UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

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

For Quarterly Period ended September 30, 1996

                                       OR

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

         For the transition period from _____________ to _____________

                          Commission file no. 0-20863

                         CAPITAL FACTORS HOLDING , INC.
              -----------------------------------------------------
             (Exact name of Registrant as Specified in its Charter)


             FLORIDA                                       65-0500757
---------------------------------                     -------------------------
  (State or other Jurisdiction of                        (IRS Employer
   Incorporation or Organization)                     Identification Number)


1799 West Oakland Park Boulevard,
-------------------------------------------------------------------------------
Fort Lauderdale, Florida                                         33311
(Address of Principal Executive Offices)                      (Zip Code)

                                 (954) 730-2900
               --------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)


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 November 13, 1996 there were 12,300,000 shares of the registrant's Common
Stock outstanding.

                               Page 1 of 19 Pages

<PAGE>

ITEM 1.
                          PART I. FINANCIAL INFORMATION
                 CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

                                               SEPTEMBER 30,       DECEMBER 31,
                                                   1996               1995
                                              -------------     -------------
                                               (Unaudited)         (Audited)
ASSETS
  Cash                                        $  28,397,677     $  20,326,814
  Restricted Cash                                 6,562,500        16,187,500
  Receivables                                   502,182,662       361,205,965
    Unearned discounts                           (3,079,841)       (3,404,016)
    Allowance for credit losses                  (2,976,841)       (2,980,778)
                                              -------------     -------------
  Receivables, net                              496,125,980       354,821,171
  Property and equipment, net                     3,139,772         3,285,049
  Other Assets                                    7,691,846         4,850,831
                                              -------------     -------------
TOTAL                                         $ 541,917,775     $ 399,471,365
                                              =============     =============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
  Due to affiliates                           $   5,377,526     $   6,452,964
  Capital Factors variable rate asset backed
   certificates                                 175,000,000       175,000,000
  Notes payable to affiliates                    76,816,000        52,260,000
  Other borrowings                               39,000,000                 0
  Due to factoring clients                      181,945,943       128,577,577
  Other liabilities                               5,059,142         3,840,425
                                              -------------     -------------
    Total liabilities                           483,198,611       366,130,966
                                              -------------     -------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Common stock, $0.01 par value, 12,300,000
   shares at 9/30/96 and 10,000,000 shares at
   12/31/95, authorized, issued and outstanding     123,000           100,000
  Additional paid-in capital                     27,165,299         9,542,096
  Retained earnings                              31,430,865        23,698,303
                                              -------------     -------------
    Total stockholders' equity                   58,719,164        33,340,399
                                              -------------     -------------
TOTAL                                         $ 541,917,775     $ 399,471,365
                                              =============     =============


See accompanying notes to consolidated financial statements.

                                        2

<PAGE>
<TABLE>
<CAPTION>

                 CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

                                     Three Months Ended           Nine Months Ended
                                        September 30,                September 30,
                                      1996          1995         1996           1995
                                 ------------   -----------  -----------  -------------
REVENUES
<S>                              <C>           <C>           <C>           <C>
  Factoring fees                 $  6,898,155  $  5,218,060  $ 18,541,388  $ 14,373,768
  Interest income                   9,445,097     7,510,920    25,460,552    20,127,549
  Letter of Credit and other fees     871,416       758,235     2,396,221     1,800,744
  Other                               430,418       437,337     1,079,160     1,035,998
                                 ------------  ------------  ------------  ------------
    Total revenues                 17,645,086    13,924,552    47,477,321    37,338,059
                                 ------------  ------------  ------------  ------------

EXPENSES
  Interest expense                  4,099,800     3,114,696    11,161,660     8,173,142
  Interest expense to affiliates    1,176,177     1,273,162     3,594,839     3,555,549
  Salaries and benefits             3,669,812     2,863,249    10,331,990     8,214,682
  Provision for credit losses         700,000       700,000     2,800,000     1,650,000
  Occupancy and other office
   expenses                           963,707       671,884     2,707,843     1,824,671
  Depreciation                        167,895       162,076       475,729       480,460
  Professional fees                   230,681       238,327       679,185       732,168
  Other                               902,611       645,881     2,493,449     1,874,450
                                 ------------  ------------  ------------  ------------
    Total expenses                 11,910,683     9,669,275    34,244,695    26,505,122
                                 ------------  ------------  ------------  ------------

INCOME BEFORE INCOME TAXES          5,734,403     4,255,277    13,232,626    10,832,937

PROVISION FOR INCOME TAXES          2,463,001     1,730,795     5,500,064     4,356,831
                                 ------------  ------------  ------------  ------------

NET INCOME                       $  3,271,402  $  2,524,482  $  7,732,562  $  6,476,106
                                 ============  ============  ============  ============

Earnings per common and common 
  equivalent share:
    Primary                      $       0.28  $       0.25  $       0.73  $       0.65
                                 ============  ============  ============  ============
    Fully diluted                $       0.27  $       0.25  $       0.72  $       0.65
                                 ============  ============  ============  ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                        3

<PAGE>

                 CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                   (Unaudited)

                                                      Nine Months Ended
                                                         September 30,
                                                     1996            1995
                                                  ------------   ------------
OPERATING ACTIVITIES:
  Net income                                     $  7,732,562    $  6,476,106
  Adjustments to reconcile net income to net
    cash provided by operating activities:
    Depreciation                                      475,729         480,460
    Deferred income taxes                             (90,636)       (444,512)
    Provision for credit losses                     2,800,000       1,650,000
    Increase in restricted cash                      (375,000)    (11,500,000)
    Loss on sale of assets                             14,495           3,872
   (Increase)decrease in due to affiliates         (1,075,438)        251,310
    Other assets                                   (2,400,697)       (439,030)
    Other liabilities                               1,218,717       5,973,991
                                                 ------------   -------------
      Net cash provided by operating activities     8,299,732       2,452,197
                                                 ------------    ------------
INVESTING ACTIVITIES:
  Loan to clients, net                              6,138,818      (3,852,807)
  Increase in asset based loans                   (13,851,998)    (17,255,110)
  Net increase in factoring accounts receivable,
    net of due to factoring clients               (85,617,953)    (46,467,095)
  Sales of participations                           5,236,296       1,335,796
  Payments on participations                       (2,741,606)     (1,298,396)
  Purchase of property and equipment                 (347,223)       (678,241)
  Disposal of property and equipment                   25,033          18,837
                                                 ------------    ------------
      Net cash used in investing activities       (91,158,633)    (68,197,016)
                                                 ------------    ------------
FINANCING ACTIVITIES:
  Restricted proceeds from senior certificates     10,000,000      50,000,000
  Net proceeds from sale of common stock           17,646,203               0
  Proceeds from borrowing                         119,863,000      47,060,000
  Payments on borrowing                           (56,307,000)    (31,191,033)
  Payments of deferred financing costs               (857,985)       (655,901)
  Amortization of deferred costs                      585,546         439,515
                                                 ------------    ------------
    Net cash provided by financing activities      90,929,764      65,652,581
                                                 ------------    ------------
NET INCREASE (DECREASE) IN CASH                     8,070,863         (92,238)
CASH, BEGINNING OF PERIOD                          20,326,814      15,446,835
                                                 ------------    ------------
CASH, END OF PERIOD                                28,397,677      15,354,597
                                                 ============    ============
SUPPLEMENTAL CASH FLOW INFORMATION
  Cash payments for interest                       13,572,703      10,649,942
                                                 ============    ============
See accompanying notes to consolidated financial statements.
                                        4

<PAGE>

CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996


NOTE 1: GENERAL
---------------
The accompanying unaudited consolidated financial statements of Capital Factors
Holding, Inc. and Subsidiaries (the "Company") have been prepared on a
consistent basis in conformity with generally accepted accounting principles,
and in the opinion of management, reflect all adjustments (principally
consisting of normal, recurring accruals) necessary to present fairly the
financial condition of the Company as of September 30, 1996 and December 31,
1995, the results of its operations for the three and nine month periods ended
September 30, 1996 and 1995 and its cash flows for the nine months ended
September 30, 1996 and 1995. Certain amounts in the 1995 Consolidated Statements
of Income have been reclassified to conform with the 1996 consolidated financial
statement presentation. All significant inter-company transactions and balances
have been eliminated. The December 31, 1995 amounts were derived from previously
audited statements. All interim information at September 30, 1996 and 1995 and
for the three and nine months then ended was not audited.

The accounting policies followed for interim financial reporting are consistent
with the accounting policies set forth in Note 2 to the Consolidated Financial
Statements appearing in the Company's Form S-1 Registration Statement as filed
with the Securities and Exchange Commission on May 9, 1996 as thereafter
amended.

In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation." This statement requires certain disclosures about stock-based
employee compensation regardless of the method used to account for it, defines a
fair value based method of accounting for an employee stock option or similar
equity instrument and encourages all entities to adopt that method of accounting
for all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for stock based compensation
plans using the intrinsic value method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities electing to remain with the accounting method set forth in
APB Opinion No. 25 must make pro forma disclosures of net income and, if
presented, earnings per share as if the fair value method of accounting defined
in SFAS No. 123 had been applied. Under the fair value method, compensation cost
is measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. Under the
intrinsic value method, compensation cost is the excess, if any, of the quoted
market price of the stock at grant date, or other measurement date, over the
amount an employee must pay to acquire the stock. The disclosure requirements of
SFAS No. 123 are effective for financial statements for fiscal years beginning
after December 15, 1995. Pro forma disclosures required for entities that elect
to continue to measure compensation cost using APB No. 25 must include the
effects of all awards granted in fiscal years that begin after December 15,
1994. The Company will measure compensation cost for stock-based compensation as
prescribed by APB No. 25.

                                        5

<PAGE>


NOTE 2: RECEIVABLES
-------------------
Receivables consist of the following:

                              SEPTEMBER 30,          DECEMBER 31,
                                  1996                   1995
                              -------------         -------------

Nonrecourse                   $ 277,103,247         $ 215,243,095
Recourse                        153,000,273            81,232,416
                              -------------         -------------
Factored accounts receivables   430,103,520           296,475,511
Loans to factoring clients       19,911,704            26,415,014
Asset based loans                52,167,438            38,315,440
                              -------------         -------------
                              $ 502,182,662         $ 361,205,965
                              =============         =============

The Company specifically considered $701,358 and $2,184,046 of its client
advances impaired at September 30, 1996 and December 31, 1995, respectively, and
has discontinued the accrual of interest income. The allowance for credit losses
related to these impaired loans for the same periods was $31,270 and $133,847,
respectively.


Changes in the Company's allowance for credit losses were as follows:
<TABLE>
<CAPTION>

                                     NINE MONTHS ENDED                 YEAR ENDED
                            ------------------------------------- ---------------------
                                        % of              % of                   % of
                            SEPT 30, FACTORED SEPT 30, FACTORED  DECEMBER 31, FACTORED
                              1996     SALES     1995    SALES       1995       SALES
                            ---------- ------ ---------- -------  ----------   --------
<S>                         <C>               <C>                 <C>          <C>
Beginning balance           $2,980,778        $1,774,101          $1,774,101
Allowance related to
  acquisition of
  TempFunds America, Inc.      100,000
Provision for credit losses  2,800,000   .15   1,650,000    .11    2,234,721     .11

Charge-offs                 (3,381,611)  .18  (1,256,430)   .08   (1,625,148)    .08
Recoveries                     477,674   .03     463,099    .03      597,104     .03
                            ---------- ------ ----------- ------- ----------   -------
Net charge-offs             (2,903,937)  .15    (793,331)   .05   (1,028,044)    .05
                            ---------- ------ ----------- ------- ----------   -------
Ending balance              $2,976,841        $2,630,770          $2,980,778
                            ==========        ==========          ==========
</TABLE>

The adequacy of the provision for credit losses recorded by the Company is
assessed by management based in part on the level of net charge-offs relative to
accounts receivable purchased. These statistics are believed to be significant
indicators of inherent losses because the receivables portfolio turns over
approximately seven times each year. Accounts receivable which are past due will
not be written off if, in the opinion of management, collection is likely from
the customer, client or collateral realization, if any. In making this
determination, management considers the quality of the collateral, the
creditworthiness of the customer and client, economic conditions

                                        6

<PAGE>

and other factors which may be relevant. This statistical assessment is
supplemented by a review of the recorded allowance for credit losses at each
month end relative to total accounts receivable at month end, taking into
consideration specific potential problem accounts, accounts purchased with
recourse where payment has not been made by the Company to its client, and other
factors which may be relevant.

Historically, the provision for credit losses as a percentage of factored sales
and net charge-offs as a percentage of factored sales ranged from 0.11% to 0.31%
and 0.05% to 0.30%, respectively. The provision for credit losses as a
percentage of factored sales increased from .11% for the nine months ended
September 30, 1995 to 0.15% for the nine months ended September 30, 1996. Net
charge-offs as a percentage of factored sales also increased from 0.05% to 0.15%
for the same nine month periods, respectively. The 1996 ratios listed above,
although higher than those experienced in 1995, reflect normal credit losses
consistent with the Company's historical experience and expectations. Based on
these relationships, and a review of the recorded allowance and accounts
receivable at each period end, management believes the provisions and allowance
to be adequate to absorb known and inherent losses in the accounts receivable
portfolio. Because the assessment of the adequacy of the allowance and
provisions for credit losses involves a significant degree of estimation and is
subject to change, future provisions for credit losses may be greater or less
than actual charge-offs.


NOTE 3: BORROWINGS
------------------
Borrowings are summarized as follows:

                                           September 30,      December 31,
                                               1996               1995
                                           -------------     -------------
Variable rate asset backed certificates
 due 1999 through 2001                     $ 175,000,000     $ 175,000,000
Variable rate revolving credit line
 due on demand                                76,816,000        52,260,000
Variable rate revolver loan due 1999          29,000,000
7.95% subordinated notes due 2001             10,000,000
                                           -------------     -------------
Total borrowings                           $ 290,816,000     $ 227,260,000
                                           =============     =============


NOTE 4: ACQUISITION
-------------------
On August 9, 1996 the Company closed on the acquisition of substantially all of
the assets of TempFunds America, Inc. and its affiliate, TempFunds America
Funding Corporation of South Carolina, Inc. (collectively "TempFunds"),
specialized financial services companies principally engaged in providing
receivables-based commercial financing and related fee-based credit, collection
and management information services to temporary employment and home health care
agencies. The acquisition was completed through Capital TempFunds, Inc., a newly
formed North Carolina Corporation and wholly owned subsidiary of Factors.

The TempFunds entities provide certain services not presently provided by the
Company, including billing, payroll processing, payroll tax, payroll reporting
and other payroll

                                        7

<PAGE>


services and insurance reporting. The purchase price paid by the Company was
approximately $5.9 million (approximately $5.0 million equal to the net book
value of the assets plus an additional $900,000). An additional amount up to
$900,000 is payable over a three year period if certain contingencies are met.
In connection with the acquisition, all rights, title and interest, to the
nationally registered service mark of "TempFunds America" were assigned to
Capital TempFunds, Inc. who intends to conduct business in said name.

The purchase was funded under the Company's revolving line of credit with
Capital Bank.

                                       8

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES


INTRODUCTION
Capital Factors Holding, Inc. ("Holding") is a majority owned subsidiary of
Capital Bank (the "Bank"). The Bank is a wholly-owned subsidiary of Capital
Bancorp. Holding has two wholly-owned subsidiaries, Capital Factors, Inc.
("Factors") and CF One, Inc. Factors has one wholly-owned subsidiary, CF Funding
Corp. Throughout this discussion, Holding and its subsidiaries are collectively
referred to as the "Company."

The following discussion and analysis presents the significant changes in the
financial condition and results of operations for the periods indicated. The
discussion should be read in conjunction with the consolidated financial
statements and notes included in Part I, Item 1 of this report.

The Company provides fee-based services to its clients, including credit
protection, collection and management information services, and also makes
advances to many of its clients. Clients are generally manufacturers of goods or
providers of services in various industries. At the time the Company purchases
the factored receivables, the Company records a receivable and an offsetting
liability "due to factoring client." Advances, which are interest earning and
secured by the client's factored receivables, are recorded by the Company as
reductions to the amounts due to the factoring client for factored receivables.
Cash collections from the client's customers are used to repay the client's
loans. If, as a result of financial inability to pay, a client's customer fails
to pay a receivable that was credit-approved by the Company, the Company will
ultimately bear any loss with respect to such receivable. In the event of
dilution in excess of the unfinanced portion of receivables, where factored
receivables are not fully collected for a reason other than the customer's
financial inability to pay, such as breach of warranty, the Company will in
practice typically need to look to newer receivables of the client for the
collection of the outstanding obligation to the Company and may not be repaid.

In contrast to the Company's purchase of factored receivables, when the Company
makes an asset-based loan, a client assigns its collateral (usually account
receivable and inventory) to the Company. Upon request of the client, the
Company may advance funds to the client as a loan in an amount based upon the
eligible collateral. When funds are advanced to a client, a loan receivable
balance is created, and cash is disbursed. Although the Company loans funds to
the client based on eligible collateral, the Company provides no credit
protection and, accordingly, does not assume the risk of loss from a client's
customers' inability to pay, although the Company may actually suffer a loss if
all sources of repayment fail, including other collateral and guarantees, if
any. In connection with asset-based loans, instead of a factoring fee, the
Company earns a facility fee. Both factored advances and asset-based loans bear
interest at a rate tied to the prime rate.

The Company operates through four regional offices (including the Florida
office) and currently has over 400 clients who generate annual sales from
$500,000 to over $100 million, and services over 100,000 customers of those
clients. The majority of the Company's customers are large national or regional
department store chains or specialty retailers. At September 30, 1996, the
largest amount due from any one customer, a

                                        9

<PAGE>

national department store chain, was approximately $22.3 million.

The Company's factored sales volume can be affected in several ways, including
new clients, client retention or losses, inflation and other economic
conditions. Additionally, fluctuations in the sales dollar volume of the
Company's clients, both positive and negative, have a direct impact on the
Company's factored sales volume and factoring fees. In this regard, the Company
has historically experienced seasonal fluctuations in its factored sales volume
and factoring fees as a result of the seasonality of the sales of certain of the
Company's clients, especially those in the apparel industry, who typically ship
more goods during the four-month period of August through November in order to
fill increased customer orders in anticipation of "back to school" and the
ensuing holiday season. The Company realized approximately 40% of its annual
factored sales volume during this 4-month period in 1994 and 1995.


MONITORING ASSET QUALITY AND CREDIT LOSSES
------------------------------------------
The monitoring of asset quality is a routine function performed by management to
control credit losses. The Company's allowance for credit losses is determined
after evaluating the receivables portfolio, current market conditions, changes
in the nature and volume of the portfolio, past loss experience and other
pertinent factors.

Set forth below are those ratios and statistics utilized by management in
monitoring asset quality for the nine months ended September 30, 1996 and
September 30, 1995:

                                             AS OF SEPTEMBER 30,
                                           ----------------------
                                             1996          1995
                                           ---------     ---------
                                       (UNAUDITED, DOLLARS IN THOUSANDS)
Provision for credit losses                 $ 2,800       $ 1,650
Charge-offs net of recoveries               $ 2,904       $   793

Allowance for credit losses-specific        $   461       $   690
Allowance for credit losses-general         $ 2,516       $ 1,941
                                           -----------    ---------
  Total allowance for credit losses         $ 2,977       $ 2,631
Accounts receivable turnover in days             51            51
Accounts receivable past due more
  than 60 days as a percentage of
  total factored receivables                   7.63%         5.50%
Accounts receivable past due more
  than 90 days as a percentage of
  total factored receivables                   4.80%         3.17%
Credit-approved accounts receivable
  past due more than 60 days as a
  percentage of credit approved
  receivables                                  2.13%(1)      2.38%(1)
Credit-approved accounts receivable
  past due more than 90 days as a
  percentage of credit approved
  receivables                                  1.70%(1)      0.81%(1)


                                       10

<PAGE>

Provision for credit losses as a
  percentage of factored sales                 0.15%         0.11%
Net charge-offs to factored sales              0.15%         0.05%
Average receivables                        $411,848      $296,728
Provision for credit losses as a
  percentage of average receivables            0.91%(2)      0.74%(2)
Net charge-offs as a percentage of
  average receivables                          0.94%(2)      0.36%(2)
Non-accruing advances                      $    701      $    928
Non-accruing advances as a percentage
 of receivables                                0.14%         0.26%
Provision for credit losses as a percentage
  of average funds employed                    1.36%(2)      1.08%(2)
Net charge-offs as a percentage of
  average funds employed                       1.41%(2)      0.52%(2)
Non-accruing advances as a percentage
  of funds employed                            0.22%         0.39%

(1)  Management considers the aging of credit-approved receivables a more
     meaningful measure of exposure to credit risk than the aging of total
     receivables.
(2) Computed on an annualized basis.


The Company regularly reviews its outstanding accounts receivable and other
extensions of credit, such as advances to clients, to determine the adequacy of
its allowance for credit losses. Factors such as the level of related credit
balances of clients and the impact of economic conditions on the
creditworthiness of the Company's clients and the client's customers are given
significant consideration in determining the adequacy of the Company's allowance
for credit losses. The Company's methodology for calculating its reserve for
doubtful accounts has remained consistent for the periods shown above, and
includes a specific and general component. Specific reserves are established for
receivables and client advances which the Company's management deems to be
wholly or partially uncollectible. The general reserve represents 0.75% of those
receivables (other than healthcare receivables, which have a lower general
reserve) that are not specifically reserved for but for which the Company has
provided credit guarantees.

The provision for credit losses as a percentage of factored sales increased from
0.11% for the nine months ended September 30, 1995 to 0.15%. The provision for
credit losses as a percentage of average receivables and the provision for
credit losses as a percentage of average funds employed increased to 0.91% and
1.36%, respectively, for the nine months ended September 30, 1996, from 0.74%
and 1.08%, respectively in the nine months ended September 30, 1995, reflecting
a higher net charge-off rate. Management anticipates that the provision for
credit losses during the remainder of 1996 will be higher than during 1995 and
more consistent with the Company's historical experience.

Net charge-offs as a percentage of factored sales ranged from 0.05% to 0.30% in
the 1991-1995 period. Net charge-offs as a percentage of factored sales
increased from 0.05% for the period ended September 30, 1995 to 0.15% for the
period ended September 30, 1996. The net charge-offs percentage increased in
1996 due to the charge-off in the first quarter of $600,000 related to the
bankruptcy of a large Northeastern regional chain store, but net charge-offs
remained well within the Company's historical experience. Net charge-offs as a
percentage of average receivables and net charge-offs as a percentage of average
funds employed increased 0.58% and 0.89%, respectively, for

                                       11

<PAGE>

the nine months ended September 30, 1996 as compared to the same period in 1995
due primarily to the $600,000 charge off described above.

Non-accruing advances as a percentage of funds employed have historically
remained below 1.00% and during the nine months ended September 30, 1996 and
1995, were at 0.22% and 0.39%, respectively. Non-accruing advances as a
percentage of receivables decreased from 0.26% to 0.14%, for the same nine month
periods ended September 30, 1995 and 1996, respectively. Management believes
that non-accruing advance fluctuations below 1.0% are a normal part of the
Company's ongoing business and are not significant.

Credit-approved accounts receivable past due more than 60 days as a percentage
of credit-approved factored receivables and accounts receivable past due more
than 90 days as a percentage of credit-approved factored receivables equaled
2.13% and 1.70%, respectively at September 30, 1996 as compared to 2.38% and
0.81%, respectively at September 30, 1995. Management considers these levels
acceptable. Accounts receivable past due more than 60 days as a percentage of
total factored receivables and accounts receivable past due more than 90 days as
a percentage of total factored receivables equaled 7.63% and 4.80, respectively,
for the nine month period ended September 30, 1996 as compared to 5.50% and
3.17%, respectively, for the nine month period ended September 30, 1995. The
increase in these ratios was due to an increase in healthcare factored
receivables from $14.9 million at September 30,1995 to $21.9 million at
September 30, 1996, that are slower paying with higher delinquency ratios.
Healthcare factored receivables are not credit-approved thus the Company does
not guarantee payment of the receivables.


FINANCIAL CONDITION - SEPTEMBER 30, 1996 AS COMPARED TO DECEMBER 31, 1995
-------------------------------------------------------------------------
Total assets increased to $541.9 million at September 30, 1996 from $399.5
million at December 31, 1995. The $142.4 million increase was due primarily to a
$141.3 million dollar increase in net receivables.

Factored accounts receivables increased $133.6 million primarily as a result of
increased factored sales and the seasonal fluctuation in the Company's factored
sales volume, which generally have been highest during the period from August
through November. During such 4-month period, the Company's clients, especially
those in the apparel industry, typically ship more goods in order to fill
increased customer orders in anticipation of "back to school" and the ensuing
holiday season. The Company's factored accounts receivable are due from clients'
customers geographically located throughout the United States, principally
retailers, manufacturers and distributors. Asset based loans, which represent
loans provided to clients principally collateralized by accounts receivable,
increased $13.9 million from December 31, 1995 to September 30, 1996. Restricted
Cash decreased primarily as a result of the final draw down of $10.0 million of
cash maintained in a Pre-Funding account related to the third series of variable
rate asset-backed certificates collateralized by factored advances ("Securitized
Financings"), but was offset by an increase in Non-restricted Cash which is
subject to fluctuations in daily deposit volumes.

The increase in assets was principally funded by an increase in its debt
outstanding under the Company's debt facility with Capital Bank and two new
credit facilities closed by the Company during the nine months ended September
30, 1996. Outstanding debt under the Capital Bank facility increased from
approximately $52.3 million at December 31, 1996 to approximately $76.8 million
at September 30, 1996. In April 1996, the Company closed a revolving credit
facility in the amount of $40 million with an

                                       12

<PAGE>

unaffiliated bank. At September 30, 1996 the Company had $29.0 million
outstanding under this facility, which bears interest at LIBOR plus 2.15%. In
May 1996, the Company, through its wholly-owned subsidiary, CF One, Inc., raised
an additional $10 million through the issuance of 5 year notes, due and payable
in July 2001, which bear a fixed rate of interest of 7.95%.

Stockholders' equity increased approximately $25.4 million during the first nine
months of 1996 as a result of $17.6 million in net proceeds received from the
sale of approximately 19% of the Company's common stock and $7.7 million of net
income earned by the Company. On July 10, 1996, the Company completed an initial
public offering of 2,000,000 shares of common stock and on August 5, 1996, sold
an additional 300,000 pursuant to the Underwriters' over-allotment option.


RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1995
-------------------------------------------------------------------------------
Net income increased 29.6% to approximately $3.3 million for the three month
period ended September 30, 1996 from approximately $2.5 million for the
comparable period in 1995 due primarily to an increase in operating revenues.
Operating revenues (total revenues less interest expense) increased from
approximately $9.5 million for the three month period ended September 30, 1995
to approximately $12.4 million for the comparable period in 1996, a 29.7%
increase. These increases were primarily a result of a 26.3% increase in the
Company's factored sales volume from $561.2 million to $708.9 million for the
three month period ended September 30, 1995 and September 30, 1996,
respectively, and the resulting increase in interest income and factoring fees.
The factored sales volume increases were attributable to continued growth of the
Company's client base, with all four regional offices contributing to the
increase.

Factoring fee income increased to approximately $6.9 million for the three month
period ended September 30, 1996 as compared to approximately $5.2 million for
the three month period ended September 30, 1995 as a result of a 26.3% increase
in factored sales. Factoring fee income as a percentage of factored sales for
the three month periods increased from 0.93% in 1995 to 0.98% in 1996. During
the three month period ended September 30, 1995 the Company processed $15.7
million of initial factored sales from a new healthcare client for which no
commission was charged. Excluding this $15.7 million of factored sales,
factoring fee income as a percentage of factored sales for the three months
ended September 30, 1995 equaled .96%.

Net interest income (interest income less interest expense) increased to
approximately $4.2 million for the three months ended September 30, 1996 from
approximately $3.1 million for the comparable period in 1995, a 33.5% increase.
The increase resulted primarily from the approximately $17,6 million of net
proceeds raised by the Company's issuance of common stock in July 1996 which
were used to reduce the debt outstanding under a debt facility with Capital
Bank. The interest rate on this facility was 8.25% at September 30, 1996.
Additionally, the Company entered into a $40,000,000 revolving loan agreement
bearing interest at LIBOR plus 2.15% in April 1996 with an unaffiliated bank.
Average borrowings from the revolving loan during the three month period ended
September 30, 1996 equaled approximately $28.6 million and had an effective
interest rate of 8.04% for the three month period. Interest income also
increased due to an increase of $85.3 million in average outstanding funds
employed for the three months ended September 30, 1996 as compared to the same
period in the prior year.

                                       13

<PAGE>

Letter of credit and other fee income increased to approximately $871,000 for
the three months ended September 30, 1996 from $758,000 for the three months
ended September 30, 1995, a 14.9% increase. Letter of credit fees increased
approximately 28.8% or $65,800 during the three month period while other fee
income increased by approximately $47,000 due to the increased factoring volume
and asset based lending activities, and growth in the Company's healthcare
division.

The provision for credit losses equaled $700,000 for both the three months ended
September 30, 1996 and the three months ended September 30, 1995. Provisions for
credit losses as a percentage of factored sales decreased to 0.10% for the three
months ended September 30, 1996 as compared to 0.12% for the comparable period
in 1995, reflecting a slightly lower net charge-off rate for the quarter (see
"Monitoring Asset Quality and Credit Losses")

Operating expenses increased from $4,581,000 to $5,935,000 for the three month
period ended September 30, 1995 as compared to the three months ended September
30, 1996. This $1.4 million or 30% increase is primarily the result of expansion
in the regional offices and the acquisition of Capital TempFunds, Inc.


RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1995
-------------------------------------------------------------------------------
Net income increased $1.3 million to approximately $7.7 million for the nine
month period ended September 30, 1996 from approximately $6.5 million for the
comparable period in 1995, a 19.4% increase due to an increase in operating
revenues offset by an increase in the provision for credit losses. Operating
revenues increased 27.8% from approximately $25.6 million to $32.7 million,
respectively, for the nine month periods ended September 30,1995 and September
30, 1996. These increases were primarily a result of a 29.0% increase in the
Company's factored sales volume from $1.5 billion to $1.9 billion for the nine
month period ended September 30, 1995 and September 30, 1996, respectively. This
increase in factored sales was attributable to the opening of the Charlotte
office which increased factored sales volume by $124.0 million in the nine month
period, combined with continued growth of the Company's New York and California
offices. The Company's healthcare division, which commenced operations in
September 1994, contributed $91.5 million in factored sales, a 36.6% increase
over its contribution over the prior comparable period.

The Company experienced a 29.0% increase in factoring fee income for the nine
months ended September 30, 1996 as compared to the nine months ended September
30, 1995 as a result of a 29.0% increase in factored sales. Factoring fee income
as a percentage of factored sales for the nine month periods remained flat at
0.98% in 1995 and 1996.

Net interest income increased to approximately $10.7 million for the nine months
ended September 30, 1996 from approximately $8.4 million for the comparable
period in 1995, a 27.4% increase, principally as a result of an increase of
$72.0 million, a 35.5% increase, in average outstanding funds employed for the
nine months ended September 30, 1996 as compared to the same period in the prior
year. Net interest income for the nine months ended September 30, 1996 was also
favorably impacted by continued interest expense reductions achieved through the
issuance of $50,000,000 of additional Certificates under the Securitized
Financings agreement in July 1995, entering into a $40,000,000 revolving loan
agreement with an unaffiliated bank in April 1996, and the issuance of
$10,000,000 in subordinated notes in May 1996. Average borrowings from the

                                       14

<PAGE>

revolving loan during the nine month period ended September 30, 1996 equaled
approximately $15.5 million and had an effective interest rate of 8.2% for the
nine month period. The $10,000,000 notes bear interest at a fixed annual rate of
7.95%.

Letter of credit and other fee income increased to approximately $2.4 million
for the nine months ended September 30, 1996 from $1.8 million for the nine
months ended September 30, 1995, a 33.0% increase. Letter of credit fees
increased approximately 39.0% or $243,000 during the nine month period.

The provision for credit losses increased to $2,800,000 for the nine months
ended September 30, 1996 from $1,650,000 for the nine months ended September 30,
1995. This increase is primarily attributable to an increase in outstanding
accounts receivable. The provisions for credit losses as a percentage of
factored sales for the nine months ended September 30, 1996 increased to .15% as
compared to .11% for the comparable period in 1995, reflecting a higher net
charge-off rate (see "Monitoring Asset Quality and Credit Losses")

Operating expenses increased from $13,125,000 to $16,688,000 for the nine month
period ended September 30, 1995 as compared to the nine months ended September
30, 1996. This $3.6 million or 27.1% increase is primarily the result of opening
the North Carolina regional office and expansion of the existing regional
offices and the healthcare division.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

The Company's principal source of funding is from its asset securitization
program, the Securitized Financings which include three series of asset-backed
certificates aggregating $175.0 million. The certificates issued under each
series bear interest at LIBOR plus 1.25% (6.75391% at September 30, 1996,
excluding annualized transaction costs of 0.37%) and interest is payable
monthly. The Company may continue to use the Securitized Financings for funding,
provided eligible client advances are available for transfer to the trust
created to accommodate the Securitized Financings (the "Trust") for future
funding through new series. Generally, all of the client advances made by the
Company, with the exception of those made by its healthcare division, as well as
certain asset-based loans, are eligible for transfer to the Trust. As of
September 30, 1996, the Company had transferred to the Trust client advances
aggregating nearly $254.9 million. The scheduled maturity date of the
certificates corresponding to each series is December 1999 ($100 million), June
2000 ($25 million), and January 2001 ($50 million), respectively.

In April 1996, the Company entered into a $40.0 million revolving credit
facility with an unaffiliated bank. The indebtedness under this facility is
secured by advances not collateralizing the Securitized Financings (primarily
advances made by the Company's healthcare division or asset-based loans). The
indebtedness under this revolving facility bears interest at a rate of LIBOR
plus 2.15%, payable monthly. The indebtedness under this facility matures upon
termination in March 1999, although it will be automatically renewed for
additional one year periods unless the Company or the lender terminate it. The
Company also has a $125.0 million unsecured revolving line of credit with
Capital Bank, pursuant to which the Company had outstanding borrowings of
approximately $76.8 million at September 30, 1996. Indebtedness under this
facility bears interest at the prime rate, as published in The Wall Street
Journal (8.25% at

                                       15

<PAGE>

September 30, 1996), is subject to annual review by Capital Bank each June and
is due on demand. In May 1996, $10.0 million subordinated notes were issued
through CF One, Inc. These notes are due and payable in July 2001 and bear
interest at an annual fixed rate of 7.95%. In addition to the continued
availability of the above financing, the Company's future liquidity will
continue to be dependent upon its ability to collect the accounts receivable
purchased from its clients. Of the Company's approximately $502.2 million of
accounts receivable outstanding at September 30, 1996, approximately $214.3
million have balances exceeding $1 million. These customers are primarily large
national or regional department store chains or specialty retailers. At
September 30, 1996, the largest amount due from any one customer, a national
chain store, was approximately $22.3 million. In addition, the Company's
accounts receivable turned over in an average of 51 days during 1995 and 51 days
during the nine months ended September 30, 1996.

The Company had no material commitments for capital expenditures as of September
30, 1996.

                                       16

<PAGE>


                           PART II. OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS
--------------------------

THE COMPANY
-----------

From time to time, the Company has been a party to lawsuits and claims,
including lender liability claims, which management considers incidental to
normal operations. The Company is currently a party to one lawsuit that was
dismissed after trial. The plaintiff is currently appealing the dismissal.
Management, after review, including consultation with counsel, believes that
any ultimate liability which could arise from this current lawsuit would not
materially affect the financial position of the Company.

BANCORP AND CAPITAL BANK LEGAL PROCEEDINGS
------------------------------------------

NATHAN J. ESFORMES, STANLEY I. WORTON, M.D., AND LEONARD WIEN, AS INDIVIDUAL
SHAREHOLDERS AND ON BEHALF OF ALL OTHER SHAREHOLDERS OF CAPITAL BANCORP V. ABEL
HOLTZ, FANA HOLTZ, DANIEL M. HOLTZ, JAVIER J. HOLTZ, CAPITAL BANK AND CAPITAL
BANCORP CIRCUIT COURT FOR THE 11TH JUDICIAL DISTRICT IN AND FOR DADE COUNTY,
FLORIDA CASE NO. 95-02515.

Capital Bancorp ("Bancorp") filed a motion to lift the stay in this action,
which was held in abeyance at the plaintiffs' request by the court at a hearing
held on October 7, 1996. As a result, the report issued by the Independent
Committee (which concluded that, based on its investigation and the
investigation of its counsel and accounting firm, that no legal basis for
pursuing the derivative action exists and that the derivative action is not in
the best interest of Bancorp or the Bank, and as such, should be dismissed) has
not yet been filed with the court. However, in early November, the Plaintiffs
filed a motion to lift the stay and to schedule an evidentiary hearing on the
Independence of the Independent Committee and the reasonableness of its
investigation. A hearing on this motion has not yet been set.

Regulatory Matter

The administrative hearing regarding the application by Daniel Holtz, Chairman
of the Board, Chief Executive Officer and President of Bancorp, Fana Holtz, the
Vice-Chairman of the Board, and Javier Holtz, an executive officer of Bancorp,
to acquire and/or maintain a controlling interest in the Bank through their
ownership and control of Bancorp, commenced in August 1996 and ended on November
8, 1996. An order has not yet been made on the application and is not
anticipated prior to the first quarter of 1997.

                                       17
<PAGE>



ITEM 5.  OTHER INFORMATION
--------------------------

On August 9, 1996 the Company closed on the acquisition of substantially all of
the assets of TempFunds America, Inc. and its affiliate, TempFunds America
Funding Corporation of South Carolina, Inc. (collectively "TempFunds"),
specialized financial services companies principally engaged in providing
receivables-based commercial financing and related fee-based credit, collection
and management information services to temporary employment and home health care
agencies. The acquisition was completed through Capital TempFunds, Inc., a newly
formed North Carolina Corporation and wholly owned subsidiary of Factors.

The TempFunds entities provide certain services not presently provided by the
Company, including billing, payroll processing, payroll tax, payroll reporting
and other payroll services and insurance reporting. The purchase price paid by
the Company was approximately $5.9 million (approximately $5.0 million equal to
the net book value of the assets plus an additional $900,000). An additional
amount up to $900,000 is payable over a three year period if certain
contingencies are met. In connection with the acquisition, all rights, title and
interest, to the nationally registered service mark of "TempFunds America" were
assigned to Capital TempFunds, Inc. who intends to conduct business in said
name.

The purchase was funded under the Company's revolving line of credit with
Capital Bank.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibit 10.1 - Employment Contract Among James L. Morrison and Capital
Factors, Inc.

(b) Exhibit 10.2 - Employment Contract Among Stephen J. Donohue and Capital
Factors, Inc.

(c)  Exhibit 11 - Statement re: Calculation of Earnings Per Share

(d)  Exhibit 27.1 - Financial Data Schedule

(e) No Current Reports on Form 8-K were filed by the Company during the quarter
and nine months ended September 30, 1996.


                                       18

<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.


Date: November 14, 1996            By: /s/ DENNIS A. MCDERMOTT
                                   ---------------------------
                                   DENNIS A. MCDERMOTT
                                   Senior Vice President and
                                   Chief Financial Officer
                                   (Principal Financial and Accounting Officer)


                                       19