FORM 4 Check this box if no longer subject to Section 16. Form 4 or Form 5 obligations may continue. See Instruction 1(b).

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF CHANGES IN BENEFICIAL OWNERSHIP OF SECURITIES Filed pursuant to Section 16(a) of the Securities Exchange Act of 1934, Section 17(a) of the Public Utility Holding Company Act of 1935 or Section 30(h) of the Investment Company Act of 1940

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1. Name and Address of Reporting Person * MCGILL JAMES C   2. Issuer Name and Ticker or Trading Symbol 1ST STATE BANCORP INC [FSBC] 5. Relationship of Reporting Person(s) to Issuer (Check all applicable) __X__ Director _____ 10% Owner __X__ Officer (give title below) _____ Other (specify below) President & CEO (Last) (First) (Middle) 445 SOUTH MAIN STREET 3. Date of Earliest Transaction (Month/Day/Year) 12/30/2005 (Street) BURLINGTON, NC 27215 4. If Amendment, Date Original Filed(Month/Day/Year) 6. Individual or Joint/Group Filing(Check Applicable Line) _X_ Form filed by One Reporting Person ___ Form filed by More than One Reporting Person (City) (State) (Zip) Table I - Non-Derivative Securities Acquired, Disposed of, or Beneficially Owned

1.Title of Security (Instr. 3) 2. Transaction Date (Month/Day/Year) 2A. Deemed Execution Date, if any (Month/Day/Year) 3. Transaction Code (Instr. 8) 4. Securities Acquired (A) or Disposed of (D) (Instr. 3, 4 and 5) 5. Amount of Securities Beneficially Owned Following Reported Transaction(s) (Instr. 3 and 4) 6. Ownership Form: Direct (D) or Indirect (I) (Instr. 4) 7. Nature of Indirect Beneficial Ownership (Instr. 4) Code V Amount (A) or (D) Price Common Stock 12/30/2005   M   68,318 A (1) 119,313 D   Common Stock 01/03/2006   D   119,313 D (2) 0 D   Common Stock 01/03/2006   D   12,492 D (2) 0 I By ESOP Common Stock 01/03/2006   D   29,089 D (2) 0 I By Profit Sharing Plan Common Stock 01/03/2006   D   288 D (2) 0 I By Spouse

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Table II - Derivative Securities Acquired, Disposed of, or Beneficially Owned
(e.g., puts, calls, warrants, options, convertible securities)

1. Title of Derivative Security (Instr. 3)

2. Conversion or Exercise Price of Derivative Security

3. Transaction Date (Month/Day/Year)

3A. Deemed Execution Date, if any (Month/Day/Year)

4. Transaction Code (Instr. 8)

5. Number of Derivative Securities Acquired (A) or Disposed of (D) (Instr. 3, 4, and 5)

6. Date Exercisable and Expiration Date (Month/Day/Year)

7. Title and Amount of Underlying Securities (Instr. 3 and 4)

8. Price of Derivative Security (Instr. 5)

9. Number of Derivative Securities Beneficially Owned Following Reported Transaction(s) (Instr. 4)

10. Ownership Form of Derivative Security: Direct (D) or Indirect (I) (Instr. 4)

11. Nature of Indirect Beneficial Ownership (Instr. 4)

Code

V

(A)

(D)

Date Exercisable

Expiration Date

Title

Amount or Number of Shares

Phantom Stock Unit

(3)

12/30/2005

M

68,318

(1)

(1)

Common Stock

68,318

(1)

0

D

Stock Option (Right to Buy)

$ 14.71

01/03/2006

D

79,078

06/06/2000

06/06/2010

Common Stock

79,078

(4)

0

D

Reporting Owners

Reporting Owner Name / Address	Relationships
	Director	10% Owner	Officer	Other
MCGILL JAMES C 445 SOUTH MAIN STREET BURLINGTON, NC 27215	X		President & CEO

Signatures

/s/ McGill, James C.		01/10/2006
**Signature of Reporting Person		Date

Explanation of Responses:

*	If the form is filed by more than one reporting person, see Instruction 4(b)(v).
**	Intentional misstatements or omissions of facts constitute Federal Criminal Violations. See 18 U.S.C. 1001 and 15 U.S.C. 78ff(a).
(1)	Shares were distributed from the 1st State Bank Deferred Compensation Plan (the DCP Plan) to direct ownership upon the termination of the DCP Plan on December 30, 2005 pursuant to the Merger Agreement dated as of June 29, 2005 by and between Capital Bank Corporation and 1st State Bancorp, Inc. (the Merger Agreement).
(2)	Pursuant to the Merger Agreement, on the effective date of the merger of 1st State Bancorp, Inc. (the Issuer) with and into Capital Bank Corporation, these shares of Issuer common stock were converted into the right to receive, at the election of the Reporting Person but subject to the allocation procedures set forth in the Merger Agreement: (i) 2.434788 shares of Capital Bank Corporation common stock, rounded to the nearest whole share, for each share of Issuer common stock; (ii) $37.15 in cash for each share of Issuer common stock; or (iii) 1.684457 shares of Capital Bank Corporation common stock, rounded to the nearest whole share, and $11.4486 in cash for each share of Issuer common stock. The Reporting Person has until February 8, 2006 to elect the form of merger consideration he wishes to receive.
(3)	Each share of phantom stock was the economic equivalent of one share of 1st State Bancorp, Inc. common stock.
(4)	This option was cancelled in the merger in exchange for a cash payment representing the difference between $37.15 per share and the exercise price of the option.

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