ 600                     $ 185
                                                                      =================         =================

Earnings per share - basic and diluted                                          $ 0.16                    $ 0.05
                                                                      =================         =================

Dividends per share                                                                $ -                       $ -
                                                                      =================         =================
</TABLE>


See Notes to Condensed Consolidated Financial Statements

                                       2

<PAGE>

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Nine Months Ended September 30, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                             2000                   1999
---------------------------------------------------------------------------------------------------------------------------
                                      (In thousands except per share data) (Unaudited)
<S>                                                                                           <C>                  <C>
Interest income:
        Loans and loan fees                                                                   $ 13,475             $ 7,760
        Investment securities                                                                    2,504               2,183
        Federal funds and other interest income                                                    953                 457
                                                                                           ------------        ------------
              Total interest income                                                             16,932              10,400
                                                                                           ------------        ------------
Interest expense:
        Deposits                                                                                 8,311               4,871
        Borrowings and repurchase agreements                                                       917                 644
                                                                                           ------------        ------------
              Total interest expense                                                             9,228               5,515
                                                                                           ------------        ------------
              Net interest income                                                                7,704               4,885
Provision for loan losses                                                                          765                 624
                                                                                           ------------        ------------
              Net interest income after provision for loan losses                                6,939               4,261

Noninterest income:
        Service charges and other fees                                                             646                 319
        Other noninterest income                                                                   899                 587
                                                                                           ------------        ------------
              Total noninterest income                                                           1,545                 906
                                                                                           ------------        ------------

Noninterest expenses:
        Salaries and employee benefits                                                           3,996               2,845
        Occupancy                                                                                  550                 371
        Data processing                                                                            387                 255
        Directors fees                                                                             177                 189
        Advertising                                                                                328                 188
        Furniture and equipment                                                                    354                 210
        Amortization of intangibles                                                                333                 162
        Merger/acquisition related expenses                                                         90               1,647
        Other expenses                                                                             722                 572
                                                                                           ------------        ------------
              Total noninterest expenses                                                         6,937               6,439
                                                                                           ------------        ------------
                   Net income (loss) before income tax expense                                   1,547              (1,272)
Income tax expense (benefit)                                                                         -                 (40)
                                                                                           ------------        ------------
                   Net income (loss)                                                           $ 1,547            $ (1,232)
                                                                                           ============        ============

Earnings per share - basic and diluted                                                          $ 0.42             $ (0.34)
                                                                                           ============        ============

Dividends per share                                                                                $ -              $ 0.05
                                                                                           ============        ============
</TABLE>


See Notes to Condensed Consolidated Financial Statements


                                       3

<PAGE>

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
       INCOME (LOSS)
Three and Nine Months Ended September 30, 2000 and 1999

<TABLE>
<CAPTION>
                                                                             2000                 1999
---------------------------------------------------------------------------------------------------------
                                                  (In thousands)                     (Unaudited)
<S>                                                                           <C>                  <C>

Three month period ended September 30, 2000 and 1999:
       Net income before comprehensive items                                    $ 600              $ 185
       Unrealized gains on securities available for sale                          649                183
                                                                         -------------       ------------
            Comprehensive income                                              $ 1,249              $ 368
                                                                         =============       ============

Nine month period ended September 30, 2000 and 1999:
       Net income (loss) before comprehensive items                           $ 1,547           $ (1,232)
       Unrealized gains (losses) on securities available for sale                 573             (1,076)
                                                                         -------------       ------------
            Comprehensive income (loss)                                       $ 2,120           $ (2,308)
                                                                         =============       ============
</TABLE>


See Notes to Condensed Consolidated Financial Statements


                                       4
<PAGE>

CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                    2000                   1999
------------------------------------------------------------------------------------------------------------------
                                                     (In thousands)                          (Unaudited)
<S>                                                                                <C>                  <C>
Cash Flows From Operating Activities
       Net income (loss)                                                           $ 1,547              $ (1,232)
       Adjustments to reconcile net income (loss) to net cash
            provided by (used in) operating activities:
            Amortization of deposit premium and goodwill                               323                   162
            Depreciation                                                               451                   288
            Amortization of premium on securities, net                                  10                    36
            MRP and ESOP compensation                                                    -                   279
            Provision for loan losses                                                  765                   624
            Changes in assets and liabilities:
                Accrued interest receivable                                         (1,144)                 (289)
                Other assets                                                        (1,127)                  167
                Accrued interest payable and other liabilities                       1,014                 1,364
                                                                              -------------       ---------------
                     Net cash provided by operating activities                       1,839                 1,399
                                                                              -------------       ---------------
Cash Flows From Investing Activities
       Loan originations, net of principal repayments                              (47,540)              (27,634)
       Additions to premises and equipment                                          (1,561)                 (853)
       Purchase of Federal Home Loan Bank stock                                          -                  (395)
       Purchase of securities available for sale                                   (11,398)              (18,244)
       Proceeds from maturities of securities available for sale                     3,855                 5,485
       Proceeds from maturities of securities held to maturity                           -                 3,560
       Net cash from purchase of branches from
            Centura Bank                                                            37,013                     -
                                                                              -------------       ---------------
                     Net cash used in investing activities                         (19,631)              (38,081)
                                                                              -------------       ---------------
Cash Flows From Financing Activities
       Net increase in deposits                                                     37,045                14,135
       Net increase in repurchase agreements                                         2,657                 3,107
       Net increase (decrease) in borrowings                                       (10,000)               14,934
       Cash dividends                                                                    -                  (183)
                                                                              -------------       ---------------
                     Net cash provided by financing activities                    $ 29,702              $ 31,993
                                                                              -------------       ---------------
</TABLE>


See Notes to Condensed Consolidated Financial Statements


                                       5
<PAGE>
CAPITAL BANK CORPORATION

CONDENSED  CONSOLIDATED  STATEMENTS OF CASH FLOWS  (Continued) Nine Months Ended
September 30, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                2000               1999
----------------------------------------------------------------------------------------------------------
                                       (In thousands)                                (Unaudited)

<S>                                                                           <C>               <C>
                     Net change in cash and cash equivalents                  $ 11,910          $ (4,689)
       Cash and cash equivalents:
            Beginning                                                           11,662            26,765
                                                                            -----------       -----------

            Ending                                                            $ 23,572          $ 22,076
                                                                            ===========       ===========

Supplemental Disclosure of Cash Flow Information
       Transfers from loans to real estate acquired
            through foreclosure                                                   $ 32               $ -
                                                                            ===========       ===========

       Purchase of branches from Centura Bank:
            Loans and other assets acquired                                   $ 26,018               $ -
            Goodwill                                                             3,462                 -
            Deposits and other liabilities assumed                              66,493                 -
                                                                            -----------       -----------
                Net cash and cash equivalents                                 $ 37,013               $ -
                                                                            ===========       ===========
</TABLE>



See Notes to Condensed Consolidated Financial Statements


                                        6

<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  and 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 three and nine month
periods ended September 30, 2000 are not  necessarily  indicative of the results
of operations that may be expected for the year ended December 31, 2000.

The  accounting  policies  followed  are as set  forth in Note 1 of the Notes to
Financial Statements in the 1999 Capital Bank Corporation annual report.

2.             Operating Structure

Capital Bank Corporation (the "Company") is a bank holding company  incorporated
under the laws of North  Carolina  on August 10,  1998.  The  Company's  primary
function is to serve as the holding  company  for its  wholly-owned  subsidiary,
Capital Bank. 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
not a member of the Federal Reserve System and has no subsidiaries.  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 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
the same facility on Glenwood Avenue in Raleigh, North Carolina.

As used in this report,  the term "Company"  refers to Capital Bank  Corporation
and its subsidiary, Capital Bank.

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, 2000 and 1999 are as shown in the Condensed
Consolidated Statements of Comprehensive Income (Loss).

                                       7
<PAGE>


4.             Earnings Per Share

The Bank 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.  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 312,298 stock options outstanding in the calculation of diluted EPS would
not be dilutive.  For periods where the Bank has positive earnings,  diluted EPS
are presented  due to the effect of those same options using the Treasury  Stock
method.  The following tables provide a computation and  reconciliation of basic
and diluted EPS for the three and nine month  periods  ended  September 30, 2000
and 1999.

<TABLE>
<CAPTION>
                                                                      2000                    1999
                                                                 --------------------------------------
(In  thousands  except  number of shares)                                      (Unaudited)
Three month period ended September 30, 2000 and 1999:

<S>                                                                    <C>                   <C>
Income available to stockholders - basic and diluted                       $ 600                 $ 185
                                                                 ================       ===============
Shares used in the computation of earnings per share:
Weighted average number of shares outstanding - basic                  3,709,005             3,675,036
Incremental shares from assumed exercise of stock
       options                                                             8,444                 7,147
                                                                 ----------------       ---------------
Weighted average number of shares outstanding - diluted                3,717,449             3,682,183
                                                                 ================       ===============

Nine month period ended September 30, 2000 and 1999:

Income (loss) available to stockholders - basic and diluted              $ 1,547              $ (1,232)
                                                                 ================       ===============
Shares used in the computation of earnings per share:
Weighted average number of shares outstanding - basic                  3,709,005             3,674,605
Incremental shares from assumed exercise of stock
       options - antidilutive during loss periods                          5,666                   n/a
                                                                 ----------------       ---------------
Weighted average number of shares outstanding - diluted                3,714,671             3,674,605
                                                                 ================       ===============
</TABLE>




An aggregate of  approximately  215,000 options were not included in the diluted
calculation  because the option  exercise price exceeded the average fair market
value of the associated shares.

5.             New Accounting Pronouncements

In June 1998, the FASB issued SFAS 133,  Accounting  for Derivative  Instruments
and  Hedging  Activities  and in July 1999 issued  SFAS 137 which  deferred  the
effective  date of SFAS 133,  as it  pertains to the  Company,  to fiscal  years
beginning  after  December  31, 2000.  This  statement is not expected to have a
material impact on the Company.

In December 1999, the  Securities and Exchange  Commission  ("SEC") issued Staff
Accounting  Bulletin No. 101,  ("SAB  101"),  Revenue  Recognition  in financial
statements,  which  provides  guidance  on  the  recognition,  presentation  and
disclosure  of  revenue in  financial  statements  filed  with the SEC.  SAB 101
outlines the basic  criteria that must be met to recognize  revenue and provides

                                       8
<PAGE>

guidance  for  disclosures  related  to  revenue  recognition  policies.  It  is
effective  no later than the fourth  fiscal  quarter of fiscal  years  beginning
after  December 15, 1999.  The Company will evaluate the impact of SAB 101 as it
enters into future collaboration agreements.

In  April  2000,   the  Financial   Accounting   Standards   Board  issued  FASB
Interpretation  No. 44 ("FIN 44") which  clarifies the application of Accounting
Principles  Board  Opinion  25  for  certain  transactions.  The  interpretation
addresses many issues related to granting or modifying  stock options  including
changes in accounting for modifications of awards (increased life,  reduction of
exercise  price,  etc.).  It was effective July 1, 2000 but certain  conclusions
cover specific  events that occurred  after either  December 15, 1998 or January
12, 2000. The effects of applying the  interpretation  are to be recognized on a
prospective  basis from July 1, 2000.  FIN 44 is not expected to have a material
impact on the Company.

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, 2000 and
1999 for Capital Bank Corporation and its wholly owned subsidiary, Capital Bank.
This  discussion  and  analysis  is intended  to provide  pertinent  information
concerning  financial position,  results of operations,  liquidity,  and capital
resources.  It  should  be read in  conjunction  with  the  unaudited  financial
statements and related footnotes contained in Part I, Item 1 of this report.

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

Overview

Capital Bank Corporation (the "Company") is a bank holding company  incorporated
under the laws of North  Carolina  on August 10,  1998.  The  Company's  primary
function is to serve as the holding  company  for its  wholly-owned  subsidiary,
Capital Bank.  Capital Bank (the "Bank") was incorporated  under the laws of the
State  of  North  Carolina  on May  30,  1997,  and  commenced  operations  as a
state-chartered  banking  corporation on June 20, 1997. The Bank is not a member
of the Federal Reserve System and has no  subsidiaries.  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

                                       9
<PAGE>

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. ("Home Savings Bank") 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.  Prior to the merger  date,  Home Savings Bank
capitalized  the holding  company  with an upstream  dividend  of  $100,000.  In
conjunction with the merger, the common stock of Home Savings Bank was retired.

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.

As used in this report,  the term "Company"  refers to Capital Bank  Corporation
and its subsidiary, Capital Bank, after the holding company reorganization.

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,
2000 were $322  million  compared  to $222  million at  December  31,  1999,  an
increase of $99 million, or 45%. On September 30, 2000, loans were $232 million,
up $73 million,  or 46%,  compared to December 31, 1999.  Investment  securities
were $55 million and federal funds sold were $3.5 million at September 30, 2000.
During  the  nine  month  period  ended   September  30,  2000,  cash  and  cash
equivalents, including federal funds sold increased by $12 million due primarily
to  monies  received  from the  acquisition  of 5  branches  from  another  area
financial  institution  where the deposits and liabilities  assumed exceeded the
loans and other assets received by about $37 million. Earning assets represented
94% of total assets on  September  30, 2000.  The  allowance  for loan losses on
September 30, 2000 was $3.2 million and represented approximately 1.36% of total
loans.  Management believes that the amount of the allowance is adequate at this
time.

Deposits on September 30, 2000 were $267 million, an increase of $104 million or
63% from December 31, 1999.  This increase was primarily due to the  acquisition
of about $66 million in deposits from another area financial  institution  and a
large  advertising  campaign run by the Company with special  rates and terms on
certain Certificates of Deposit,  whose growth of $72 million represented 69% of
the total deposit growth.  Borrowings decreased from $20 million at December 31,
1999 to $10 million at September  30, 2000,  as the Company used funds  received
from the  increase in deposits  to pay down higher rate  Federal  Home Loan Bank
advances.  Total consolidated  stockholders' equity was $33 million at September
30, 2000, an increase of $2.1 million from December 31, 1999,  due to net income
and increases in the market value of available for sale securities.

                                       10

<PAGE>


Results of Operations

For the three month period ended  September 30, 2000,  the Company  reported net
income of $600,000 or $.16 per share  compared to $185,000 or $.05 per share for
the same period in 1999. For the nine month period ended September 30, 2000, the
Company reported net income of $1.5 million or $.42 per share compared to a loss
of $1.2  million or $.34 per share for the same period of 1999.  Included in the
income  for the nine month  period  ended  September  30,  2000 were  $90,000 of
certain  nonrecurring  costs  related to the  acquisition  of five branches from
another  area  financial  institution.  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  $415,000 or $0.11 per share for the nine month
period ended September 30, 1999.

Net  interest  income  in the third  quarter  of 2000 was $2.8  million,  up 60%
compared to $1.8 million in the third quarter of 1999.  Net interest  income for
the nine month period ended September 30, 2000 was $7.7 million, up 58% compared
to $4.9  million for the same period in 1999.  Increases  are  primarily  due to
increased  loan and deposit  balances  as  compared to previous  periods and the
resulting  net interest  spread on those  balances.  The  Company's net interest
margin (net interest income as a percentage of average earning assets) was 3.82%
and 3.81% for the  three  and nine  month  periods  ended  September  30,  2000,
respectively.

The  provision  for loan losses was $255,000 and $765,000 for the three and nine
month periods ended September 30, 2000, respectively. This provision was used to
build the  allowance for loan losses to a prudent level to support the Company's
loan growth.  At September 30, 2000,  the allowance for loan losses was 1.36% of
total loans.  Loans 90 days or more past due totaled  $365,000  and  represented
 .16% of total loans on September 30, 2000.

Non-interest  income for the three and nine months  period ended  September  30,
2000,  was $639,000  and $1.5  million,  respectively,  compared to $334,000 and
$906,000 for the same periods in 1999. The increases in non-interest  income are
primarily  attributable to increases in fees  associated  with deposit  accounts
relative to the overall increase in deposits.

Non-interest  expense for the three and nine month periods  ended  September 30,
2000, was $2.6 million and $6.9 million, respectively,  compared to $1.7 million
and $6.4 million for the same periods in 1999.  Salaries and employee  benefits,
representing  the largest  expense  category  during the period,  increased from
$999,000 and $2.8  million for the three and nine month  periods in 1999 to $1.5
million and $4.0 million for the same periods in 2000.  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, 2000 the Company had 106
full-time equivalent employees.  Mergers and acquisitions related expenses,  the
second largest expense category during the nine month period ended September 30,
1999,  decreased  from $1.6 million in 1999 relating to the  establishment  of a
holding company and the merger of Home Savings Bank, to $90,000 in 2000 relating
to the  acquisition  of five branches from another area  financial  institution.
There were no mergers and  acquisitions  related expenses during the three month
period ended September 30, 1999. Occupancy costs, the third highest component of
non-interest  expenses,  increased  from $133,000 and $371,000 for the three and
nine month periods in 1999,  respectively  to $239,000 and $550,000 for the same

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<PAGE>

respective  periods in 2000.  This  increase is  primarily  associated  with the
addition of 5 branches as a result of the acquisition  previously  mentioned and
the opening of new branches in Lee County and Wake County.  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 and operating
revenue are anticipated to decrease over time.

At December  31,  1999,  the Company had net deferred tax assets of $1.6 million
resulting from timing  differences  associated with the deductibility of certain
expenses  reflected  on the  financial  statements.  Due to prior net  operating
losses, a valuation allowance was established for the net deferred tax assets in
the amount of $1.3  million.  During  2000,  the Company has  generated  taxable
income and the  valuation  allowance  has been  reversed  to offset  current tax
expense  of  $786,000.   Management  will  continue  to  monitor  its  financial
performance to determine when the remaining allowance should be reversed.

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
$24 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 81% of total assets at September
30, 2000. In addition,  the Company has the ability to take advantage of various
other funding programs available from the Federal Home Loan Bank of Atlanta.

Stockholders'  equity was $33 million or $9.09 per share at September  30, 2000.
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, 2000, Capital Bank had a Tier 1
capital  ratio of  12.0%,  a total  risk-based  capital  ratio of  13.2%,  and a
leverage ratio of 9.4%. These ratios substantially 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

                                       12

<PAGE>

and  liabilities,  but the Company  attempts to limit its  long-term  assets and
liabilities.

Recent Accounting Developments

In June 1998, the FASB issued SFAS 133,  Accounting  for Derivative  Instruments
and  Hedging  Activities  and in July 1999 issued  SFAS 137 which  deferred  the
effective  date of SFAS 133,  as it  pertains to the  Company,  to fiscal  years
beginning  after  December  31, 2000.  This  statement is not expected to have a
material impact on the Company.

In December 1999, the  Securities and Exchange  Commission  ("SEC") issued Staff
Accounting  Bulletin No. 101,  ("SAB  101"),  Revenue  Recognition  in financial
statements,  which  provides  guidance  on  the  recognition,  presentation  and
disclosure  of  revenue in  financial  statements  filed  with the SEC.  SAB 101
outlines the basic  criteria that must be met to recognize  revenue and provides
guidance  for  disclosures  related  to  revenue  recognition  policies.  It  is
effective  no later than the fourth  fiscal  quarter of fiscal  years  beginning
after  December 15, 1999.  The Company will evaluate the impact of SAB 101 as it
enters into future collaboration agreements.

In  April  2000,   the  Financial   Accounting   Standards   Board  issued  FASB
Interpretation  No. 44 ("FIN 44") which  clarifies the application of Accounting
Principles  Board  Opinion  25  for  certain  transactions.  The  interpretation
addresses many issues related to granting or modifying  stock options  including
changes in accounting for modifications of awards (increased life,  reduction of
exercise  price,  etc.).  It was effective July 1, 2000 but certain  conclusions
cover specific  events that occurred  after either  December 15, 1998 or January
12, 2000. The effects of applying the  interpretation  are to be recognized on a
prospective  basis from July 1, 2000.  FIN 44 is not expected to have a material
impact on the Company.

Item 3    Quantitative and Qualitative Disclosures About Market Risk

The Company has not  experienced  any material change in its portfolio risk from
December 31, 1999 to September 30, 2000.

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

                                       13
<PAGE>


Item 4    Submission of Matters to a Vote of Security Holders

None

Item 5                       Other Information

None

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.


                                       14

<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 10, 2000               By: /s/ Allen T. Nelson, Jr.,
                                           ---------------------------
                                           Allen T. Nelson, Jr.,
                                           Senior Vice President and CFO