[LOGO] CAPITAL BANK CORPORATION CONTACT: B. Grant Yarber President and Chief Executive Officer FOR IMMEDIATE RELEASE Email: gyarber@capitalbank-nc.com Capital Bank Corporation Earnings Per Share Up 25% YTD RALEIGH, N.C. - October 18, 2005 - Capital Bank Corporation (Nasdaq: CBKN), the parent company of Capital Bank, today reported that its third quarter 2005 net income was $1.7 million compared to $1.6 million for the third quarter of 2004. For the nine months ended September 30, 2005, net income was $4.9 million compared to $3.9 million for the nine months ended September 30, 2004, a 25% increase. Fully diluted earnings per share was $.25 for the third quarter of 2005, $.01 increase over the third quarter of 2004. For the nine months ended September 30, 2005 and 2004, fully diluted earnings per share were $.71 and $.57, respectively. Total assets on September 30, 2005 were $927.0 million compared to $882.3 million at the end of 2004. "We are pleased with our continued earnings and asset growth for the third quarter, as it signifies that our concentrated efforts around core deposit growth and improving our deposit mix are paying off," said B. Grant Yarber, President and Chief Executive Officer. "As asset quality, net interest margin, and core deposits trend positively along with the funding of increased loan commitments, we anticipate continued optimism about the future success of Capital Bank." Net interest income increased by approximately $740,000 during the third quarter of 2005 compared to the third quarter of 2004. Net interest income totaled approximately $7.4 million during the third quarter, representing a net interest margin of 3.57% on a tax equivalent basis. The Company's net interest margin, on a tax equivalent basis, remained relatively constant during the third quarter despite market pressures leading to industry wide margin compression. The Company continues to concentrate on increasing its margin through core deposit growth and competitive loan pricing. The provision for loan losses for the quarter ended September 30, 2005 was $(28,000) compared to $268,000 for the third quarter of 2004, due to improvement in the overall quality of the Company's commercial loan portfolio. Annualized net charge-offs for the third quarter of 2005 were 0.07% of average loans compared to 0.09% and 0.06% for the second and first quarters of 2005, respectively. The allowance for loan losses as a percentage of total loans at September 30, 2005 was 1.52%. The provision for loan losses for the nine months ended September 30, 2005 and September 30, 2004 were $(434,000) and $681,000, respectively. **more** Non-interest income for the third quarter of 2005 was $1.8 million compared to $2.3 million in the third quarter of 2004. For the nine months ended September 30, 2005, non-interest income was $4.7 million compared to $5.4 million for the first nine months of 2004. The decreases in the current periods in 2005 when compared to the same periods of 2004, are primarily due to the combined effect of the sale of the Company's Northern Region branches and the sale of a portion of the Company's mortgage loan portfolio, which together provided increased non-interest income of approximately $776,000. Non-interest expense in the third quarter of 2005 was $6.6 million compared to $6.5 million in the second quarter of 2005. Increases were primarily attributable to additional marketing expenses and directors' fees. Total deposits increased by $13.2 million during the third quarter, reaching approximately $703.2 million on September 30, 2005. Core deposits increased $9.2 million during the third quarter. Consistent with our effort to continue improvement in the net interest margin, certain time deposits maturing during the quarter were not retained as they matured. Loans outstanding during the quarter decreased by $2.3 million from June 30, 2005 balances due to payments on outstanding loans. Loan balances are anticipated to rise during the last quarter of 2005 due to robust new loan demand and a significant increase in unfunded commitments. The Company continues to be well capitalized under regulatory capital guidelines. Capital Bank Corporation, headquartered in Raleigh, N.C., with approximately $927 million in total assets, offers a broad range of financial services. Capital Bank operates 21 banking offices in Raleigh (4), Sanford (3), Burlington (2), Asheville (3), Cary, Morrisville, Oxford, Wake Forest, Hickory, Greensboro, Graham, Pittsboro and Siler City. 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. ### Capital Bank Corporation Summary of Operations Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended (In thousands except per share data) September 30, 2005 September 30, 2004 September 30, 2005 September 30, 2004 ------------------ ------------------ ------------------ ------------------ Interest income $ 13,078 $ 10,796 $ 36,782 $ 31,190 Interest expense 5,649 4,107 15,287 12,001 ------------------ ------------------ ------------------ ------------------ Net interest income 7,429 6,689 21,495 19,189 Provision for loan losses (28) 268 (434) 681 ------------------ ------------------ ------------------ ------------------ Net interest income after provision for loan losses 7,457 6,421 21,929 18,508 Non-interest income 1,790 2,280 4,709 5,425 Non-interest expense 6,644 6,179 19,283 17,886 ------------------ ------------------ ------------------ ------------------ Income before taxes 2,603 2,522 7,355 6,047 Income tax expense 869 872 2,463 2,126 ------------------ ------------------ ------------------ ------------------ Net income $ 1,734 $ 1,650 $ 4,892 $ 3,921 ================== ================== ================== ================== Income per share - basic $ 0.26 $ 0.25 $ 0.72 $ 0.59 ================== ================== ================== ================== Income per share - fully diluted $ 0.25 $ 0.24 $ 0.71 $ 0.57 ================== ================== ================== ================== Weighted average shares outstanding: Basic 6,801 6,720 6,762 6,706 Fully diluted 6,904 6,883 6,906 6,884 End of Period Balances 2005 2004 ------------------------------------------ --------------------------- (In thousands except per share data) September 30 June 30 March 31 December 31 September 30 ------------ ------------ ------------ ------------ ------------ Total Assets $ 927,077 $ 917,392 $ 887,312 $ 882,294 $ 875,713 Investment securities 161,389 161,822 159,966 160,580 154,694 Loans (gross) * 646,448 648,765 647,922 654,867 657,359 Allowance for loan losses 9,844 10,075 10,372 10,721 11,322 Total earning assets 847,296 840,607 812,868 816,422 815,053 Deposits 703,183 689,997 662,178 654,976 647,037 Shareholders' equity 82,268 79,499 76,965 77,738 76,370 Book value per share 12.11 12.00 11.72 11.76 11.58 Tangible book value per share 10.21 10.04 9.74 9.78 9.59 Average Balances 2005 2004 ------------------------------------------- ---------------------------- (In thousands) September 30 June 30 March 31 December 31 September 30 ------------ ------------ ------------ ------------ ------------ Total assets 922,142 897,178 879,912 883,483 884,853 Investments (at amortized cost) 162,282 160,955 157,963 156,018 152,648 Loans (gross) * 637,743 648,269 652,429 658,518 660,628 Total earning assets 843,992 826,361 812,963 819,867 823,299 Deposits 697,311 671,307 647,787 651,301 669,321 Shareholders' equity 81,606 78,706 78,476 78,468 74,444 * Includes loans held for sale. Capital Bank Corporation Quarterly Results 2005 2004 -------------------------------------------- --------------------------- (In thousands except per share data) September 30 June 30 March 31 December 31 September 30 ------------ ------------ ------------ ------------ ------------ Interest income $ 13,078 $ 12,248 $ 11,456 $ 11,201 $ 10,796 Interest expense 5,649 5,088 4,550 4,256 4,107 ------------ ------------ ------------ ------------ ------------ Net interest income 7,429 7,160 6,906 6,945 6,689 Provision for loan losses (28) (156) (250) 357 268 ------------ ------------ ------------ ------------ ------------ Net interest income after provision 7,457 7,316 7,156 6,588 6,421 Non-interest income 1,790 1,579 1,340 1,480 2,280 Non-interest expense 6,644 6,489 6,150 5,938 6,179 ------------ ------------ ------------ ------------ ------------ Income before taxes 2,603 2,406 2,346 2,130 2,522 Income tax expense 869 803 791 740 872 ------------ ------------ ------------ ------------ ------------ Net income $ 1,734 $ 1,603 $ 1,555 $ 1,390 $ 1,650 ============ ============ ============ ============ ============ Income per share - basic $ 0.26 $ 0.24 $ 0.23 $ 0.21 $ 0.25 ============ ============ ============ ============ ============ Income per share - fully diluted $ 0.25 $ 0.23 $ 0.22 $ 0.20 $ 0.24 ============ ============ ============ ============ ============ Weighted average shares outstanding: Basic 6,801 6,731 6,755 6,729 6,720 Fully diluted 6,904 6,871 6,942 6,886 6,883 Quarterly Net Interest Margin * 2005 2004 -------------------------------------------- ---------------------------- September 30 June 30 March 31 December 31 September 30 ------------ ------------ ------------ ------------ ------------ Yield on earning assets 6.22% 6.02% 5.80% 5.51% 5.30% Cost of interest bearing liabilities 2.97% 2.76% 2.53% 2.31% 2.21% Net interest spread 3.25% 3.26% 3.27% 3.20% 3.09% Free funds benefit 0.32% 0.29% 0.26% 0.25% 0.22% Net interest margin 3.57% 3.55% 3.53% 3.45% 3.31% * Annualized and on a fully taxable equivalent basis Nonperforming Assets 2005 2004 ------------------------------------------ --------------------------- (In thousands) September 30 June 30 March 31 December 31 September 30 ------------ ------------ ------------ ------------ ------------ Commercial and commercial real estate $ 3,915 $ 6,094 $ 5,797 $ 3,964 $ 4,401 Consumer 239 218 195 312 151 Equity lines 592 427 323 415 363 Construction 1,302 1,674 2,374 1,622 1,314 Mortgage 1,711 2,014 1,880 1,898 2,034 ------------ ------------ ------------ ------------ ------------ Total nonperforming loans 7,759 10,427 10,569 8,211 8,263 Other real estate owned 1,608 1,508 431 418 825 ------------ ------------ ------------ ------------ ------------ Total nonperforming assets $ 9,367 $ 11,935 $ 11,000 $ 8,629 $ 9,088 ============ ============ ============ ============ ============ Nonperforming assets include loans that are 90 days or more past due or in nonaccrual status and other real estate owned Key Ratios 2005 2004 -------------------------------------------- ---------------------------- (Dollars in thousands) September 30 June 30 March 31 December 31 September 30 ------------ ------------ ------------ ------------ ------------ Past due loans 10,089 9,576 14,623 11,609 12,505 Past due loans as a percent of total loans 1.58% 1.48% 2.24% 1.76% 1.89% Net charge-offs 117 138 99 647 363 Net charge-offs as a percent of average loans (annualized) 0.07% 0.09% 0.06% 0.39% 0.22% Allowance for loan losses as a percent of total loans ** 1.52% 1.55% 1.60% 1.64% 1.72% Nonperforming assets as a percent of total assets 1.01% 1.30% 1.24% 0.98% 1.04% Allowance for loan losses as a percent of nonperforming loans ** 127% 97% 98% 131% 137% ** Effective December 31, 2004, the reserve for off balance sheet credit risk was reclassified from the allowance for loan losses to other liabilities. Prior period balances and ratios involving the allowance for loan losses have not been restated. The reserve reclassified was $311,000 at that time. CAPITAL BANK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION September 30, 2005 and December 31, 2004 September 30, December 31, ASSETS 2005 2004 Changes % Change - ------------------------------------------------------------------------------------------ ------------ ------------- (In thousands) (Unaudited) Cash and due from banks: Interest-earning $ 30,445 $ 971 $ 29,474 3035% Non-interest-earning 26,756 22,036 4,720 21% Federal funds sold and short term investments 9,014 4 9,010 NM Investment securities - available for sale, at fair value 148,766 147,244 1,522 1% Investment securities - held to maturity, at amortized cost 12,623 13,336 (713) -5% Loans-net of unearned income and deferred fees 646,448 654,867 (8,419) -1% Allowance for loan losses (9,844) (10,721) 877 -8% ------------ ------------ ------------ ------------ Net loans 636,604 644,146 (7,542) -1% ------------ ------------ ------------ ------------ Premises and equipment, net 15,783 15,608 175 1% Bank owned life insurance 19,618 13,500 6,118 45% Deposit premium and goodwill, net 12,905 13,065 (160) -1% Deferred tax assets 5,924 5,985 (61) -1% Other assets 8,639 6,399 2,240 35% ------------ ------------ ------------ ------------ Total assets $ 927,077 $ 882,294 $ 44,783 5% ============ ============ ============ ============ LIABILITIES Deposits: Demand, non-interest bearing $ 80,827 $ 65,673 $ 15,154 23% Savings, money market accounts and interest checking 236,065 193,435 42,630 22% Time deposits 386,291 395,868 (9,577) -2% ------------ ------------ ------------ ------------ Total deposits 703,183 654,976 48,207 7% ------------ ------------ ------------ ------------ Repurchase agreements and federal funds purchased 12,620 16,755 (4,135) -25% Borrowings 98,525 102,320 (3,795) -4% Subordinated debentures 20,620 20,620 -- 0% Other liabilities 9,861 9,885 (24) 0% ------------ ------------ ------------ ------------ Total liabilities 844,809 804,556 40,253 5% ------------ ------------ ------------ ------------ STOCKHOLDERS' EQUITY Common stock, no par value; 20,000,000 shares authorized; 6,795,704 and 6,612,787 issued and outstanding as of 2005 and 2004, respectively 70,278 68,341 1,937 3% Retained earnings 12,785 9,092 3,693 41% Accumulated other comprehensive income (795) 305 (1,100) -361% ------------ ------------ ------------ ------------ Total stockholders' equity 82,268 77,738 4,530 6% ------------ ------------ ------------ ------------ Total liabilities and stockholders' equity $ 927,077 $ 882,294 $ 44,783 5% ============ ============ ============ ============ CAPITAL BANK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME Nine Months Ended September 30, 2005 and 2004 2005 2004 Changes % Change - ------------------------------------------------------------------------------------------ ------------ ------------ (In thousands) (Unaudited) Interest income: Loans and loan fees $ 31,140 $ 26,205 $ 4,935 19% Investment securities 5,144 4,867 277 6% Federal funds and other interest income 498 118 380 322% ------------ ------------ ------------ ------------ Total interest income 36,782 31,190 5,592 18% ------------ ------------ ------------ ------------ Interest expense: Deposits 11,015 8,746 2,269 26% Borrowings and repurchase agreements 4,272 3,255 1,017 31% ------------ ------------ ------------ ------------ Total interest expense 15,287 12,001 3,286 27% ------------ ------------ ------------ ------------ Net interest income 21,495 19,189 2,306 12% Provision for loan losses (434) 681 (1,115) -164% ------------ ------------ ------------ ------------ Net interest income after provision for loan losses 21,929 18,508 3,421 18% ------------ ------------ ------------ ------------ Noninterest income: Deposit service charges and other fees 2,142 2,250 (108) -5% Mortgage banking revenues 1,212 1,007 205 20% Net gain on sale of securities 7 14 (7) -50% Other noninterest income 1,348 2,154 (806) -37% ------------ ------------ ------------ ------------ Total noninterest income 4,709 5,425 (716) -13% ------------ ------------ ------------ ------------ Noninterest expenses: Salaries and employee benefits 10,164 9,033 1,131 13% Occupancy 1,906 1,778 128 7% Furniture and equipment 1,093 1,286 (193) -15% Data processing 930 835 95 11% Advertising 596 650 (54) -8% Amortization of deposit premiums 160 187 (27) -14% Professional fees 739 740 (1) 0% Telecommunications 428 387 41 11% Other expenses 3,267 2,990 277 9% ------------ ------------ ------------ ------------ Total noninterest expenses 19,283 17,886 1,397 8% ------------ ------------ ------------ ------------ Net income before tax expense 7,355 6,047 1,308 22% Income tax expense 2,463 2,126 337 16% ------------ ------------ ------------ ------------ Net income $ 4,892 $ 3,921 $ 971 25% ============ ============ ============ ============ Earnings per share - basic $ 0.72 $ 0.59 $ 0.13 22% ============ ============ ============ ============ Earnings per share - diluted $ 0.71 $ 0.57 $ 0.14 25% ============ ============ ============ ============ Weighted Average Shares: Basic 6,762,292 6,706,018 56,274 1% ============ ============ ============ ============ Fully Diluted 6,905,809 6,884,400 21,409 0% ============ ============ ============ ============ CAPITAL BANK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended September 30, 2005 and 2004 2005 2004 Changes % Change - ------------------------------------------------------------------------------------------ ------------ ------------ (In thousands) (Unaudited) Interest income: Loans and loan fees $ 10,993 $ 9,162 $ 1,831 20% Investment securities 1,720 1,597 123 8% Federal funds and other interest income 365 37 328 886% ------------ ------------ ------------ ------------ Total interest income 13,078 10,796 2,282 21% ------------ ------------ ------------ ------------ Interest expense: Deposits 4,157 2,971 1,186 40% Borrowings and repurchase agreements 1,492 1,136 356 31% ------------ ------------ ------------ ------------ Total interest expense 5,649 4,107 1,542 38% ------------ ------------ ------------ ------------ Net interest income 7,429 6,689 740 11% Provision for loan losses (28) 268 (296) -110% ------------ ------------ ------------ ------------ Net interest income after provision for loan losses 7,457 6,421 1,036 16% ------------ ------------ ------------ ------------ Noninterest income: Service charges and other fees 771 755 16 2% Mortgage banking revenues 554 305 249 82% Net gain on sale of securities -- 1 (1) -100% Other noninterest income 465 1,219 (754) -62% ------------ ------------ ------------ ------------ Total noninterest income 1,790 2,280 (490) -21% ------------ ------------ ------------ ------------ Noninterest expenses: Salaries and employee benefits 3,536 3,130 406 13% Occupancy 666 624 42 7% Furniture and equipment 356 447 (91) -20% Data processing 301 212 89 42% Advertising 217 226 (9) -4% Amortization of deposit premiums 53 61 (8) -13% Professional fees 207 335 (128) -38% Telecommunications 145 148 (3) -2% Other expenses 1,163 996 167 17% ------------ ------------ ------------ ------------ Total noninterest expenses 6,644 6,179 465 8% ------------ ------------ ------------ ------------ Net income before tax expense 2,603 2,522 81 3% Income tax expense 869 872 (3) 0% ------------ ------------ ------------ ------------ Net income $ 1,734 $ 1,650 $ 84 5% ============ ============ ============ ============ Earnings per share - basic $ 0.26 $ 0.25 $ 0.01 2% ============ ============ ============ ============ Earnings per share - diluted $ 0.25 $ 0.24 $ 0.01 4% ============ ============ ============ ============ Weighted Average Shares Used for EPS Basic 6,800,813 6,720,211 80,602 1% ============ ============ ============ ============ Fully Diluted 6,904,321 6,883,322 20,999 0% ============ ============ ============ ============