8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): January 22, 2008

CAPITAL BANK CORPORATION

(Exact name of registrant as specified in its charter)

North Carolina	000-30062	56-2101930
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

333 Fayetteville Street, Suite 700

Raleigh, North Carolina 27601

(Address of principal executive offices)

 (919) 645-6400

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

£ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

£ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

£ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

£ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On January 22, 2008, Capital Bank Corporation (Nasdaq: CBKN) issued a press release announcing its financial results for the quarterly period and year ended December 31, 2007. A copy of the press release is attached as Exhibit 99.1 hereto and is incorporated herein by reference.

Pursuant to General Instruction B.2 of the Current Report on Form 8-K, the information in this Current Report on Form 8-K, including the press release appearing in Exhibit 99.1, is furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Furthermore, the information in this Current Report on Form 8-K, including the press release appearing in Exhibit 99.1, shall not be deemed to be incorporated by reference into the filings of the registrant under the Securities Act of 1933, as amended.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description of Document
Exhibit 99.1	Press release dated January 22, 2008

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 hereunto duly authorized.

Date: January 22, 2008	CAPITAL BANK CORPORATION
	By:  /s/  B. Grant Yarber
	B. Grant Yarber
	Chief Executive Officer

Exhibit Index

Exhibit No.	Description of Document
Exhibit 99.1	Press release dated January 22, 2008

EX-99.1

Exhibit 99.1

CONTACT:

B. Grant Yarber

President and Chief Executive Officer

Phone: (919) 645-3494

Email: gyarber@capitalbank-nc.com

FOR IMMEDIATE RELEASE

Capital Bank Corporation Announces 2007 Financial Results

RALEIGH, N.C. – January 22, 2008 – Capital Bank Corporation (Nasdaq: CBKN), the parent company of Capital Bank, today reported net income for the year ended December 31, 2007 of $7.9 million compared to $12.3 million for the year ended December 31, 2006. Earnings per share on a fully diluted basis were $0.68 for 2007 compared to $1.06 for 2006. The decline in earnings is primarily attributed to a $2.1 million decrease in net interest income, a $3.0 million increase in the provision for loan losses, which reflects a $2.8 million write down in the fourth quarter, and $1.4 million in restructuring costs during the fourth quarter of 2007. The restructuring costs included $0.8 million for occupancy expense, $0.3 million for equipment expense and $0.3 million of salary and benefit expense.

Multiple factors contributed to the decline in profitability in 2007. The net interest margin declined to 3.53% in 2007 from 3.94% in 2006, causing a decrease in net interest income. As the prime rate fell 100 basis points during the year, market rates for short term retail deposits remained elevated due to liquidity concerns in the wholesale credit markets. While Capital Bank does not normally utilize funding in the wholesale credit markets, many larger national banks that are dependant on wholesale funding moved aggressively into the retail deposit market, keeping retail deposit rates from declining in line with loan rates.

Commenting on the year, B. Grant Yarber, President and CEO stated, “Margin compression and the dramatic changes in the housing market had a significant impact on the operating environment for all banks, including Capital Bank. Responding to the market conditions, we undertook a number of projects during the year to improve competitiveness and profitability. These initiatives included various expense control measures, a restructuring of our investment portfolio, and many process improvements. Although those efforts could not offset the significant decline in net interest income due to the increase in interest expenses, we believe they will place our company in a much improved operating position in 2008 and beyond. We also continued our efforts in recruiting and retaining the best talent in our markets. Total loans for 2007 increased approximately 8.6% over total loans in 2006, with extraordinary growth coming in the Triangle and Western North Carolina regions of the franchise.”

As market conditions throughout 2007 declined, Capital Bank continued to monitor its loan portfolio. As a result of a review of all nonperforming assets conducted during the fourth quarter of 2007, Capital Bank decided to write-down approximately $2.8 million worth of non-performing assets, all of which were disclosed in prior quarters. Mark Redmond, Chief Credit Officer for Capital Bank, stated, “We decided to write these assets down after taking into account broad macro-economic conditions that began having a material impact on the resolution of these problem credits. Beyond these previously identified loans, no significant new problem loans were identified within the portfolio.” As a result of the $2.8 million write down plus other normal loan activity, the provision increased $3.0 million compared to 2006. Nonperforming assets at December 31, 2007 were 0.50% of total assets compared to 0.71% at September 30, 2007, and 0.42% at December 31, 2006. Past due loans as percent of total loans at the end of 2007 were 0.98% of total loans compared to 1.23% at September 30, 2007 and 1.11% at December 31, 2006.

Noninterest income declined approximately $427 thousand compared to 2006 with two significant items accounting for the change. During 2006, the Bank realized a gain on the early extinguishment of debt in the amount of approximately $276 thousand. In addition, during 2006 the Bank realized a gain on the sale of investments of approximately $188 thousand, and during 2007, the Bank realized a loss on the sale of investments of approximately $49 thousand, leading to a decrease in gain on sale of securities income in 2007 of approximately $237 thousand compared to 2006.

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The $2.1 million increase in noninterest expense was impacted by a number of efforts to improve future efficiency. Occupancy expense increased $1.2 million, of which approximately $0.8 millionwas the result of increased lease expense and depreciation of leasehold improvements due to changes in the remaining economic life of certain leased facilities. The economic life changes reflect management’s plans to close or restructure the facilities. Furniture and equipment expense increased $0.5 million, of which approximately $0.3 million was an increase in equipment expense due to a review of existing computer equipment, for which management changed its projections of its estimated useful life. Salaries and employee benefits expenses increased $1.3 million, of which approximately $0.3 was related to the retirement and replacement of the company’s Chief Financial Officer during the fourth quarter.

Total assets increased 6.7% from $1.42 billion at December 31, 2006 to $1.52 billion at December 31, 2007. Commercial loans, including commercial loans and loans for commercial real estate, were the predominate driver of growth for the year increasing $101.4 million, or 12.2%, between December 31, 2006 and December 31, 2007. This growth was partially offset by a net decline of $14.0 million in the other loan products. On a twelve month average balance basis, the average commercial loan portfolio increased $89.2 million, or 11.3%, while the average balance of all other loans decreased $14.5 million, or 8.1%.

The allowance for loan losses as a percent of total loans was 1.24% as of December 31, 2007 compared to 1.32% as of December 31, 2006 and 1.25% as of September 2007. The allowance for loan losses as a percent of nonperforming loans was 227% as of the end of the year compared to 131% at the end of September 2007 and 272% as of December 31, 2006.

“Capital Bank continues to analyze and evaluate its loan portfolio on a quarterly basis. With the volatility in the housing markets, particular attention was paid to our borrowers that engage in the construction and acquisition and development business during the third and fourth quarters in 2007. At the end of 2007, 11.4%, or $124 million, of the loan portfolio was in residential construction, while 13.3%, or $144.9 million, is in acquisition and development loans. Upon review of our loan files and extensive and ongoing conversations with our borrowers, we remain confident in the continued success of the portfolio. We continue to believe that the markets we serve in North Carolina are among the best and strongest economies in the nation,” stated B. Grant Yarber, President and CEO.

Deposits increased 4.1% from $1.06 billion at December 31, 2006 to $1.10 billion at December 31, 2007. On a twelve month average basis, average deposits increased 6.5% from $1.0 billion to $1.1 million. Core deposits excluding certificate of deposits increased $8.9 million on a comparative basis from December 31, 2006 to December 31, 2007; however on a twelve month average basis, the same accounts increased $67.3 million, or 15.4%, over the prior year’s average.

Capital Bank remains well capitalized by all measures, with total equity of $164.3 million as of December 31, 2007 compared to $161.7 million at the end of 2006. Equity as a percent of total assets was 10.8% as of December 31, 2007 compared to 11.4% as of December 31, 2006. On a tangible basis, which excludes goodwill and intangible assets from equity, equity was $101.0 million at December 31, 2007 compared to $97.1 million one year ago. On a percentage basis, tangible equity to tangible assets was 6.9% as of the end of 2007 compared to 7.2% the prior year end. During 2007, Capital Bank bought back 303,082 shares and rewarded its shareholders with $3.6 million in dividends. As of December 31, 2007, the book value of Capital Bank shares was $14.71 compared to $14.19 as of December 31, 2006. On a tangible basis, the book value per share was $9.04 at the end of 2007 compared to $8.53 in 2006.

Capital Bank Corporation, headquartered in Raleigh, N.C., with approximately $1.5 billion in total assets, offers a broad range of financial services. Capital Bank operates 26 banking offices in Asheville (3), Burlington (4), Cary, Graham (2), Hickory, Mebane, Morrisville, Oxford, Pittsboro, Raleigh (5), Sanford (3), Siler City, Wake Forest and Zebulon. The Company’s website is http://www.capitalbank-nc.com.

Information in this press release contains forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially, including without limitation, the effects of future economic conditions, governmental fiscal and monetary policies, legislative and regulatory changes, the risks of changes in interest rates, and the effects of competition. Additional factors that could cause actual results to differ materially are discussed in Capital Bank Corporation’s filings with the Securities and Exchange Commission, including without limitation its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K. Capital Bank Corporation does not undertake a duty to update any forward-looking statements in this press release.

###

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CAPITAL BANK CORPORATION

Summary of Operations

	Three Months Ended December 31, 2007			Three Months Ended December 31, 2006		Year Ended December 31, 2007		Year Ended December 31, 2006
(In thousands except per share data)	(Unaudited)							(Audited)
Interest income	$	23,840		$	23,505	$	94,537	$	86,952
Interest expense		12,871			11,898		50,406		40,754
Net interest income		10,969			11,607		44,131		46,198
Provision for loan losses		3,099			154		3,606		587
Net interest income after provision for loan losses		7,870			11,453		40,525		45,611
Noninterest income		2,176			2,448		8,906		9,333
Noninterest expense		10,126			9,098		38,449		36,335
(Loss) income before taxes		(80	)		4,803		10,982		18,609
Income tax (benefit) expense		(125	)		1,546		3,124		6,271
Net income	$	45		$	3,257	$	7,858	$	12,338
Income per share – basic	$	–		$	0.28	$	0.69	$	1.06
Income per share – fully diluted	$	–		$	0.28	$	0.68	$	1.06
Weighted average shares outstanding:
Basic		11,252			11,536		11,424		11,599
Fully diluted		11,316			11,619		11,493		11,684

End of Period Balances

	2007								2006
	December 31		September 30		June 30		March 31		December 31
(Dollars in thousands except per share data)	(Unaudited)								(Audited)
Total assets	$	1,517,603	$	1,490,244	$	1,440,240	$	1,481,141	$	1,422,384
Investment securities		259,116		249,083		241,666		248,726		239,047
Loans (gross)*		1,095,107		1,070,656		1,022,147		1,025,464		1,008,052
Allowance for loan losses		13,571		13,366		13,339		13,531		13,347
Total earning assets		1,362,048		1,335,434		1,285,715		1,329,792		1,267,927
Deposits		1,098,698		1,090,589		1,072,979		1,120,251		1,055,209
Shareholders’ equity		164,300		164,089		162,402		163,855		161,681
Book value per share	$	14.71	$	14.58	$	14.17	$	14.32	$	14.19
Tangible book value per share	$	9.04	$	8.93	$	8.59	$	8.71	$	8.53
*Includes loans held for sale

Average Balances

	2007								2006
	December 31		September 30		June 30		March 31		December 31
(Dollars in thousands)	(Unaudited)								(Audited)
Total assets	$	1,492,563	$	1,445,915	$	1,436,584	$	1,437,234	$	1,410,668
Investments		242,272		252,090		248,850		243,732		219,765
Loans (gross)*		1,090,801		1,042,635		1,021,517		1,012,483		1,008,053
Total earning assets		1,347,727		1,302,859		1,292,651		1,292,811		1,258,780
Deposits		1,066,438		1,064,174		1,078,430		1,084,418		1,050,139
Shareholders’ equity		166,222		163,850		164,877		163,291		162,525
*Includes loans held for sale

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CAPITAL BANK CORPORATION

Quarterly Results

	2007										2006
	December 31			September 30		June 30			March 31		December 31
(In thousands except per share data)	(Unaudited)										(Audited)
Interest income	$	23,840		$	23,855	$	23,668		$	23,175	$	23,505
Interest expense		12,871			12,670		12,414			12,452		11,898
Net interest income		10,969			11,185		11,254			10,723		11,607
Provision (credit) for loan losses		3,099			261		(91	)		337		154
Net interest income after provision for loan losses		7,870			10,924		11,345			10,386		11,453
Noninterest income		2,176			2,233		2,307			2,190		2,448
Noninterest expense		10,126			9,299		9,788			9,236		9,098
(Loss) income before taxes		(80	)		3,858		3,864			3,340		4,803
Income tax (benefit) expense		(125	)		1,105		1,188			956		1,546
Net income	$	45		$	2,753	$	2,676		$	2,384	$	3,257
Income per share – basic	$	–		$	0.24	$	0.23		$	0.21	$	0.28
Income per share – fully diluted	$	–		$	0.24	$	0.23		$	0.21	$	0.28
Weighted average shares outstanding:
Basic		11,252			11,451		11,503			11,493		11,536
Fully diluted		11,316			11,510		11,574			11,573		11,619

Quarterly Net Interest Margin*

	2007				2006
	December 31	September 30	June 30	March 31	December 31
	(Unaudited)				(Audited)
Yield on earning assets	7.17%	7.42%	7.51%	7.43%	7.53%
Cost of interest bearing liabilities	4.33%	4.32%	4.34%	4.36%	4.18%
Net interest spread	2.84%	3.10%	3.17%	3.07%	3.35%
Net interest margin	3.38%	3.57%	3.65%	3.52%	3.78%
*Annualized and on a fully taxable equivalent basis

Nonperforming Assets

	2007								2006
	December 31		September 30		June 30		March 31		December 31
(Dollars in thousands)	(Unaudited)								(Audited)
Commercial and commercial real estate	$	4,488	$	7,304	$	6,089	$	5,725	$	2,783
Consumer		361		23		67		241		50
Equity lines		397		491		471		433		410
Construction		230		–		–		–		616
Mortgage		507		2,414		975		957		1,043
Total nonperforming loans		5,982		10,232		7,602		7,356		4,902
Other real estate owned		1,571		309		866		1,961		1,111	1
Total nonperforming assets	$	7,553	$	10,541	$	8,468	$	9,317	$	6,013
Nonperforming assets include loans that are 90 days or more past due or in nonaccrual status and other real estate owned.
1Other real estate owned excludes $739 as of December 31, 2006 related to branch locations held for sale.

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CAPITAL BANK CORPORATION

Key Ratios

	2007								2006
	December 31		September 30		June 30		March 31		December 31
(Dollars in thousands)	(Unaudited)								(Audited)
Past due loans	$	10,769	$	13,157	$	13,008	$	16,241	$	11,237
Past due loans as a percent of total loans		0.98%		1.23%		1.27%		1.58%		1.11%
Net charge-offs	$	2,894	$	234	$	101	$	153	$	4,584
Net charge-offs as a percent of average loans (annualized)		1.06%		0.09%		0.04%		0.06%		1.82%
Allowance for loan losses as a percent of total loans		1.24%		1.25%		1.30%		1.32%		1.32%
Nonperforming assets as a percent of total assets		0.50%		0.71%		0.59%		0.63%		0.42%
Allowance for loan losses as a percent of  nonperforming loans		227%		131%		175%		184%		272%

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CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2007 and December 31, 2006

	December 31, 2007			December 31, 2006			2007–2006 Change			2007–2006 % Change
(Dollars in thousands)	(Unaudited)			(Audited)
ASSETS
Cash and due from banks:
Interest earning	$	7,815		$	12,348		$	(4,533	)		(36.7	)%
Noninterest earning		32,347			33,504			(1,157	)		(3.5	)%
Federal funds sold and short term investments		10			8,480			(8,470	)		(99.9	)%
Investment securities – available for sale, at fair value		249,094			228,214			20,880			9.1	%
Investment securities – held to maturity, at amortized cost		10,022			10,833			(811	)		(7.5	)%
Loans – net of unearned income and deferred fees		1,095,107			1,008,052			87,055			8.6	%
Allowance for loan losses		(13,571	)		(13,347	)		(224	)		1.7	%
Net loans		1,081,536			994,705			86,831			8.7	%
Premises and equipment, net		23,863			23,125			738			3.2	%
Bank owned life insurance		21,589			20,662			927			4.5	%
Deposit premium and goodwill, net		63,345			64,543			(1,198	)		(1.9	)%
Deferred tax assets		5,829			6,150			(321	)		(5.2	)%
Other assets		22,153			19,820			2,333			11.8	%
Total assets	$	1,517,603		$	1,422,384		$	95,219			6.7	%
LIABILITIES
Deposits:
Demand, noninterest bearing	$	114,780		$	120,945		$	(6,165	)		(5.1	)%
Savings and interest-bearing demand deposits		381,258			366,243			15,015			4.1	%
Time deposits		602,660			568,021			34,639			6.1	%
Total deposits		1,098,698			1,055,209			43,489			4.1	%
Repurchase agreements and federal funds purchased		39,900			34,238			5,662			16.5	%
Borrowings		163,347			125,924			37,423			29.7	%
Overnight Fed funds purchased		5,395			–			5,395			–
Subordinated debentures		30,930			30,930			–			0.0	%
Other liabilities		15,033			14,402			631			4.4	%
Total liabilities		1,353,303			1,260,703			92,600			7.3	%
SHAREHOLDERS’ EQUITY
Common stock, no par value; 20,000,000 authorized; 11,169,777and 11,393,990issued and outstanding as of December 31, 2007 and December 31, 2006, respectively		136,132			139,484			(3,352	)		(2.4	)%
Retained earnings		28,007			23,754			4,253			17.9	%
Accumulated other comprehensive loss		161			(1,557	)		1,718			(110.3	)%
Total shareholders’ equity		164,300			161,681			2,619			1.6	%
Total liabilities and shareholders’ equity	$	1,517,603		$	1,422,384		$	95,219			6.7	%

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CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Twelve Months Ended December 31, 2007 and 2006

	2007		2006		2007–2006 Change		2007–2006 % Change
(Dollars in thousands, except share and per share data)	(Unaudited)		(Audited)
Interest income:
Loans and loan fees	$	82,066	$	76,180	$	5,886		7.7%
Investment securities		11,418		9,049		2,369		26.2%
Federal funds and other interest income		1,053		1,723		(670)		(38.9)%
Total interest income		94,537		86,952		7,585		8.7%
Interest expense:
Deposits		39,700		31,424		8,276		26.3%
Borrowings and repurchase agreements		10,706		9,330		1,376		14.7%
Total interest expense		50,406		40,754		9,652		23.7%
Net interest income		44,131		46,198		(2,067)		(4.5)%
Provision for loan losses		3,606		587		3,019		514.3%
Net interest income after provision for loan losses		40,525		45,611		(5,086)		(11.2)%
Noninterest income:
Service charges and other fees		4,058		3,865		193		5.0%
Mortgage fees and revenues		2,029		2,102		(73)		(3.5)%
Net (loss) gain on sale of securities		(49)		188		(237)		(126.1)%
Bank owned life insurance		740		833		(93)		(11.2)%
Gain on early extinguishment of debt		–		276		(276)		(100.0)%
Other		2,128		2,069		59		2.9%
Total noninterest income		8,906		9,333		(427)		(4.6)%
Noninterest expense:
Salaries and employee benefits		19,877		18,532		1,345		7.3%
Occupancy		4,870		3,693		1,177		31.9%
Furniture and equipment		2,859		2,342		517		22.1%
Director fees		424		1,264		(840)		(66.5)%
Data processing		1,353		1,070		283		26.4%
Advertising		1,137		1,041		96		9.2%
Amortization of deposit premiums		1,198		1,370		(172)		(12.6)%
Professional fees		1,426		1,164		262		22.5%
Other		5,305		5,859		(554)		(9.5)%
Total noninterest expenses		38,449		36,335		2,114		5.8%
Net income before tax expense		10,982		18,609		(7,627)		(41.0)%
Income tax expense		3,124		6,271		(3,147)		(50.2)%
Net income	$	7,858	$	12,338	$	(4,480)		(36.3)%
Earnings per share – basic	$	0.69	$	1.06	$	(0.37)
Earnings per share – diluted	$	0.68	$	1.06	$	(0.38)
Weighted average shares:
Basic		11,424,171		11,598,502		(174,331)
Fully diluted		11,492,728		11,683,674		(190,946)

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CAPITAL BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended December 31, 2007 and 2006

	2007		2006		2007–2006 Change		2007–2006 %Change
(Dollars in thousands, except share and per share data)	(Unaudited)		(Audited)
Interest income:
Loans and loan fees	$	20,835	$	20,534	$	301		1.5%
Investment securities		2,835		2,561		274		10.7%
Federal funds and other interest income		170		410		(240)		(58.5)%
Total interest income		23,840		23,505		335		1.4%
Interest expense:
Deposits		9,929		9,309		620		6.7%
Borrowings and repurchase agreements		2,942		2,589		353		13.6%
Total interest expense		12,871		11,898		973		8.2%
Net interest income		10,969		11,607		(638)		(5.5)%
Provision for loan losses		3,099		154		2,945		1912.3%
Net interest income after provision for loan losses		7,870		11,453		(3,583)		(31.3)%
Noninterest income:
Service charges and other fees		1,111		944		167		17.7%
Mortgage fees and revenues		347		577		(230)		(39.9)%
Net (loss) gain on sale of securities		(49)		60		(109)		(181.7)%
Bank owned life insurance		192		236		(44)		(18.6)%
Gain on early extinguishment of debt		–		276		(276)		(100.0)%
Other		575		355		220		62.0%
Total noninterest income		2,176		2,448		(272)		(11.1)%
Noninterest expense:
Salaries and employee benefits		4,579		4,852		(273)		(5.6)%
Occupancy		1,841		933		908		97.3%
Furniture and equipment		933		613		320		52.2%
Director fees		(145)		236		(381)		(161.4)%
Data processing		381		256		125		48.8%
Advertising		366		228		138		60.5%
Amortization of deposit premiums		298		342		(44)		(12.9)%
Professional fees		470		308		162		52.6%
Other		1,403		1,330		73		5.5%
Total noninterest expenses		10,126		9,098		1,028		11.3%
Net (loss) income before tax expense		(80)		4,803		(4,883)		(101.7)%
Income tax (benefit) expense		(125)		1,546		(1,671)		(108.1)%
Net income	$	45	$	3,257	$	(3,212)		(98.6)%
Earnings per share – basic	$	0.00	$	0.28	$	(0.28)
Earnings per share – diluted	$	0.00	$	0.28	$	(0.28)
Weighted average shares:
Basic		11,251,525		11,535,931		(284,406)
Fully diluted		11,315,934		11,618,603		(302,669)

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