ccc_10ka-123107.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

Commission file number: 0-18460

COMMUNITY CAPITAL CORPORATION

(Exact name of Registrant as specified in its charter)

South Carolina		57-0866395
(State or other jurisdiction of incorporation or organization)		(I. R. S. Employer Identification No. )

1402-C Highway 72 West Greenwood, South Carolina		29649
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (864) 941-8200

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Each Class

Name of Each Exchange

On Which Reported

None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, par value $1.00 per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

The aggregate market value of the common equity held by non-affiliates of the registrant as of June 30, 2007, based on the closing price of the common stock as reported by The NASDAQ Global Market on such date, was approximately $65.8 million. The registrant has no outstanding non-voting common equity.

The number of outstanding common shares of the registrant as of February 22, 2008, was 4,459,581.

Documents Incorporated By Reference: Portions of the registrant’s Proxy Statement relating to its 2008 Annual Meeting of Shareholders, to be field subsequently, are incorporated herein by reference in Part III.

COMMUNITY CAPITAL CORPORATION

TABLE OF CONTENTS

Item		Page No.
PART I
1.	Business	3
1A.	Risk Factors	11
1B.	Unresolved Staff Comments	15
2.	Properties	15
3.	Legal Proceedings	15
4.	Submission of Matters to a Vote of Security Holders	15

PART II
5.	Market for Registrant’s Common Equity, Related Shareholders Matters and Issuer Purchases of Equity
	Securities	16
6.	Selected Financial Data	19
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
7A.	Qualitative and Quantitative Disclosures About Market Risk	40
8.	Financial Statements and Supplementary Data	40
9.	Changes and Disagreements with Accountants on Accounting and Financial Disclosure	41
9A.	Controls and Procedures	41
9B.	Other Information	42

PART III
10.	Directors, Executive Officers, and Corporate Governance	42
11.	Executive Compensation	42
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	42
13.	Certain Relationships and Related Transactions, and Director Independence	42
14.	Principal Accountant Fees and Services	43

PART IV
15.	Exhibits and Financial Schedules	43
Signatures		44
Index to Consolidated Financial Statements		F-1
Exhibit Index		E-1

Advisory Note Regarding Forward-Looking Statements

A number of the presentations and disclosures in this Form 10-K that are not historical facts, including without limitation statements regarding the level of allowance for loan losses, the rate of delinquencies and amounts of charge-offs, and the rates of loan growth, are forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. We caution readers of this report that forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of us to be materially different from those expressed or implied by the forward-looking statements. Consequently, do not place undue reliance on them. Although we believe that our expectations of future performance are based on reasonable assumptions within the bounds of our knowledge of our business and operations, we have no assurance that actual results will not differ materially from our expectations. We do not intend to update our forward-looking information and statements, whether written or oral, to reflect change. These cautionary statements expressly qualify all forward-looking statements attributable to us.

Factors that could cause actual results to differ from expectations include, among other things: (1) the challenges, costs, and complications associated with: (a) the continued development of our branches, and (b) compliance with the Sarbanes-Oxley Act of 2002, the rules promulgated thereunder, and the related rules promulgated by NASDAQ; (2) the potential that loan charge-offs may exceed the allowance for loan losses or that such allowance will be increased as a result of factors beyond our control; (3) our dependence on senior management; (4) competition from existing financial institutions operating in our market areas as well as the entry into such areas of new competitors with greater resources, broader branch networks, and more comprehensive services; (5) adverse conditions in the stock market, the public debt market, and other capital markets (including changes in interest rate conditions); (6) changes in deposit rates, the net interest margin, and funding sources; (7) inflation, interest rate, market, and monetary fluctuations; (8) risks inherent in making loans including repayment risks and value of collateral; (9) the strength of the United States economy in general and the strength of the local economies in which we conduct operations may be different than expected resulting in, among other things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on our loan portfolio and allowance for loan losses; (10) fluctuations in consumer spending and saving habits; (11) the demand for our products and services; (12) technological changes; (13) the challenges and uncertainties in the implementation of our expansion and development strategies; (14) our ability to increase market share; (15) the adequacy of expense projections and estimates of impairment loss; (16) the impact of changes in accounting policies by the Securities and Exchange Commission; (17) unanticipated regulatory or judicial proceedings; (18) the potential negative effects of future legislation affecting financial institutions (including without limitation laws concerning taxes, banking, securities, and insurance); (19) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (20) the timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet; (21) the impact on our business, as well as on the risks set forth above, of various domestic or international military or terrorist activities or conflicts; (22) other factors described in this report and in other reports we have filed with the Securities and Exchange Commission; and (23) our success at managing the risks involved in the foregoing.

PART I

This Form 10-K/A is being filed to amend the consent of the accountants attached hereto as Exhibit 23.1.

ITEM 1. BUSINESS.

General

Community Capital Corporation is a bank holding company headquartered in Greenwood, South Carolina. We incorporated under the laws of the State of South Carolina on April 8, 1988 as a holding company for Greenwood National Bank, which opened in 1989.

We were formed principally in response to perceived opportunities resulting from takeovers of several South Carolina-based banks by large southeastern regional bank holding companies. In many cases, when these consolidations occur, local boards of directors are dissolved, and local management is relocated or terminated. We believe this situation creates favorable opportunities for new community banks with local management and local directors. Management believes that such banks can be successful in attracting individuals and small to medium-sized businesses as customers who wish to conduct business with a locally owned and managed institution that demonstrates an active interest in their business and personal financial affairs.

In 1994, we made the strategic decision to expand beyond the Greenwood County area by creating an organization of independently managed community banks that serve their respective local markets, but which share a common vision and benefit from the strength, resources and economies of a larger institution. In 1995, we opened Clemson Bank & Trust in Clemson, South Carolina. In 1997, we opened Community Bank & Trust in Barnwell, South Carolina, TheBank in Belton, South Carolina, and Mid State Bank in Newberry, South Carolina. During 2000, each of these five community banks operated as a wholly-owned subsidiary of the Company and engaged in a general commercial banking business, emphasizing the banking needs of individuals and small to medium-sized businesses in each bank’s primary service area. Each of the five community banks was a state chartered Federal Reserve member bank. On January 1, 2001, we merged the five community banks into one bank known as CapitalBank.

As of March 4, 2004, we were the survivor of a merger between us and Abbeville Capital Corporation, a South Carolina corporation and the holding company for The Bank of Abbeville, a South Carolina corporation. Immediately following the merger with Abbeville Capital Corporation, we merged The Bank of Abbeville into CapitalBank.

Market Areas

At December 31, 2007, CapitalBank had banking locations in Greenwood, Abbeville, Clemson, Calhoun Falls, Prosperity, Clinton, Belton, Greer, Greenville, Honea Path, Anderson, Newberry, and Saluda, South Carolina.

The following table sets forth certain information concerning CapitalBank at December 31, 2007:

	Number of Locations		Total Assets		Total Loans		Total Deposits
			(Dollars in thousands)
CapitalBank		18		$799,020		$646,777		$520,634

CapitalBank offers a full range of commercial banking services, including checking and savings accounts, NOW accounts, IRA accounts, HSA accounts and other savings and time deposits of various types ranging from money markets to long-term certificates of deposit. CapitalBank also offers a full range of consumer credit and short-term and intermediate-term commercial and personal loans. CapitalBank conducts residential mortgage loan origination activities pursuant to which mortgage loans are sold to investors in the secondary markets. CapitalBank does not retain servicing of such loans.

CapitalBank also offers trust and related fiduciary services. Discount securities brokerage services are available through a third-party brokerage service that has contracted with CapitalBank.

Lending Activities

General. Through CapitalBank, we offer a range of lending services, including real estate, consumer, and commercial loans, to individuals and small business and other organizations that are located in or conduct a substantial portion of their business in CapitalBank’s market areas. Our total loans at December 31, 2007, totaled $645.2 million, or 90.77% of total earning assets. The interest rates charged on loans vary with the degree of risk, maturity, and amount of the loan, and are further subject to competitive pressures, availability of funds, and government regulations. We have no foreign loans or loans for highly leveraged transactions.

Our primary focus has been on commercial and installment lending to individuals and small to medium-sized businesses in its market areas, as well as residential mortgage loans. These three loan types totaled approximately $323.8 million, and constituted approximately 50.19% of our loan portfolio, at December 31, 2007.

The following table sets forth the composition of our loan portfolio for each of the five years in the period ended December 31, 2007.

Loan Composition

(Dollars in thousands)

	December 31,
	2007			2006			2005			2004			2003
Commercial, financial and agricultural		6.89	%		7.83	%		8.20	%		10.62	%		9.57	%
Real estate:
Construction		25.92			24.88			22.90			11.33			4.98
Mortgage:
Residential		39.13			39.08			37.50			41.94			51.96
Commercial (1)		24.00			24.07			26.53			30.29			27.22
Consumer and other		4.06			4.14			4.87			5.82			6.27
Total loans		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%

Total loans (dollars)	$	645,154		$	573,639		$	465,892		$	425,628		$	326,178

(1) The majority of these loans are made to operating businesses where real property has been taken as additional collateral.

Loan Approval. Certain credit risks are inherent in the loan making process. These include prepayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions, and risks inherent in dealing with individual borrowers. In particular, longer maturities increase the risk that economic conditions will change and adversely affect collectibility. We attempt to minimize loan losses through various means and use standardized underwriting criteria. During 2007, these means included the use of policies and procedures that impose officer and customer lending limits and require loans in excess of certain limits to be approved by the Board of Directors of CapitalBank.

Loan Review. We have a continuous loan review process designed to promote early identification of credit quality problems. All loan officers are charged with the responsibility of reviewing all past due loans in their respective portfolios. CapitalBank establishes watch lists of potential problem loans.

Deposits

The principal sources of funds for CapitalBank are core deposits, consisting of demand deposits, interest-bearing transaction accounts, money market accounts, saving deposits, and certificates of deposit. Transaction accounts include checking and negotiable order of withdrawal (NOW) accounts that customers use for cash management and that provide CapitalBank with a source of fee income and cross-marketing opportunities, as well as a low-cost source of funds. Time and savings accounts also provide a relatively stable source of funding. The largest source of funds for CapitalBank is certificates of deposit. Primarily customers in CapitalBank’s market areas hold certificates of deposit less than $100,000. Senior management of CapitalBank sets deposit rates weekly. Management believes that the rates CapitalBank offers are competitive with other institutions in CapitalBank’s market areas.

Competition

CapitalBank generally competes with other financial institutions through the selection of banking products and services offered, the pricing of services, the level of service provided, the convenience and availability of services, and the degree of expertise and the personal manner in which services are offered. South Carolina law permits statewide branching by banks and savings institutions, and many financial institutions in the state have branch networks. Consequently, commercial banking in South Carolina is highly competitive. South Carolina law also permits interstate banking whereby out-of-state banks and bank holding companies are allowed to acquire and merge with South Carolina banks and bank holding companies, as long as the South Carolina State Board of Financial Institutions gives prior approval for the acquisition or merger. Many large banking organizations currently operate in the market areas of CapitalBank, several of which are controlled by out-of-state ownership. In addition, competition between commercial banks and thrift institutions (savings institutions and credit unions) has been intensified significantly by the elimination of many previous distinctions between the various types of financial institutions and the expanded powers and increased activity of thrift institutions in areas of banking that previously had been the sole domain of commercial banks. See “Government Supervision and Regulation.”

CapitalBank faces increased competition from both federally-chartered and state-chartered financial and thrift institutions, as well as credit unions, consumer finance companies, insurance companies and other institutions in CapitalBank’s market areas. Some of these competitors are not subject to the same degree of regulation and restriction imposed upon CapitalBank. Many of these competitors also have broader geographic markets and substantially greater resources and lending limits than CapitalBank and offer certain services that CapitalBank does not currently provide. In addition, many of these competitors have numerous branch offices located throughout the extended market areas of CapitalBank that we believe may provide these competitors with an advantage in geographic convenience that CapitalBank does not have at present. Such competitors may also be in a position to make more effective use of media advertising, support services, and electronic technology than can CapitalBank.

Employees

Including the employees of CapitalBank, we currently have in the aggregate 195 full-time employees and 24 part-time employees.

Government Supervision and Regulation

General

We, along with CapitalBank, are subject to an extensive collection of state and federal banking laws and regulations that impose specific requirements and restrictions on, and provide for general regulatory oversight with respect to, virtually all aspects of our operations. These regulations are generally intended to provide protections for depositors and borrowers of CapitalBank, rather than for our shareholders. Each of our entities is also affected by government monetary policy and by regulatory measures affecting the banking industry in general. The actions of the Federal Reserve System affect the money supply and, in general, the lending abilities of CapitalBank because decisions relating to money supply increase or decrease the cost and availability of funds to the banks. Additionally, the Federal Reserve System regulates the availability of bank credit in order to combat recession and curb inflationary pressures in the economy by open market operations in United States government securities, changes in the discount rate on member bank borrowings, changes in the reserve requirements against bank deposits, and limitations on interest rates that banks may pay on time and savings deposits.

The following discussion sets forth some of the regulatory requirements applicable to bank holding companies and banks and provides certain specific information related to CapitalBank and us. These summaries are qualified in their entirety by reference to the applicable statutes and regulations and are not intended to be an exhaustive description of the statutes or regulations applicable to our and CapitalBank’s business. Any change in applicable laws or regulations may have a material adverse effect on the business and prospects of our entities.

Bank Holding Company Regulation Generally

We are a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended, and the South Carolina Banking and Branching Efficiency Act of 1996, as amended. As a bank holding company subject to such Acts, we are required to register with the Board of Governors of the Federal Reserve System and the South Carolina State Board of Financial Institutions. We must also file with both agencies annual reports and other information regarding our respective business operations and those of CapitalBank. We are also subject to periodic examinations by these agencies. The regulatory requirements to which we are subject also set forth various conditions regarding the eligibility and qualifications of our directors and officers.

The Federal Reserve Board, pursuant to regulation and published policy statements, has maintained that a bank holding company must serve as a source of financial strength to its subsidiary banks. In adhering to the Federal Reserve Board policy, we may be required to provide financial support to a subsidiary bank at a time when, absent such Federal Reserve Board policy, we may not deem it advisable to provide such assistance. Under the Federal Bank Holding Company Act of 1956, as amended, the Federal Reserve Board may also require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary, other than a nonbank subsidiary of a bank, upon the Federal Reserve Board’s determination that the activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture may aid the depository institution’s financial condition.

The Bank Holding Company Act also limits the types of businesses and operations in which a bank holding company and its subsidiaries, other than banking subsidiaries, may engage. In general, permissible activities are limited to the business of banking and activities found by the Federal Reserve Board to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is permissible, the Federal Reserve Board considers whether the performance of an activity can reasonably be expected to produce benefits to the public (such as greater convenience, increased competition, or gains in efficiency) that outweigh possible adverse effects (such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices). For example, the Federal Reserve Board has deemed permissible: making, acquiring, or servicing loans; leasing personal property; providing certain investment or financial advice; performing certain data processing services; acting as agent or broker in selling credit life insurance and certain other types of insurance in connection with credit transactions by the bank holding company; and certain limited insurance underwriting activities.

Generally, bank holding companies must obtain prior approval of the Federal Reserve Board to engage in any new activity not previously approved by the Federal Reserve Board. However, despite prior approval, the Federal Reserve Board has the power to order a holding company or its subsidiaries to terminate any activity, or terminate its ownership or control of a subsidiary, when the Federal Reserve Board has reasonable cause to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any bank subsidiary of that holding company.

Interstate and Intrastate Banking and Branching

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, eligible bank holding companies in any state are permitted, with Federal Reserve Board approval, to acquire banking organizations in any other state. As such, all existing regional compacts and substantially all regional limitations on interstate acquisitions of banking organizations have been eliminated. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 also removed substantially all of the existing prohibitions on interstate branching by banks. A bank operating in any state is now entitled to establish one or more branches within any other state without, as formerly required, the establishment of a separate banking structure within the other state.

The South Carolina Banking and Branching Efficiency Act of 1996, as amended, permits the acquisition of South Carolina banks and bank holding companies by, and mergers with, out-of-state banks and bank holding companies with the prior approval of the South Carolina State Board of Financial Institutions. The South Carolina Banking and Branching Efficiency Act of 1996, as amended also permits South Carolina state banks, with prior approval of the South Carolina State Board of Financial Institutions, to operate branches outside the State of South Carolina.

Although the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 and the South Carolina Banking and Branching Efficiency Act of 1996 have the potential to increase the number of competitors in the marketplace of CapitalBank, we cannot predict the actual impact of such legislation on the competitive positions of such banks.

Gramm-Leach Bliley Act

The Gramm-Leach-Bliley Act (popularly referred to as the Financial Services Modernization Act of 1999 prior to enactment) became effective March 11, 2000. The Gramm-Leach-Bliley Act accomplished a variety of purposes, including facilitating the affiliation among banks, securities firms, and insurance companies and providing privacy protections for customers. Specifically, the Gramm-Leach-Bliley Act (a) amends the Banking Act of 1933 (the Glass-Steagall Act) to repeal the prohibitions against affiliation of any Federal Reserve member bank, such as CapitalBank, with an entity engaged principally in securities activities, and to repeal the prohibitions against simultaneous service by any officer, director, or employee of a securities firm as an officer, director, or employee of any member bank; (b) amends the Federal Bank Holding Company Act of 1956, as amended, to permit bank holding companies to own shares in non-banking organizations whose activities have been determined by the Federal Reserve System to be permissible for bank holding companies; (c) creates a new type of bank, wholesale financial institutions (also referred to as “woofies”), that are regulated by the Federal Bank Holding Company Act of 1956, as amended, and are not able to accept insured deposits, potentially giving holding companies with woofies greater flexibility to engage in non-financial investments; (d) subject to specified exemptions, pre-empts state anti-affiliation laws restricting transactions among insured depository institutions, wholesale financial institutions, insurance concerns, and national banks; (e) amends the Federal Bank Holding Company Act of 1956, as amended, and the Federal Deposit Insurance Act to mandate public meetings concerning proposed large bank mergers and acquisitions; (f) amends the Electronic Fund Transfer Act to mandate certain fee disclosures related to electronic fund transfer services; and (g) imposes certain obligations on financial institutions to protect the privacy and confidentiality of customer nonpublic personal information, including the requirements that financial institutions establish standards for safeguards to protect privacy and confidentiality, provide the standards to customers at the time of establishing the customer relationship and annually during the continuation of the relationship, condition disclosure of the private information to nonaffiliated third parties on the giving of specific disclosures to consumers, and giving consumers the opportunity to prevent such disclosure to third parties.

Although the Gramm-Leach-Bliley Act has the potential to mix commerce and banking and increase our abilities to diversify into a variety of areas, we cannot predict the actual impact of such legislation on us.

Sarbanes-Oxley Act of 2002

On July 30, 2002, the Sarbanes-Oxley Act of 2002 was signed into law. It mandated sweeping reforms and implemented a number of requirements for public companies. Among the reforms and new requirements are the following:

·	Creation of the Public Company Accounting Oversight Board to oversee audits of public companies.

·	Implementation of a variety of requirements designed to ensure greater auditor independence, including the prohibition of certain services that auditors had traditionally provided to clients.

Implementation of a variety of requirements regarding audit committees, including that they be entirely independent; that they establish procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and that issuers disclose whether at least one member of the committee is a “financial expert.”

·	Requirement that changes in equity ownership by directors, officers, and 10% stockholders be reported more promptly, generally by the end of the second business day following the trade (subject to limited exceptions).

Requirement that CEOs and CFOs certify that the financial information in each annual and quarterly report fairly presents in all material respects the financial condition and results of operations of the issuer as of, and for, the periods presented in the report, and establish and maintain internal controls designed to ensure discovery of material information.

·	Implementation of rules relating to disclosure of all material off-balance sheet transactions and obligations and regarding the presentation of pro-forma financial information in any press release or other public disclosure that was “non-GAAP.”

·	Requirement that issuers disclose whether they have adopted a code of ethics for senior executives and any waivers or changes in the code.

·	Requirement that CEOs and CFOs disgorge incentive compensation and profits from their sales of company securities after restatement of financial information.

·	Prohibition against directors and executive officers from transacting in company equity securities received in connection with employment during any pension fund blackout of such equity.

·	Requirement that SEC review each issuer’s periodic reports at least once every three years.

·	Acceleration of the time schedule during which Forms 10-K and 10-Q and 8-K must be filed for certain issuers and expansion of the items reportable under Form 8-K.

·	Issuance of new requirements regarding the obligations of attorneys to report evidence of a material violation of securities law or breach of fiduciary duty to the issuer’s chief legal counsel or chief executive officer and ultimately to the Board of Directors.

·	Adoption of new rules regarding statutes of limitation and penalties with respect to securities law violations.

Though the Sarbanes-Oxley Act will have a meaningful impact on our operations, we do not believe that we will be affected by Sarbanes-Oxley in ways that are materially different or more onerous than other public companies of similar size and nature.

FIRREA

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 established two insurance funds under the jurisdiction of the FDIC: the Savings Association Fund and the Bank Insurance Fund. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 also imposed, with certain exceptions, a “cross guaranty” on the part of commonly controlled depository institutions such as CapitalBank. Under this provision, if one depository institution subsidiary of a multi-bank holding company fails or requires FDIC assistance, the FDIC may assess a commonly controlled depository institution for the estimated losses suffered by the FDIC. The FDIC’s claim is junior to the claims of nonaffiliated depositors, holders of secured liabilities, general creditors, and subordinated creditors, but is superior to the claims of shareholders.

Limitations on Acquisitions of Common Stock

The federal Change in Bank Control Act (“CBCA”) prohibits a person or group of persons from acquiring “control” of a bank holding company or bank unless the appropriate federal bank regulator has been given 60 days prior written notice of such proposed acquisition and within that time period such regulator has not issued a notice disapproving the proposed acquisition or extending for up to another 30 days the period during which such a disapproval may be issued. The acquisition of 25% or more of any class of voting securities constitutes the acquisition of control under the CBCA. In addition, under a rebuttal presumption established under the CBCA regulations, the acquisition of 10% or more of a class of voting stock of a bank holding company or a FDIC insured bank, with a class of securities registered under or subject to the requirements of Section 12 of the Securities Exchange Act of 1934 would, under the circumstances set forth in the presumption, constitute the acquisition of control.

Any “company” would be required to obtain the approval of the Federal Reserve under the BHCA before acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of our outstanding common stock of, or such lesser number of shares as constitutes control. Such approval would be contingent upon, among other things, the acquirer registering as a bank holding company, divesting all impermissible holdings and ceasing any activities not permissible for a bank holding company.

Bank Secrecy Act

The Bank Secrecy Act requires financial institutions to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax and regulatory matters, and to implement counter-money laundering programs and compliance procedures.

USA Patriot Act of 2001

In October 2001, the USA Patriot Act of 2001 was enacted in response to the terrorist attacks in New York, Pennsylvania and Washington D.C. which occurred on September 11, 2001. The Patriot Act is intended to strengthen U.S. law enforcement’s and the intelligence communities’ abilities to work cohesively to combat terrorism on a variety of fronts. The potential impact of the Patriot Act on financial institutions of all kinds is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and imposes various regulations, including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.

Reserve Requirement

CapitalBank is a member of the Federal Deposit Insurance Corporation, which currently insures the deposits of each member bank to a maximum of $100,000 per depositor through its Bank Insurance Fund. For this depositor protection, each bank pays a semi-annual statutory assessment and is subject to the rules and regulations of the Federal Deposit Insurance Corporation. The federal banking laws require all insured banks, including CapitalBank, to maintain reserves against their checking and transaction accounts (primarily checking accounts, NOW and Super NOW checking accounts). Because reserves must generally be maintained in cash or in non-interest bearing accounts, the effect of the reserve requirements is to increase the respective bank’s cost of funds.

Loan Restrictions

CapitalBank is also subject to Section 23A of the Federal Reserve Act, which places limits on the amount of loans or extensions of credit to, investments in or certain other transactions with affiliates. In addition, limits are placed on the amount of advances to third parties collateralized by the securities or obligations of affiliates. Most of these loans and certain other transactions must be secured in prescribed amounts.

CapitalBank is also subject to Section 23B of the Federal Reserve Act, which prohibits an institution from engaging in transactions (including extensions of credit) with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with non-affiliates.

In addition, CapitalBank may not engage in certain “tie-in” or “tying” arrangements in connection with any extension of credit or the providing of any property or service. Tying is generally defined as any arrangement in which a bank requires a customer who wants one service, such as credit, to buy other products or services from the bank or its affiliates as a condition of receiving the first service.

Restrictions on the Payment of Dividends

We depend primarily on dividends from CapitalBank for cash flow to pay dividends to our shareholders. State and federal statutes and regulations limit the payment of dividends by CapitalBank, as well as the payment of dividends by us to our shareholders. For example, South Carolina state business corporation law requires that dividends may be paid only if such payment would not render the companies insolvent or unable to meet their obligations as they come due. Additionally, all dividends of the state subsidiary banks must be paid out of the respective undivided profits then on hand, after deducting expenses, including losses and bad debts. As a member of the Federal Reserve System, CapitalBank may not declare a dividend on its shares of common stock until its surplus equals its stated capital, unless there has been transferred to surplus no less than one-tenth of their respective net profits of the preceding two consecutive half-year periods (in the case of an annual dividend). CapitalBank must obtain the approval of the Federal Reserve Board if the total of all dividends declared by it in any calendar year exceeds the total of its net profits for that year combined with its retained net profits for the preceding two years, less any required transfers to surplus. The payment of dividends also may be affected or limited by other federal and state regulatory restrictions and factors, such as the requirement to maintain adequate capital in accordance with other state and federal regulatory guidelines.

Capital Adequacy

The Federal Deposit Insurance Corporation Improvement Act required federal banking agencies to broaden the scope of regulatory corrective action taken with respect to depository institutions that do not meet minimum capital and related requirements and to take such actions promptly in order to minimize losses to the Federal Deposit Insurance Corporation. In connection with this Act, federal banking agencies established capital measures (including both a leverage measure and a risk-based capital measure) and specified for each capital measure the levels at which depository institutions will be considered well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized or critically undercapitalized. If an institution becomes classified as undercapitalized, the appropriate federal banking agency will require the institution to submit an acceptable capital restoration plan and can suspend or greatly limit the institution’s ability to effect numerous actions including capital distributions, acquisitions of assets, the establishment of new branches, and the entry into new lines of business.

Specifically, bank regulators assign a risk weight to each category of assets based generally on the perceived credit risk of the asset class. The risk weights are then multiplied by the corresponding asset balances to determine a “risk-weighted” asset base. The minimum ratio of total risk-based capital to risk-weighted assets is 8.0%. At least half of the risk-based capital must consist of Tier 1 capital, which is comprised of common equity, retained earnings, and certain types of preferred stock and excludes goodwill and various intangible assets. The remainder, or Tier 2 capital, may consist of a limited amount of subordinated debt, certain hybrid capital instruments, and other debt securities, preferred stock, and an allowance for loan losses not to exceed 1.25% of risk-weighted assets. The leverage ratio is a company’s Tier 1 capital divided by its adjusted total assets. The leverage ratio requires a 3.0% Tier 1 capital to adjusted average asset ratio for institutions with the highest regulatory rating of 1. All other institutions must maintain a leverage ratio of 4.0% to 5.0%.

As of December 31, 2007, CapitalBank and we exceeded our respective fully phased-in minimum requirements.

Other Regulations

Our status as a registered bank holding company under the Bank Holding Company Act does not exempt us from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws. Each of the entities is under the jurisdiction of the Securities and Exchange Commission and of state securities commissions for matters relating to the offer and sale of their respective securities. Interest and certain other charges collected or contracted for by the subsidiary banks are also subject to state usury laws and certain federal laws concerning interest rates.

The loan operations of CapitalBank are subject to certain federal laws applicable to credit transactions, such as: the federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; the Community Reinvestment Act of 1977, requiring financial institutions to meet their obligations to provide for the total credit needs of the communities they serve, including investing their assets in loans to low- and moderate-income borrowers; the Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; the Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies; the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; the Fair Housing Act, prohibiting discriminatory practices relative to real estate-related transactions, including the financing of housing; and the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The deposit operations of CapitalBank also are subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to implement that Act, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; the Truth in Savings Act, requiring depository institutions to disclose the terms of deposit accounts to consumers; and the Expedited Funds Availability Act, requiring financial institutions to make deposited funds available according to specified time schedules and to disclose funds.

Enforcement Authority

The Federal Reserve Board has enforcement authority over bank holding companies and non-banking subsidiaries to forestall activities that represent unsafe or unsound practices or constitute violations of law. It may exercise these powers by issuing cease-and-desist orders or through other actions. The Federal Reserve Board may also assess civil penalties against companies or individuals who violate the Bank Holding Company Act or related regulations in amounts up to $1 million for each day’s violation. The Federal Reserve Board can also require a bank holding company to divest ownership or control of a non-banking subsidiary or require such subsidiary to terminate its non-banking activities. Certain violations may also result in criminal penalties.

The Federal Deposit Insurance Corporation possesses comparable authority under the Federal Deposit Insurance Act, the Federal Deposit Insurance Corporation Improvement Act, and other statutes. In addition, the Federal Deposit Insurance Corporation can terminate insurance of accounts, after notice and hearing, upon a finding that the insured institution is or has engaged in any unsafe or unsound practice that has not been corrected, is in an unsafe and unsound condition to continue operations, or has violated any applicable law, regulation, rule, or order of, or condition imposed by, the appropriate supervisors.

ITEM 1A. RISK FACTORS.

Investing in our common stock involves various risks which are particular to our company, our industry and our market area. Several risk factors regarding investing in our common stock are discussed below. This listing should not be considered as all-inclusive. If any of the following risks were to occur, we may not be able to conduct our business as currently planned and our financial condition or operating results could be negatively impacted. These matters could cause the trading price of our common stock to decline in future periods.

We are geographically concentrated in the upstate region of South Carolina, and changes in local economic conditions impact our profitability.

We operate primarily in the upstate region of South Carolina and substantially all our loan customers and most of our deposit and other customers live or have operations in that area of South Carolina. Accordingly, our success significantly depends upon the growth in population, income levels, deposits and housing starts in that region, along with the continued attraction of business ventures to the area. Our profitability is impacted by the changes in general economic conditions in this market. Additionally, unfavorable local or national economic conditions could reduce our growth rate, affect the ability of our customers to repay their loans to us and generally affect our financial condition and results of operations.

We are less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of diversified economies. Moreover, we cannot give any assurance that we will benefit from any market growth or favorable economic conditions in our primary market areas if they do occur.

If our loan customers do not pay us as they have contracted to, we may experience losses.

Our principal revenue producing business is making loans. If our customers do not repay the loans, we will suffer losses. Even though we maintain an allowance for loan losses, the amount of the allowance may not be adequate to cover the losses we experience. We attempt to mitigate this risk by a thorough review of the creditworthiness of loan customers. Nevertheless, there is risk that our credit evaluation will prove to be inaccurate due to changed circumstances or otherwise.

Fluctuations in interest rates could reduce our profitability.

Changes in interest rates may affect our level of interest income, the primary component of our gross revenue, as well as the level of our interest expense. Interest rate fluctuations are caused by many factors which, for the most part, are not under our direct control. For example, national monetary policy plays a significant role in the determination of interest rates. Additionally, competitor pricing and the resulting negotiations that occur with our customers also impact the rates we collect on loans and the rates we pay on deposits.

As interest rates change, we expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to our position, this “gap” may work against us, and our earnings may be negatively affected.

Changes in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings. A decline in the market value of our assets may limit our ability to borrow additional funds. As a result, we could be required to sell some of our loans and investments under adverse market conditions, upon terms that are not favorable to us, in order to maintain our liquidity. If those sales are made at prices lower than the amortized costs of the investments, we will incur losses.

Changes in interest rates can have differing effects on our volume of mortgage loans originated.

In periods of declining interest rates, demand for mortgage loans typically increases, particularly for mortgage loans related to refinancing of existing loans. The refinancing of existing loans currently comprises approximately 23.47% of our loan volume. In periods of rising interest rates, such as have occurred recently, demand for mortgage loans typically declines. Our income from our mortgage banking division would significantly decrease following a decline in demand for mortgage loans in South Carolina, which is the area in which we originate our mortgage loans.

The banking industry is highly competitive.

The banking industry in our market area is highly competitive. We compete with many different financial and financial service institutions, including:

• other commercial and savings banks and savings and loan associations;

• credit unions;

• finance companies;

• mortgage companies;

• brokerage and investment banking firms; and

• asset-based non-bank lenders.

A substantial number of the commercial banks in our market area are branches or subsidiaries of much larger organizations affiliated with statewide, regional, or national banking companies, and as a result may have greater resources and lower cost of funds. Additionally, we face competition from de novo community banks, including those with senior management who were previously with other local banks or those controlled by investor groups with strong local business and community ties. These competitors aggressively solicit customers within their market area by advertising through direct mail, the electronic media, and other means. Many of these competitors have been in business longer, and are substantially larger, than us. These competitors may offer services, such as international banking services, that we can offer only through correspondents, if at all. Additionally, larger competitors have greater capital resources and, consequently, higher lending limits.

We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.

Competition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of and experience in the South Carolina community banking industry. The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy. Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, marketing and technical personnel and upon the continued contributions of our management and personnel. In particular, our success has been and continues to be highly dependent upon the abilities of our Chief Executive Officer, William G. Stevens, who has expertise in community banking and experience in the markets we serve and have targeted for future expansion. We are also dependent upon a number of other key executives who are integral to implementing our business plan. The loss of the services of any one of our senior executive management team or other key executives could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our growth strategy will require future increases in capital that we may not be able to accomplish.

We are required by banking regulators to maintain various ratios of capital to assets. As our assets grow, we expect our capital ratios to decline unless we can increase our earnings or raise new capital sufficiently to keep pace with asset growth. If we are unable to limit a capital ratio decline by increasing our capital, we will have to restrict our asset growth as we approach the minimum required capital to asset ratios.

Provisions in our articles of incorporation and South Carolina law may discourage or prevent takeover attempts, and these provisions may have the effect of reducing the market price for our stock.

Our articles of incorporation include several provisions that may have the effect of discouraging or preventing hostile takeover attempts, and therefore of making the removal of incumbent management difficult. The provisions include staggered terms for our board of directors and requirements of supermajority votes to approve certain business transactions. In addition, South Carolina law contains several provisions that may make it more difficult for a third party to acquire control of us without the approval of our board of directors, and may make it more difficult or expensive for a third party to acquire a majority of our outstanding common stock. To the extent that these provisions are effective in discouraging or preventing takeover attempts, they may tend to reduce the market price for our stock.

We are subject to governmental regulation which could change and increase our cost of doing business or have an adverse effect on our business.

We operate in a highly regulated industry and are subject to examination, supervision and comprehensive regulation by various federal and state agencies. Our compliance with the requirements of these agencies is costly and may limit our growth and restrict certain of our activities, including, payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, and locations of offices. We are also subject to capitalization guidelines established by federal authorities and our failure to meet those guidelines could result, in an extreme case, in our bank’s being placed in receivership. Supervision, regulation and examination of banks and bank holding companies by financial institution regulatory agencies are intended for the protection of depositors and our other customers rather than the holders of our common stock.

The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the impact of these changes on our business or profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, our cost of compliance could adversely affect our ability to operate profitably.

Changes in accounting standards could impact reported earnings.

The accounting standard setters, including the FASB, SEC and other regulatory bodies, periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can be hard to predict and can materially impact how it records and reports its financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.

We are susceptible to changes in monetary policy and other economic factors which may adversely affect our ability to operate profitably.

Changes in governmental, economic and monetary policies may affect the ability of our bank to attract deposits and make loans. The rates of interest payable on deposits and chargeable on loans are affected by governmental regulation and fiscal policy as well as by national, state and loan economic conditions. All of these matters are outside of our control and affect our ability to operate profitably.

The preparation of our financial statements requires the use of estimates that may vary from actual results.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make significant estimates that affect the financial statements. One of our most critical estimates is the level of the allowance for credit losses. Due to the inherent nature of this estimate, we cannot provide absolute assurance that we will not significantly increase the allowance for credit losses that are significantly higher than the provided allowance. For more information on the sensitivity of this estimate, refer to the Critical Accounting Policies section.

We rely on communications, information, operating and financial control systems technology from third-party service providers, and we may suffer an interruption in those systems that may result in lost business and we may not be able to obtain substitute providers on terms that are as favorable if our relationships with our existing service providers are interrupted.

We rely heavily on third-party service providers for much of our communications, information, operating and financial control systems technology. Any failure or interruption or breach in security of these systems could result in failures or interruptions in our customer relationship management, general ledger, deposit, servicing and/or loan origination systems. We cannot assure you that such failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by us or the third parties on which we rely. The occurrence of any failures or interruptions could have a material adverse effect on our business, financial condition, results of operations and cash flows. If any of our third-party service providers experience financial, operational or technological difficulties, or if there is any other disruption in our relationships with them, we may be required to locate alternative sources of such services, and we cannot assure you that we could negotiate terms that are as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all. Any of these circumstances could have a material adverse effect on our business, financial condition, results of operations and cash flows.

If the business continuity and disaster recovery plans that we have in place are not adequate to continue our operations in the event of a disaster, the business disruption can adversely impact our operations.

External events, including terrorist or military actions, or an outbreak of disease, such as Asian Influenza, or “bird flu,” and resulting political and social turmoil could cause unforeseen damage to our physical facilities, or could cause delays or disruptions to operational functions, including information processing and financial market settlement functions. Additionally, our customers, vendors and counterparties could suffer from such events. Should these events affect us, or the customers, vendors or counterparties with which we conduct business, our results of operations could be adversely affected.

Litigation Risk

From time to time, we are subject to claims and litigation from customers and other individuals. Whether such claims and legal action are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the market perception of us and our products and services. Any financial liability or reputation damage could have a material adverse effect on our business and financial performance.

Even though our common stock is currently traded on the Nasdaq Stock Market’s Global Market, it has less liquidity than the average stock quoted on a national securities exchange.

The trading volume in our common stock on the Nasdaq Global Market has been relatively low when compared with larger companies listed on the Nasdaq Global Market or the stock exchanges. As a result, it may be more difficult for shareholders to sell a substantial number of shares for the same price at which shareholders could sell a smaller number of shares. We also cannot predict the effect, if any, that future sales of our common stock in the market, or the availability of shares of common stock for sale in the market, will have on the market price of our common stock. We can give no assurance that sales of substantial amounts of common stock in the market, or the potential for large amounts of sales in the market, would not cause the price of our common stock to decline or impair our future ability to raise capital through sales of our common stock. The market price of our common stock may fluctuate in the future, and these fluctuations may be unrelated to our performance. General market price declines or overall market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.

Our common stock is not insured, so you could lose your total investment.

Our common stock is not a deposit or savings account, and will not be insured by the Federal Deposit Insurance Corporation or any other government agency. Should our business fail, you could lose your total investment.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

There are no comments from the staff of the SEC regarding our periodic or current reports under the Exchange Act that remain unresolved.

ITEM 2. PROPERTIES.

We operate out of an approximately 3,000 square foot building located on approximately one acre of land leased from a third party in Greenwood, South Carolina. At December 31, 2007, CapitalBank operated seventeen full service branches and one drive through facility in South Carolina, three of which are located in Greenwood, two of which are located in Abbeville, Anderson and Greer, and one of which is located in each of Newberry, Belton, Greenville, Clemson, Saluda, Prosperity, Honea Path, Clinton and Calhoun Falls. Of CapitalBank’s branches, fifteen are located on land owned by CapitalBank, two are located on land owned by us and leased to CapitalBank, and one is located on land CapitalBank leases from a third party. We believe that all of our properties are well maintained and are suitable for their respective present needs and operations.

ITEM 3. LEGAL PROCEEDINGS.

CapitalBank and we are parties to legal proceedings that have arisen in the ordinary course of our respective businesses. None of these proceedings is expected to have a material effect on our consolidated financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is traded publicly on the NASDAQ Global Market under the symbol “CPBK” since January 27, 2006. Prior to that time, our common stock was listed for trading on the American Stock Exchange under the symbol “CYL”. The following table reflects the high and low sales price per share for our common stock reported on the NASDAQ Global Market for the periods indicated. All prices have been adjusted to reflect the 15% stock dividend in 2007 distributed on November 16, 2007 to shareholders of record as of the close of business on November 2, 2007.

Year	Quarter	High		Low

2007	Fourth	$	18.90	$	14.36
	Third		18.60		16.61
	Second		18.34		16.16
	First		18.69		18.33

2006	Fourth	$	18.70	$	17.77
	Third		19.47		17.56
	Second		21.30		18.33
	First		20.86		18.50

The closing price of our common shares as reported by the NASDAQ Global Market on February 22, 2008 was $16.00 per share. As of February 22, 2008, there were 4,459,581 shares of our common stock outstanding held by approximately 1,441 shareholders of record. We did not sell any of our equity securities during fiscal year 2007 that were not registered under the Securities Act of 1933, as amended.

Until September 17, 2001, we had not declared or distributed any cash dividends to our shareholders since our organization in 1988. From and since that time, we have paid cash dividends to our shareholders on a quarterly basis. The following table reflects the declaration date, the payment date, and the payment amount of cash dividends per share for the two most recent fiscal years.

Year	Declaration Date	Payment Date	Payment Amount

2007	January 18	March 2	$0.13
	April 18	June 1	$0.13
	July 18	September 7	$0.13
	October 17	December 7	$0.15

2006	January 19	March 3	$0.13
	April 19	June 2	$0.13
	July 19	September 1	$0.13
	October 18	December 1	$0.13

Our Board of Directors expects comparable dividends to be paid to our shareholders for the foreseeable future. Notwithstanding the foregoing, our future dividend policy is subject to the discretion of the Board of Directors and will depend upon a number of factors, including future earnings, financial condition, cash requirements, and general business conditions. Our ability to distribute cash dividends will depend entirely upon CapitalBank’s ability to distribute dividends to us. As a state bank, CapitalBank is subject to legal limitations on the amount of dividends each is permitted to pay. In particular, CapitalBank may require approval of the South Carolina State Board of Financial Institutions prior to paying dividends to us. Furthermore, neither we nor CapitalBank may declare or pay a cash dividend on any of our capital stock if we are insolvent or if the payment of the dividend would render us insolvent or unable to pay our obligations as they become due in the ordinary course of business. See “Government Supervision and Regulation — Restriction on the Payment of Dividends” under Item 1 of this Form 10-K, “Liquidity Management and Capital Resources” under Item 7 of this Form 10-K, and Note 17 to our accompanying financial statements.

Equity Compensation Plan Information

The following table sets forth, as of the end of December 31, 2007, certain information relating to our compensation plans (including individual compensation arrangements) under which grants of options, restricted stock, or other rights to acquire our common stock may be granted from time to time. Share and per share amounts have been updated to reflect the 15% stock dividend in 2007.

Plan Category (1)	Number of shares of our common stock to be issued upon exercise of outstanding options, warrants, and rights	Weighted-average exercise price of outstanding options, warrants, and rights	Number of shares of our common stock remaining available for future issuance under equity compensation plans (excluding shares of our common stock reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders	91,339	$15.62	171,753
Equity compensation plans not approved by security holders	-0-	$0	-0-
Total	91,339	$15.62	171,753

(1) Disclosures are provided with respect to any compensation plan and individual compensation arrangement of us or of our subsidiaries or affiliates under which our common stock are authorized for issuance to employees or non-employees (such as directors, consultants, advisors, vendors, customers, suppliers, or lenders) in exchange for consideration in the form of goods or services as described in Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.

PERFORMANCE GRAPH

This Section is not soliciting material, is not deemed filed with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference in any filing of the company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

The following graph compares cumulative total shareholder return of our common stock with the NASDAQ composite and the SNL Bank and Thrift Index for the five-year period extending through December 31, 2007. Total shareholder return represents stock price changes and assumes the reinvestment of dividends. The graph assumes the investment of $100 on December 31, 2002.

	Period Ending
	12//31/02	12/31/03	12/31/04	12/31/05	12/31/06	12/31/07
Community Capital Corporation	100.00	142.09	177.13	167.88	160.73	138.70
NASDAQ Composite	100.00	150.01	162.89	165.13	180.85	198.60
SNL Bank and Thrift Index	100.00	135.57	151.82	154.20	180.17	137.40

ITEM 6. SELECTED FINANCIAL DATA

Selected Financial Data

The following selected consolidated financial data for the five years ended December 31, 2007 are derived from our consolidated financial statements and other data. The selected consolidated financial data should be read in conjunction with our consolidated financial statements, including the accompanying notes, included elsewhere herein.

Year Ended December 31,	2007			2006			2005			2004			2003
(Dollars in thousands, except per share)
Income Statement Data:
Interest income	$	49,132		$	40,679		$	30,878		$	25,408		$	21,031
Interest expense		25,229			19,625			10,958			6,562			6,455
Net interest income		23,903			21,054			19,920			18,846			14,576
Provision for loan losses		1,025			1,140			825			1,200			479
Net interest income after provision for loan losses		22,878			19,914			19,095			17,646			14,097
Net securities gains (losses)		(469	)		(61	)		1,026			5			1,716
Noninterest income		6,875			6,028			6,301			5,602			5,385
Noninterest expense		19,257			18,104			16,849			15,854			14,533
Income before income taxes		10,027			7,777			9,573			7,399			6,665
Income tax expense		3,139			2,018			2,479			1,599			1,663
Net income	$	6,888		$	5,759		$	7,094		$	5,800		$	5,002
Balance Sheet Data:
Assets	$	800,598		$	713,244		$	598,790		$	549,086		$	412,759
Earning assets		727,367			648,450			542,199			504,151			372,620
Securities (1)		81,315			73,949			75,887			77,596			45,898
Loans (2)		645,785			574,193			466,281			426,884			326,452
Allowance for loan losses		6,759			6,200			6,324			5,808			4,584
Deposits		520,072			486,956			433,646			380,357			314,273
Federal Home Loan Bank advances		135,525			105,625			57,225			66,325			30,425
Shareholders’ equity		64,847			58,926			54,505			55,103			45,533
Per Share Data: (3)
Basic earnings per share	$	1.58		$	1.34		$	1.63		$	1.32		$	1.24
Diluted earnings per share		1.56			1.31			1.58			1.28			1.18
Book value (period end) (4)		14.72			13.52			12.72			12.51			11.40
Tangible book value (period end) (4)		12.46			11.13			10.17			9.99			10.49
Cash dividends per share		0.60			0.52			0.50			0.44			0.28
Performance Ratios:
Return on average assets		0.91	%		0.87	%		1.24	%		1.13	%		1.35	%
Return on average equity		11.09			10.05			12.74			10.90			11.32
Net interest margin (5)		3.52			3.59			3.95			4.18			4.17
Efficiency (6)		61.54			65.61			63.17			63.38			64.28
Allowance for loan losses to loans		1.05			1.08			1.36			1.36			1.40
Net charge-offs to average loans		0.08			0.24			0.07			0.10			0.05
Nonperforming assets to period end loans (2)(7)		0.40			0.32			0.48			0.52			0.59
Capital and Liquidity Ratios:
Average equity to average assets		8.20			8.66			9.77			10.38			11.17
Leverage (4.00% required minimum)		8.33			8.46			7.68			8.05			10.38
Tier 1 risk-based capital ratio		10.05			10.03			9.24			10.43			13.42
Total risk-based capital ratio		11.10			11.09			10.49			11.68			14.68
Average loans to average deposits		120.46			110.96			101.75			104.69			104.95

(1)	Securities held-to-maturity are stated at amortized cost, securities available-for-sale are stated at fair value, and nonmarketable equity securities are stated at cost.

(2)	Loans are stated before the allowance for loan losses and include loans held for sale.

(3)	All share and per-share data have been adjusted to reflect the 15% common stock dividend in November 2007.

(4)	Excludes the effect of any outstanding stock options.

(5)	Tax equivalent net interest income divided by average earning assets.

(6)	Noninterest expense divided by the sum of tax equivalent net interest income and noninterest income, excluding gains and losses on sales of assets and the write-down of intangible assets related to the sale of those assets.

(7)	Nonperforming loans and nonperforming assets do not include loans past due 90 days or more that are still accruing interest.

(Dollars in thousands)	2007 Quarter ended								2006 Quarter ended
except per share	Dec. 31		Sept. 30		June 30		Mar. 31		Dec. 31		Sept. 30		June 30		Mar. 31
Net interest income	$	6,324	$	6,130	$	5,901	$	5,548	$	5,452	$	5,408	$	5,163	$	5,031
Provision for loan losses		400		300		125		200		340		650		150		-
Noninterest income		1,865		1,756		1,646		1,608		1,629		1,588		1,457		1,360
Noninterest expense		4,997		5,252		4,825		4,652		4,620		4,711		4,432		4,408
Net income		1,834		1,636		1,788		1,630		1,544		1,194		1,548		1,473
Basic earnings per share		0.42		0.37		0.41		0.37		0.36		0.28		0.36		0.35
Diluted earnings per share		0.41		0.36		0.40		0.37		0.35		0.27		0.36		0.34

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with the preceding “Selected Financial Data” and our Financial Statements and the Notes thereto and the other financial data included elsewhere in this Annual Report. The financial information provided below has been rounded in order to simplify its presentation. However, the ratios and percentages provided below are calculated using the detailed financial information contained in the Financial Statements, the Notes thereto and the other financial data included elsewhere in this Annual Report.

General

We serve as a bank holding company for CapitalBank. We formed CapitalBank on January 1, 2001 during a restructuring that consolidated our operations into a single subsidiary. CapitalBank operates eighteen branches throughout South Carolina. CapitalBank offers a full range of banking services, including a wealth management group featuring a wide array of financial services, with personalized attention, local decision making, and strong emphasis on the needs of individuals and small to medium-sized businesses.

We were formed in 1988 to serve as a holding company for Greenwood National Bank, which later changed its name to Greenwood Bank & Trust. In 1994 we made the decision to expand beyond Greenwood County by creating an organization of independent banks in four additional markets. In June 1995, we opened Clemson Bank & Trust in Clemson, South Carolina. In 1996 and 1997, we opened Community Bank & Trust, The Bank, and Mid State Bank. We formed a separate trust organization in 1997 known as Community Trust Company. During 1997 and 1998, we also acquired several Carolina First branches. In May 2000, we sold Community Trust Company. In July of 2000, we acquired a Carolina First branch and an Anchor Bank branch.

As discussed, on January 1, 2001, we merged the five subsidiary banks into one bank charter known as CapitalBank. We made the decision to restructure the organization into one bank in order to improve operational efficiencies, provide new opportunities for employees, and improve service to customers. Customers are able to receive the benefit of being able to transact business at any of CapitalBank’s branches, through the ATM network and through the internet banking products. Additionally, we believe that the new centralized credit function provides additional controlled decisions while streamlining the credit process. Centralized deposit pricing supports management’s strategy from market to market. We also believe that the name recognition has enhanced our business.

On January 29, 2001, CapitalBank announced that it had signed a definitive agreement with Enterprise Bank of South Carolina to sell CapitalBank’s five branch offices located in Barnwell, Blackville, Williston, Springfield and Salley, South Carolina. On May 14, 2001, CapitalBank sold the five branches, which had approximately $67.1 million in deposits.

On August 19, 2003, we signed a Letter of Interest to acquire Abbeville Capital Corporation, the holding company of The Bank of Abbeville. In October 2003, the Board of Directors of both companies approved a definitive agreement. The transaction closed in March 2004.

On June 15, 2006, the Company formed Community Capital Corporation Statutory Trust I (the “Trust”) for the purpose of issuing trust preferred securities, which enable the Company to obtain Tier 1 capital on a consolidated basis for regulatory purposes. On June 15, 2006, the Company closed a private offering of $10,000,000 of floating rate preferred securities offered and sold by the Trust. The proceeds from such issuance together with the proceeds from a related issuance of common securities of the Trust purchased by the Company in the amount of $310,000, were invested by the Trust in floating rate Junior Subordinated Notes issued by the Company (the “Notes”) totaling $10.3 million. The Notes are due and payable on June 15, 2036 and may be redeemed by the Company after five years, and sooner in certain specific events, including in the event that certain circumstances render the Notes ineligible for treatment as Tier 1 capital, subject to prior approval by the Federal Reserve Board, if then required. The Notes presently qualify as Tier 1 capital for regulatory reporting. The sole assets of the Trust are the Notes. The company owns 100% of the common securities of the Trust. The Notes are unsecured and rank junior to all senior debt of the Company. For the year ended December 31, 2007, the floating rate preferred securities and the Notes has an annual interest rate of 7.04%. This interest rate is fixed until June 14, 2011, when the interest rate will adjust quarterly. After June 14, 2011, the interest rate will equal three-month LIBOR plus 1.55%.

Results of Operations

Year ended December 31, 2007, compared with year ended December 31, 2006

Net interest income increased $2,849,000, or 13.53%, to $23.9 million in 2007 from $21.1 million in 2006. Average earning assets increased $93.5 million, or 15.59%, and average interest bearing liabilities increased $88.4 million, or 16.51%.

Our tax equivalent net interest spread and tax equivalent net interest margin were 3.11% and 3.52%, respectively, in 2007 compared to 3.20% and 3.59% in 2006. Yields on earning assets increased from 6.86% in 2006 to 7.16% in 2007, and yields on interest-bearing liabilities increased from 3.67% in 2006 to 4.05% in 2007.

The provision for loan losses was $1.0 million in 2007 compared to $1.1 million in 2006. Our allowance for loan losses was 1.05% of total loans outstanding at December 31, 2007. Our nonperforming loans totaled $2.4 million at December 31, 2007 compared to $1.7 million at December 31, 2006. Criticized and classified loans have increased from $12.6 million at December 31, 2006 to $25.7 million at December 31, 2007. Total loans increased $71.5 million during 2007.

We have included a more detailed discussion, including tabular presentations, of noninterest income and noninterest expense in the years ended December 31, 2007 and 2006 under the heading “Noninterest Income and Expense” located in this Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Net income increased $1,129,000, or 19.60%, to $6.9 million in 2007 from $5.8 million in 2006. Basic earnings per share was $1.58 in 2007, compared to $1.34 in 2006. Diluted earnings per share was $1.56 in 2007, compared to $1.31 in 2006. Return on average assets during 2007 was 0.91% compared to 0.87% during 2006, and return on average equity was 11.09% during 2007 compared to 10.05% during 2006.

Year ended December 31, 2006, compared with year ended December 31, 2005

Net interest income increased $1,134,000, or 5.69%, to $21.1 million in 2006 from $19.9 million in 2005. Average earning assets increased $80.2 million, or 15.43%, and average interest bearing liabilities increased $79.7 million, or 17.51%.

Our tax equivalent net interest spread and tax equivalent net interest margin were 3.20% and 3.59%, respectively, in 2006 compared to 3.65% and 3.95% in 2005. Yields on earning assets increased from 6.06% in 2005 to 6.87% in 2006, and yields on interest-bearing liabilities increased from 2.41% in 2005 to 3.67% in 2006.

The provision for loan losses was $1.1 million in 2006 compared to $825,000 in 2005. Our allowance for loan losses was 1.08% of total loans outstanding at December 31, 2006. Our nonperforming loans totaled $1.7 million at December 31, 2006 compared to $2.1 million at December 31, 2005. Criticized and classified loans have decreased from $13.4 million at December 31, 2005 to $12.6 million at December 31, 2006. Total loans increased $107.9 million during 2006.

We have included a more detailed discussion, including tabular presentations, of noninterest income and noninterest expense in the years ended December 31, 2006 and 2005 under the heading “Noninterest Income and Expense” located in this Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Net income decreased $1,335,000, or 18.82%, to $5.8 million in 2006 from $7.1 million in 2005. Basic earnings per share was $1.34 in 2006, compared to $1.63 in 2005. Diluted earnings per share was $1.31 in 2006, compared to $1.58 in 2005. Return on average assets during 2006 was 0.87% compared to 1.24% during 2005, and return on average equity was 10.05% during 2006 compared to 12.74% during 2005.

Net Interest Income

General. The largest component of our net income is our net interest income, which is the difference between the income earned on assets and interest paid on deposits and borrowings used to support such assets. Net interest income is determined by the yields earned on our interest-earning assets and the rates paid on our interest-bearing liabilities, the relative amounts of interest-earning assets and interest-bearing liabilities and the degree of mismatch and the maturity and repricing characteristics of our interest-earning assets and interest-bearing liabilities. Net interest income divided by average interest-earning assets represents our net interest margin.

We have included a number of tables to assist in our description of various measures of our financial performance. For example, the “Average Balances” table shows the average balance of each category of our assets liabilities as well as the yield we earned or the rate we paid with respect to each category during 2007, 2006 and 2005. A review of these tables shows that our loans typically provide higher interest yields than do other types of interest-earning assets, which is why we direct a substantial percentage of our earning assets into our loan portfolio. Similarly, the “Rate/Volume Analysis” table helps demonstrate the effect of changing interest rates and changing volume of assets and liabilities on our financial condition during the periods shown. We also track the sensitivity of our various categories of assets and liabilities to changes in interest rates, and we have included tables to illustrate our interest rate sensitivity with respect to interest-earning accounts and interest-bearing accounts. Finally, we have included various tables that provide detail about our investment securities, our loans, our deposits, and other borrowings.

Net Interest Income - continued

Average Balances, Income and Expenses, and Rates. The following table sets forth, for the periods indicated, certain information related to our average balance sheet and our average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been derived from the daily balances throughout the periods indicated.

Average Balances, Income and Expenses, and Rates

Year ended December 31,	2007								2006								2005
	Average			Income/		Yield/			Average			Income/		Yield/			Average			Income/		Yield/
(Dollars in thousands)	Balance			Expense		Rate			Balance			Expense		Rate			Balance			Expense		Rate
Assets:
Earning Assets:
Loans(1)(3)	$	612,366		$	45,296		7.40	%	$	522,521		$	37,309		7.14	%	$	439,266		$	27,587		6.28	%
Securities, taxable(2)		44,444			2,119		4.77			43,211			1,796		4.16			42,853			1,768		4.13
Securities, nontaxable(2)(3)		27,285			1,671		6.12			27,440			1,701		6.20			29,046			1,825		6.28
Nonmarketable equity
securities		8,946			534		5.97			6,478			373		5.76			5,762			239		4.15
Federal funds sold
and other		402			21		5.22			250			14		5.60			2,793			95		3.40
Total earning assets		693,443			49,641		7.16			599,900			41,193		6.86			519,720			31,514		6.06
Cash and due from banks		21,347								21,592								14,642
Premises and equipment		15,857								14,516								13,092
Other assets		33,224								31,593								29,624
Allowance for loan losses		(6,372	)							(6,073	)							(5,921	)
Total assets	$	757,499							$	661,528							$	571,157
Liabilities:
Interest-Bearing Liabilities:
Interest-bearing transaction
accounts	$	219,044		$	6,404		2.92	%	$	181,060		$	4,779		2.64	%	$	161,492		$	2,500		1.55	%
Savings deposits		38,369			1,029		2.68			38,868			802		2.06			39,484			621		1.57
Time deposits		186,437			9,058		4.86			187,891			7,910		4.21			174,675			5,262		3.01
Other short-term borrowings		45,839			2,301		5.02			45,282			2,260		4.99			23,842			679		2.85
Federal Home Loan Bank
advances		123,562			5,709		4.62			76,435			3,479		4.55			55,956			1,892		3.38
Junior subordinate debt		10,310			728		7.06			5,649			395		6.99			-			-	NA
Obligations under capital
leases		-			-					-			-					83			10		12.05
Total interest-bearing
liabilities		623,561			25,229		4.05			535,185			19,625		3.67			455,532			10,964		2.41
Demand deposits		64,489								63,071								56,061
Accrued interest and other
liabilities		7,337								5,975								3,768
Shareholders’ equity		62,112								57,297								55,796
Total liabilities and
shareholders’ equity	$	757,499							$	661,528							$	571,157
Net interest spread							3.11	%							3.20	%							3.65	%
Net interest income	$	24,412							$	21,568							$	20,550
Net interest margin							3.52	%							3.59	%							3.95	%

(1)	The effect of loans in nonaccrual status and fees collected is not significant to the computations. All loans and deposits are domestic.

(2)	Average investment securities exclude the valuation allowance on securities available-for-sale.

(3)	Fully tax-equivalent basis at 38% tax rate for nontaxable securities and loans.

Net Interest Income - continued

Our tax-effected net interest spread and net interest margin were 3.11% and 3.52%, respectively, for the year ended December 31, 2007, compared to 3.20% and 3.59%, respectively, for the year ended December 31, 2006. For the year ended December 31, 2007, earning assets averaged $693.4 million compared to $599.9 million for the year ended December 31, 2006. Interest earning assets exceeded interest bearing liabilities by $69.9 million and $64.7 million for the years ended December 31, 2007, and 2006, respectively. Our margin continues to be negatively impacted by the flat yield curve interest rate environment and our rapid asset generation which has caused us to rely, more than we have historically, on higher cost wholesale funds. We expect downward pressure on our margin to continue as long as the two conditions described above persist.

For the year ended December 31, 2007, our tax-effected net interest income, the major component of our net income, was $24.4 million compared to $21.6 million for the year ended December 31, 2006. The average rate realized on interest-earning assets increased to 7.16% at December 31, 2007, from 6.86% at December 31, 2006, while the average rate paid on interest-bearing liabilities increased to 4.05% at December 31, 2007, from 3.67% at December 31, 2006.

Our tax-effected interest income for the year ended December 31, 2007 was $49.6 million, which consisted of $45.3 million on loans, $4.3 million on investments, and $21,000 on interest bearing deposits with correspondent banks. Our tax-effected interest income for the year ended December 31, 2006 was $41.2 million, which consisted of $37.3 million on loans, $3.9 million on investments, and $14,000 on interest bearing deposits with correspondent banks. Interest on loans for the years ended December 31, 2007 and 2006, represented 91.25% and 90.57%, respectively, of total interest income, while interest on investments and interest bearing deposits with correspondent banks for the years ended December 31, 2007 and 2006 represented 8.75% and 9.43%, respectively, of total interest income. The high percentage of interest income from loans related to our strategy to maintain a significant portion of our assets in higher earning loans compared to lower yielding investments. Average loans represented 88.31% and 87.10% of average earning assets for the years ended December 31, 2007 and December 31, 2006, respectively.

Interest expense for the year ended December 31, 2007 was $25.2 million, which consisted of $16.5 million related to deposits and $8.7 million related to other borrowings. Interest expense for the year ended December 31, 2006 was $19.6 million, which consisted of $13.5 million related to deposits and $6.1 million related to other borrowings. Interest expense on deposits for the years ended December 31, 2007 and December 31, 2006 represented 65.48% and 68.88%, respectively, of total interest expense, while interest expense on borrowings for the years ended December 31, 2007 and December 31, 2006, represented 34.52% and 31.12%, respectively. Average interest bearing deposits represented 71.18% and 76.20% of average interest bearing liabilities for the years ended December 31, 2007 and December 31, 2006, respectively.

Analysis of Changes in Net Interest Income. The following table sets forth the effect that the varying levels of earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income from 2007 to 2006 and 2006 to 2005.

Net Interest Income - continued

Analysis of Changes in Net Interest Income

	2007 Compared With 2006									2006 Compared With 2005
	Variance Due to									Variance Due to
(Dollars in thousands)	Volume(1)			Rate(1)			Total			Volume(1)			Rate(1)			Total
Earning Assets
Loans	$	6,606		$	1,381		$	7,987		$	5,645		$	4,077		$	9,722
Securities, taxable		52			271			323			15			13			28
Securities, nontaxable		(9	)		(2	)		(11	)		(100	)		(24	)		(124	)
Nonmarketable equity securities		147			14			161			33			101			134
Federal funds sold and other		8			(1	)		7			(119	)		38			(81	)
Total interest income		6,804			1,663			8,467			5,474			4,205			9,679
Interest-Bearing Liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts		1,074			551			1,625			334			1,949			2,283
Savings accounts		(10	)		237			227			(10	)		191			181
Time deposits		(61	)		1,209			1,148			423			2,225			2,648
Total interest-bearing deposits		1,003			1,997			3,000			747			4,365			5,112
Other short-term borrowings		28			13			41			861			720			1,581
Federal Home Loan Bank advances		2,176			54			2,230			815			772			1,587
Junior subordinate debt		333			-			333			395			-			395
Obligations under capital leases		-			-			-			(5	)		(5	)		(10	)
Total interest expense	3,540				2,064			5,604			2,813			5,852			8,665
Net interest income	$	3,264		$	(401	)	$	2,863		$	2,661		$	(1,647	)	$	1,014

(1)

Volume-rate changes have been allocated to each category based on the percentage of the total change.

Interest Sensitivity. We monitor and manage the pricing and maturity of our assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on our net interest income. The principal monitoring technique we employ is the measurement of our interest sensitivity “gap,” which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available-for-sale, replacing an asset or liability at maturity, or adjusting the interest rate during the life of an asset or liability. Managing the amount of assets and liabilities repricing in the same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates.

Net Interest Income - continued

The following table sets forth our interest rate sensitivity at December 31, 2007.

Interest Sensitivity Analysis

													Greater
				After One			After Three						Than One
	Within			Through			Through			Within			Year or
December 31, 2007	One			Three			Twelve			One			Non-
(Dollars in thousands)	Month			Months			Months			Year			Sensitive			Total
Assets
Earning assets:
Loans(1)	$	222,950		$	21,157		$	70,613		$	314,720		$	328,641		$	643,361
Securities		-			1,527			106			1,633			79,682			81,315
Federal funds sold and other		267			-			-			267			-			267

Total earning assets		223,217			22,684			70,719			316,620			408,323			724,943
Liabilities
Interest-bearing liabilities
Interest-bearing deposits:
Demand deposits		243,544			-			-			243,544			-			243,544
Savings deposits		36,117			-			-			36,117			-			36,117
Time deposits		36,136			43,862			94,173			174,171			4,065			178,236
Total interest-bearing deposits		315,797			43,862			94,173			453,832			4,065			457,897
Other short-term borrowings		62,266			-			-			62,266			-			62,266
Federal Home Loan Bank advances		-			5,400			10,000			15,400			120,125			135,525
Junior subordinated debentures		-			-			-			-			10,310			10,310
Total interest-bearing liabilities		378,063			49,262			104,173			531,498			134,500			665,998
Period gap	$	(154,846	)	$	(26,578	)	$	(33,454	)	$	(214,878	)	$	273,823
Cumulative gap	$	(154,846	)	$	(181,424	)	$	(214,878	)	$	(214,878	)	$	58,945
Ratio of cumulative gap to total
earning assets		(21.36	) %		(25.03	)%		(29.64	)%		(29.64	)%		8.13	%

(1) Excludes nonaccrual loans and includes loans held for sale.

The above table reflects the balances of interest-earning assets and interest-bearing liabilities at the earlier of their repricing or maturity dates. Overnight federal funds are reflected at the earliest pricing interval due to the immediately available nature of the instruments. Debt securities are reflected at each instrument’s ultimate maturity date. Scheduled payment amounts of fixed rate amortizing loans are reflected at each scheduled payment date. Scheduled payment amounts of variable rate amortizing loans are reflected at each scheduled payment date until the loan may be repriced contractually; the unamortized balance is reflected at that point. Interest-bearing liabilities with no contractual maturity, such as savings deposits and interest-bearing transaction accounts, are reflected in the earliest repricing period due to contractual arrangements that give us the opportunity to vary the rates paid on those deposits within a thirty-day or shorter period. Fixed rate time deposits, principally certificates of deposit, are reflected at their contractual maturity date. Other short-term borrowings consist of federal funds purchased and securities sold under agreements to repurchase. Federal funds purchased are reflected at the earliest pricing interval because funds can be repriced daily. Securities sold under agreements to repurchase are reflected at the maturity date of each repurchase agreement that generally matures within one day. Advances from the Federal Home Loan Bank are reflected at their contractual maturity dates. Junior subordinated debentures are reflected at their contractual maturity date.

Net Interest Income - continued

We generally would benefit from increasing market rates of interest when we have an asset-sensitive gap position and generally would benefit from decreasing market rates of interest when we are liability sensitive. Our net interest margin continues to be negatively impacted by the flat yield curve interest rate environment and our rapid asset generation, which has caused us to rely, more than we have historically, on higher cost wholesale funds. We are liability sensitive within the one year period. However, our gap analysis is not a precise indicator of our interest sensitivity position. The analysis presents only a static view of the timing of maturities and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame, but those rates are viewed by us as significantly less interest-sensitive than market-based rates such as those paid on non-core deposits. Accordingly, we believe a liability-sensitive gap position is not as indicative of our true interest sensitivity as it would be for an organization that depends to a greater extent on purchased funds to support earning assets. Net interest income may be impacted by other significant factors in a given interest rate environment, including changes in the volume and mix of earning assets and interest-bearing liabilities.

Provision and Allowance for Loan Losses

General. We have developed policies and procedures for evaluating the overall quality of our credit portfolio and the timely identification of potential problem credits. On a quarterly basis, the Board of Directors reviews and approves the appropriate level for CapitalBank’s allowance for loan losses based upon our recommendations, the results of the internal monitoring and reporting system, analysis of economic conditions in its markets, and a review of historical statistical data for both us and other financial institutions.

Additions to the allowance for loan losses, which are expensed as the provision for loan losses on our income statement, are made periodically to maintain the allowance at an appropriate level based on our analysis of the potential risk in the loan portfolio. Loan losses and recoveries are charged or credited directly to the allowance. The amount of the provision is a function of the level of loans outstanding, the level of nonperforming loans, historical loan loss experience, the amount of loan losses actually charged against the reserve during a given period, and current and anticipated economic conditions.

Our allowance for loan losses is based upon judgments and assumptions of risk elements in the portfolio, future economic conditions, and other factors affecting borrowers. The process includes identification and analysis of loss potential in various portfolio segments utilizing a credit risk grading process and specific reviews and evaluations of significant problem credits. In addition, we monitor the overall portfolio quality through observable trends in delinquency, charge offs, and general and economic conditions in the service area. The adequacy of the allowance for loan losses and the effectiveness of our monitoring and analysis system are also reviewed periodically by the banking regulators.

Based on present information and an ongoing evaluation, we consider the allowance for loan losses to be adequate to meet presently known and inherent risks in the loan portfolio. Our judgment as to the adequacy of the allowance is based upon a number of assumptions about future events that we believe to be reasonable but that may or may not be valid. Thus, we have no assurance that charge offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required. We do not allocate the allowance for loan losses to specific categories of loans but evaluate the adequacy on an overall portfolio basis utilizing a risk grading system.

Included in the statement of income for the years ended December 31, 2007, and 2006, is an expense related to the provision for loan losses of $1.0 and $1.1 million, respectively. We also reported net charge offs of $466,000 and $1.3 million for the years ended December 31, 2007 and 2006, respectively. The net charge offs during 2007 represented 0.08% of the average outstanding loan portfolio for the year ended December 31, 2007, compared to 0.24% for the year ended December 31, 2006. Of the $549 million in total charge offs during 2007, approximately $393 million were secured by real estate. The allowance for loan losses as a percentage of gross loans was 1.05% at December 31, 2007 and 1.08% at December 31, 2006, while the percentage of nonperforming assets to gross loans was 0.40% and 0.32% at December 31, 2007 and 2006, respectively. As economic conditions began to decline during the third and fourth quarter of 2007 and markets experienced declining real estate demand and real estate values, we simultaneously took certain measures to enhance our internal review and monitoring processes and procedures. In doing so, we feel like we are in the position to identify potential credit risks early and implement timely action plans to minimize portfolio risks and potential loan losses. As a result, we believe the current level of the allowance is adequate.

Provision and Allowance for Loan Losses - continued

The following table sets forth certain information with respect to our allowance for loan losses and the composition of charge offs and recoveries for each of the last five years.

Allowance for Loan Losses

Year Ended December 31,
(Dollars in thousands)	2007			2006			2005			2004			2003
Total loans outstanding at end of year	$	645,154		$	573,639		$	465,892		$	425,628		$	326,178
Average loans outstanding	$	612,366		$	522,521		$	439,266		$	391,056		$	310,517
Balance of allowance for loan losses
at beginning of period	$	6,200		$	6,324		$	5,808		$	4,584		$	4,282
Allowance for loan losses from acquisitions		-			-			-			432			-
Loan losses:
Commercial and industrial		65			500			54			153			71
Real estate - mortgage		344			811			185			172			231
Consumer		140			120			155			252			163
Total loan losses		549			1,431			394			577			465
Recoveries of previous loan losses:
Commercial and industrial		21			42			41			72			196
Real estate - mortgage		18			71			3			31			43
Consumer		44			54			41			66			49
Total recoveries		83			167			85			169			288
Net loan losses		466			1,264			309			408			177
Provision for loan losses		1,025			1,140			825			1,200			479
Balance of allowance for loan losses
at end of period	$	6,759		$	6,200		$	6,324		$	5,808		$	4,584
Allowance for loan losses to period end loans		1.05	%		1.08	%		1.36	%		1.36	%		1.40	%
Net charge offs to average loans		0.08	%		0.24	%		0.07	%		0.10	%		0.05	%

Nonperforming Assets. The following table sets forth our nonperforming assets for the dates indicated.

Nonperforming Assets

	December 31,
(Dollars in thousands)	2007			2006			2005			2004			2003
Nonaccrual and impaired loans	$	2,424		$	1,716		$	2,128		$	2,104		$	1,816
Other real estate owned		173			107			93			98			101
Total nonperforming assets	$	2,597		$	1,823		$	2,221		$	2,202		$	1,917
Loans 90 days or more past due and
still accruing interest	$	115		$	489		$	223		$	230		$	158
Nonperforming assets to period end loans		0.40	%		0.32	%		0.48	%		0.52	%		0.59	%

Provision and Allowance for Loan Losses - continued

Accrual of interest is discontinued on a loan when we believe, after considering economic and business conditions and collection efforts that the borrower’s financial condition is such that the collection of interest is doubtful. A delinquent loan is generally placed in nonaccrual status when it becomes 90 days or more past due. When a loan is placed in nonaccrual status, all interest that has been accrued on the loan but remains unpaid is reversed and deducted from current earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain. When a problem loan is finally resolved, we may ultimately write-down or charge off the principal balance of the loan that would necessitate additional charges to earnings. For all periods presented, the additional interest income, which would have been recognized into earnings if our nonaccrual loans had been current in accordance with their original terms, is immaterial.

Total nonperforming assets totaled $2.6 million at December 31, 2007 and $1.8 million at December 31, 2006. This amount consists primarily of nonaccrual and impaired loans that totaled $2.4 million and $1.7 million at December 31, 2007 and December 31, 2006, respectively. Nonperforming assets were 0.40% of total loans at December 31, 2007. The allowance for loan losses to period end nonperforming assets was 260.26% at December 31, 2007. We aggressively manage our non-performing loans by applying a conservative risk rating, appropriately writing down potential losses and consistently managing and reviewing these loans.

Potential Problem Loans. At December 31, 2007, through our internal review mechanisms, we had identified $18.0 million of criticized loans and $7.7 million of classified loans. The results of this internal review process are the primary determining factor in our assessment of the adequacy of the allowance for loan losses.

Our criticized loans increased from $6.0 million at December 31, 2006 to $18.0 million at December 31, 2007. Total classified loans increased from $6.6 million at December 31, 2006 to $7.7 million at December 31, 2007. The $10.3 million increase in criticized and classified loans from December 31, 2006 to December 31, 2007 were primarily due to five loans, all of which are secured by real estate. During 2007, we enhanced our internal review and monitoring processes and procedures to assist in identifying potential credit risks and implementation of action plans early on to minimize total portfolio risk and potential loan losses.

Noninterest Income and Expense

Noninterest Income. Noninterest income increased $847,000, or 14.05%, to $6.9 million in 2007 from $6.0 million in 2006. Service charges on deposit accounts decreased $202,000, or 7.69% to $2.4 million in 2007, from $2.6 million in 2006. The decrease is mainly due to a reduction in customer non-sufficient funds (“NSF”) transactions. Residential mortgage origination fees increased $444,000 or 58.42% to $1.2 million in 2007 from $760,000 in 2006. Income from fiduciary activities increased $413,000, or 35.09% to $1.6 million in 2007 from $1.2 million in 2006. This increase was a result of our continuing successful efforts to expand assets under management in our wealth management group. Commissions on the sale of mutual funds increased $16,000, or 6.53% to $261,000 in 2007 compared to $245,000 in 2006. Gains on the sales of premises and equipment were $15,000 in 2007, compared to $2,000 in 2006. Other operating income increased $163,000 or 13.39% to $1.4 million in 2007 from $1.2 million in 2006.

Noninterest Income and Expense - continued

The following table sets forth, for the periods indicated, the principal components of noninterest income:

Noninterest Income

	Year Ended December 31,
(Dollars in thousands)	2007		2006		2005
Service charges on deposit accounts	$	2,425	$	2,627	$	3,035
Residential mortgage origination fees		1,204		760		828
Gains on sales of nonmarketable equity securities		-		-		1,092
Commissions from sales of mutual funds		261		245		178
Income from fiduciary activities		1,590		1,177		901
Gain on sale of premises and equipment		15		2		101
Income from Bank Owned Life Insurance		744		661		641
Other income		636		556		617
Total noninterest income	$	6,875	$	6,028	$	7,393

Noninterest Expense. Noninterest expense increased $1.6 million, or 8.59%, to $19.7 million in 2007 from $18.2 million in 2006. The primary component of noninterest expense was salaries and employee benefits, which increased $400,000, or 3.74%, to $11.1 million in 2007 from $10.7 million in 2006. The increase is mainly due to the addition of staff as a result of the opening of a new branch in April, 2006, increased health insurance costs, and annual salary increases. Net occupancy expense was $1.2 million in 2007 compared to $1.1 million in 2006, and furniture and equipment expense was $888,000 in 2007 compared to $838,000 in 2006. During 2007, we realized a loss on the sale of securities available for sale in the amount of $469,000, compared to a loss of $61,000 in 2006. During the third quarter of 2007, we sold $14.2 million in available-for-sale securities with an average tax equivalent yield of 3.89% and reinvested the proceeds in a similar amount of new investment securities with an average tax equivalent yield of 5.84%. The restructuring resulted in a pre-tax loss of $417,000, and we expect that the fully tax equivalent net interest income will improve by $255,000 annualized. Total amortization of intangible assets decreased $22,000, or 4.47%, to $492,000 in 2007 compared to $492,000 in 2006. Our efficiency ratio was 61.54% in 2007 compared to 65.61% in 2006.

The following table sets forth, for the periods indicated, the primary components of noninterest expense:

Noninterest Expense

	Year Ended December 31,
(Dollars in thousands)	2007			2006			2005
Salaries and employee benefits	$	11,087		$	10,687		$	9,723
Net occupancy expense		1,162			1,113			977
Furniture and equipment expense		888			838			945
Amortization of intangible assets		470			492			515
Director and committee fees		299			274			252
Data processing and supplies		1,340			1,091			670
Mortgage loan department expenses		212			129			119
Banking assessments		58			57			56
Professional fees and services		501			351			410
Postage and freight		210			212			432
Supplies		309			289			311
Telephone expenses		370			351			294
Loss on securities available for sale		469			61			66
Other		2,351			2,220			2,145
Total noninterest expense	$	19,726		$	18,165		$	16,915
Efficiency ratio		61.54	%		65.61	%		63.17	%

Noninterest Income and Expense - continued

Income Taxes. Our income tax expense was $3.1 million for 2007 and $2.0 million for 2006. Our effective tax rate was 31.31% and 25.95% in 2007 and 2006, respectively.

Earning Assets

Loans. Loans are the largest category of earning assets and typically provide higher yields than the other types of earning assets. Associated with the higher yields are the inherent credit and liquidity risks that we attempt to control and counterbalance. Loans averaged $612.4 million in 2007 compared to $522.5 million in 2006, an increase of $89.9 million, or 17.21%. At December 31, 2007, total loans were $645.2 million compared to $573.6 million at December 31, 2006. The following table sets forth the composition of the loan portfolio by category at the dates indicated and highlights our general emphasis on mortgage lending.

Composition of Loan Portfolio

December 31,	2007						2006						2005						2004						2003
				Percent						Percent						Percent						Percent						Percent
(Dollars in				of						of						of						of						of
thousands)	Amount			Total			Amount			Total			Amount			Total			Amount			Total			Amount			Total
Commercial
and industrial	$	44,467			6.89	%	$	44,910			7.83	%	$	38,180			8.20	%	$	45,222			10.62	%	$	31,214			9.57	%
Real estate
Construction		167,180			25.92			142,694			24.88			106,704			22.90			48,223			11.33			16,187			4.98
Mortgage -
residential		252,461			39.13			224,175			39.08			174,698			37.50			178,495			41.94			169,492			51.95
Mortgage-
nonresidential		154,834			24.00			138,071			24.07			123,603			26.53			128,937			30.29			88,797			27.22
Consumer and
other		26,212			4.06			23,789			4.14			22,707			4.87			24,751			5.82			20,488			6.28
Total loans		645,154			100.00	%		573,639			100.00	%		465,892			100.00	%		425,628			100.00	%		326,178			100.00	%
Allowance for
loan losses		(6,759	)					(6,200	)					(6,324	)					(5,808	)					(4,584	)
Net loans	$	638,395					$	567,439					$	459,568					$	419,820					$	321,594

The principal component of our loan portfolio is real estate mortgage loans. At December 31, 2007, this category totaled $407.3 million and represented 63.13% of the total loan portfolio, compared to $362.2 million, or 63.15%, at December 31, 2006.

In the context of this discussion, a “real estate mortgage loan” is defined as any loan, other than loans for construction purposes, secured by real estate, regardless of the purpose of the loan. Financial institutions in our market areas typically obtain a security interest in real estate, whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component.

Earning Assets - continued

Real estate construction loans increased $24.5 million, or 17.16%, to $167.2 million at December 31, 2007, from $142.7 million at December 31, 2006. Residential mortgage loans, which is the largest category of our loans, increased $28.3 million, or 12.62%, to $252.5 million at December 31, 2007, from $224.2 million at December 31, 2006. Residential real estate loans consist of first and second mortgages on single or multi-family residential dwellings. Nonresidential mortgage loans, which include commercial loans and other loans secured by multi-family properties and farmland, increased $16.8 million or 12.14%, to $154.8 million at December 31, 2007 from $138.1 million at December 31, 2006. The overall increase in real estate lending was attributable to the continued demand for residential and commercial real estate loans in our markets. CapitalBank has been able to compete favorably for residential mortgage loans with other financial institutions by offering fixed rate products having three and five year call provisions.

Commercial and industrial loans decreased $443,000, or 0.99%, to $44.5 million at December 31, 2007, from $44.9 million at December 31, 2006.

Consumer and other loans increased $2.4 million, or 10.19%, to $26.2 million at December 31, 2007, from $23.8 million at December 31, 2006.

Our loan portfolio reflects the diversity of our markets. Our seventeen full service branches and one stand-alone drive through are located from the northern Midlands of South Carolina through the Upstate. Primary market areas include Abbeville, Anderson, Belton, Clemson, Clinton, Greenville, Greenwood, Newberry and Saluda. The economies of these markets are varied and represent different industries including medium and light manufacturing, higher education, regional health care, and distribution facilities. These areas are expected to remain stable with continual growth. The diversity of the economy creates opportunities for all types of lending. We do not engage in foreign lending.

The repayment of loans in the loan portfolio as they mature is also a source of our liquidity. The following table sets forth our loans maturing within specified intervals at December 31, 2007.

Loan Maturity Schedule and Sensitivity to Changes in Interest Rates

			Over
			One Year
December 31, 2007	One Year		Through		Over Five
(Dollars in thousands)	or Less		Five Years		Years		Total
Commercial and industrial	$	33,469	$	16,476	$	1,465	$	51,410
Real estate		278,123		245,526		60,361		584,010
Consumer and other		3,211		6,042		481		9,734
	$	314,803	$	268,044	$	62,307	$	645,154
Loans maturing after one year with:
Fixed interest rates							$	275,074
Floating interest rates								55,277
							$	330,351

Earning Assets - continued

The information presented in the above table is based on the contractual maturities of the individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval as well as modification of terms upon their maturity. Consequently, we believe this treatment presents fairly the maturity and repricing structure of the loan portfolio shown in the above table.

Investment Securities. The investment securities portfolio is a significant component of our total earning assets. Total securities averaged $80.7 million in 2007, compared to $77.1 million in 2006. At December 31, 2007, the total securities portfolio was $81.3 million, an increase of $7.4 million, or 9.96% over total securities of $73.9 million at December 31, 2006. During the third quarter of 2007, we sold $14.2 million in available-for-sale securities with an average tax equivalent yield of 3.89% and reinvested the proceeds in a similar amount of new investment securities with an average tax equivalent yield of 5.84%. Securities designated as available-for-sale totaled $71.5 million and were recorded at estimated fair value. Securities designated as held-to-maturity totaled $270,000 and were recorded at amortized cost. The securities portfolio also includes nonmarketable equity securities totaling $9.5 million which are carried at cost because they are not readily marketable or have no quoted market value. These include investments in Federal Reserve Bank stock, Federal Home Loan Bank stock, Community Capital Corporation Statutory Trust I, and the stock of two unrelated financial institutions.

The following table sets forth the book value of the securities held by us at the dates indicated.

Book Value of Securities

December 31,	2007		2006
(Dollars in thousands)
Government sponsored enterprises	$	26,163	$	17,243
Obligations of state and local governments		29,649		27,635
		55,812		44,878
Mortgage-backed securities		16,000		20,998
Nonmarketable equity securities		9,503		8,073
Total securities	$	81,315	$	73,949

The following table sets forth the scheduled maturities and average yields of securities held at December 31, 2007.

Investment Securities Maturity Distribution and Yields

						After One But					After Five But
December 31, 2007	Within One Year					Within Five Years					Within Ten Years					Over Ten Years
(Dollars in thousands)	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Government sponsored enterprises	$	1,251		5.00	%	$	14,133		5.37	%	$	10,780		5.59	%	$	-		-	%
Obligations of state and
local governments(2)		381		7.02			5,390		6.69			15,774		6.90			8,103
Total securities(1)	$	1,632				$	19,523				$	26,554				$	8,103

(1) Excludes mortgage-backed securities totaling $16.0 million with a yield of 5.11% and nonmarketable equity securities.

(2) The yield on state and local governments is presented on a tax equivalent basis using a federal income tax rate of 34%.

Other attributes of the securities portfolio, including yields and maturities, are discussed above in “--Net Interest Income-- Interest Sensitivity.”

Earning Assets - continued

Short-Term Investments. Short-term investments, which consist primarily of federal funds sold and interest-bearing deposits with other banks, averaged $402,000 in 2007, compared to $250,000 in 2006. At December 31, 2007, short-term investments totaled $267,000. These funds are a source of our liquidity. Federal funds are generally invested in an earning capacity on an overnight basis.

Deposits and Other Interest-Bearing Liabilities

Average interest-bearing liabilities increased $88.4 million, or 16.51%, to $623.6 million in 2007, from $535.2 million in 2006. Average interest-bearing deposits increased $36.1 million, or 8.85%, to $443.9 million in 2007, from $407.8 million in 2006.

Deposits. Average total deposits increased $37.4 million, or 7.94%, to $508.3 million during 2007, from $470.9 million during 2006. At December 31, 2007, total deposits were $520.1 million compared to $487.0 million a year earlier, an increase of 6.80%.

The following table sets forth the deposits by category at the dates indicated.

Deposits

December 31,	2007					2006					2005					2004					2003
			Percent					Percent					Percent					Percent					Percent
(Dollars in			of					of					of					of					of
thousands)	Amount		Deposits			Amount		Deposits			Amount		Deposits			Amount		Deposits			Amount		Deposits
Demand deposit
accounts	$	62,175		11.96	%	$	63,733		13.09	%	$	59,286		13.67	%	$	45,504		11.96	%	$	36,204		11.52	%
NOW accounts		63,866		12.28			64,743		13.30			74,730		17.23			72,934		19.18			73,166		23.28
Money market
accounts		140,934		27.10			129,801		26.65			89,327		20.60			82,872		21.79			64,796		20.62
Savings accounts		36,117		6.94			38,791		7.97			39,008		9.00			36,522		9.60			28,697		9.13
Brokered deposits		38,744		7.45			-		-			-		-			-		-			-		-
Time deposits
less than
$100,000		111,619		21.46			124,739		25.61			117,126		27.01			91,183		23.97			69,649		22.16
Time deposits
of $100,000
or over		66,617		12.81			65,149		13.38			54,169		12.49			51,342		13.50			41,761		13.29	%
Total deposits	$	520,072		100.00	%	$	486,956		100.00	%	$	433,646		100.00	%	$	380,357		100.00	%	$	314,273		100.00	%

Core deposits, which exclude brokered deposits and certificates of deposit of $100,000 or more, provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits decreased $7.1 million to $414.7 million at December 31, 2007. The largest increase in our core deposits was in money market accounts, which increased $11.1 million, or 8.58% to $140.9 million at December 31, 2007 from $129.8 million at December 31, 2006. Our brokered deposits at December 31, 2007 totaled $38.7 million, which represented 7.45% of our entire deposit base. All of our brokered deposits at December 31, 2007 were brokered money market accounts.

Deposits, and particularly core deposits, have historically been our primary source of funding and have enabled us to meet successfully both our short-term and long-term liquidity needs. We anticipate that such deposits will continue to be our primary source of funding in the future. Our loan-to-deposit ratio was 124.05% at December 31, 2007, and 117.91% at the end of 2006. The maturity distribution of our time deposits of $100,000 or more at December 31, 2007 is set forth in the following table.

Maturities of Certificates of Deposit of $100,000 or More

After Six

Within

After Three

Through

After

Three

Through Six

Twelve

Months

Total

(Dollars in thousands)

Certificates of deposit of $100,000 or more

29,195

24,634

11,563

1,225

66,617

Deposits and Other Interest-Bearing Liabilities - continued

Approximately 80.80% of our time deposits of $100,000 or more had scheduled maturities within six months and 98.16% had maturities within twelve months. Large certificate of deposit customers tend to be extremely sensitive to interest rate levels, making these deposits less reliable sources of funding for liquidity planning purposes than core deposits.

Borrowed Funds. Borrowed funds consist of short-term borrowings, advances from the Federal Home Loan Bank, junior subordinated debentures and our correspondent bank line of credit. Short-term borrowings are primarily federal funds purchased from correspondent banks and securities sold under agreements to repurchase.

Average short-term borrowings were $45.8 million in 2007, an increase of $557,000 from $45.3 million in 2006. Federal funds purchased from correspondent banks averaged $26.7 million in 2007. At December 31, 2007, federal funds purchased totaled $47.7 million. Securities sold under agreements to repurchase averaged $19.1 million in 2007. At December 31, 2007, securities sold under agreements to repurchase totaled $14.6 million.

Average Federal Home Loan Bank advances during 2007 were $123.6 million compared to $76.4 million during 2006, an increase of $47.1 million. Advances from the Federal Home Loan Bank are collateralized by one-to-four family residential mortgage loans, multi-family residential loans, home equity lines and commercial real estate loans. At December 31, 2007, borrowings from the Federal Home Loan Bank were $135.5 million compared to $105.6 million a year earlier. Although we expect to continue using short-term borrowings and Federal Home Loan Bank advances as secondary funding sources, core deposits will continue to be our primary funding source. Of the $135.5 million advances from the Federal Home Loan Bank outstanding at December 31, 2007, $15.4 million mature in 2008, $15.1 million in 2009, $15.0 million in 2010, $20.0 million in 2011, $35.0 million in 2012, $15.0 million in 2015, and $20.0 million in 2017.

On June 15, 2006, Community Capital Corporation Statutory Trust I (a non-consolidated subsidiary) issued $10 million in trust preferred securities with a maturity of June 15, 2036. The rate is fixed at 7.04% until June 14, 2011, at which point the rate adjusts quarterly to the three-month LIBOR plus 1.55%, and can be called without penalty beginning on June 15, 2011. We received from the Trust the $10 million proceeds from the issuance of the securities and the $310,000 initial proceeds from the capital investment in the Trust, and accordingly have shown the funds due to the Trust as $10.3 million in junior subordinated debentures. Average junior subordinated debentures during 2007 were $10.3 million.

The following table summarizes our various sources of borrowed funds for the years ended December 31, 2007 and 2006. These borrowings consist of securities sold under agreements to repurchase, federal funds purchased, advances from the Federal Home Loan Bank, and junior subordinated debentures. Securities sold under agreements to repurchase mature on a one to seven day basis. These agreements are secured by government-sponsored enterprise securities. Federal funds purchased are short-term borrowings from other financial institutions that mature daily. Advances from Federal Home Loan Bank mature at different periods as discussed in the footnotes to the financial statements and are secured by the Bank's one to four family residential mortgage loans, home equity lines and commercial real estate loans. The junior subordinated debentures mature on June 15, 2036. Our correspondent bank line of credit matures on February 6, 2008. We have pledged all of the stock of the Bank as collateral for this line of credit.

Deposits and Other Interest-Bearing Liabilities - continued

	Year Ended December 31,
	Maximum				Weighted
	Outstanding				Average					Interest
	at any		Average		Interest			Balance		Rate at
(Dollars in thousands)	Month End		Balance		Rate			December 31,		December 31,
2007
Securities sold under agreements
to repurchase	$	22,134	$	19,108		4.61	%	$	14,561		4.18	%
Federal funds purchased		47,705		26,731		5.35	%		47,705		4.44	%
Advances from Federal Home
Loan Bank		135,525		123,562		4.62	%		135,525		4.51	%
Junior subordinated debentures		10,310		10,310		7.06	%		10,310		7.06	%

2006
Securities sold under agreements
to repurchase	$	24,110	$	17,885		4.44	%	$	18,329		5.15	%
Federal funds purchased		40,966		27,396		5.32	%		26,953		5.47	%
Advances from Federal Home
Loan Bank		105,625		76,435		4.55	%		105,625		4.61	%
Junior subordinated debentures		10,310		5,649		6.99	%		10,310		6.99	%
Correspondent bank line of credit		2,000		102		6.72	%		-		7.10	%

Capital

The Federal Reserve Board and bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance-sheet exposures, adjusted for risk weights ranging from 0% to 100%. Under the risk-based standard, capital is classified into two tiers. Our Tier 1 capital consists of common shareholders’ equity, excluding the unrealized gain (loss) on available-for-sale securities, minus intangible assets. Our Tier 2 capital consists of the allowance for loan losses subject to certain limitations. A bank holding company’s qualifying capital base for purposes of its risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital. The regulatory minimum requirements are 4% for Tier 1 and 8% for total risk-based capital.

The holding company and CapitalBank are also required to maintain capital at a minimum level based on average total assets (as defined), which is known as the leverage ratio. Only the strongest bank holding companies and banks are allowed to maintain capital at the minimum requirement of 3%. All others are subject to maintaining ratios 1% to 2% above the minimum. To provide the additional capital needed to support our bank’s growth in assets in 2006, we issued $10.3 million in junior subordinated debentures in connection with our trust preferred securities offering. The company also has a $10.0 million line of credit that could be utilized to provide additional capital for the bank if deemed necessary.

The holding company and CapitalBank exceeded the Federal Reserve’s fully phased-in regulatory capital ratios at December 31, 2007, 2006, and 2005, as set forth in the following table.

Analysis of Capital

(Dollars in thousands)	2007		2006		2005
Tier 1 capital	$	64,404	$	58,768	$	44,007
Tier 2 capital		6,759		6,200		5,959
Total qualifying capital	$	71,163	$	64,968	$	49,966
Risk-adjusted total assets
(including off-balance-sheet exposures)	$	640,916	$	585,825	$	476,320

Capital - continued

	2007			2006			2005
Tier 1 risk-based capital ratio		10.05	%		10.03	%		9.24	%
Total risk-based capital ratio		11.10	%		11.09	%		10.49	%
Tier 1 leverage ratio		8.33	%		8.46	%		7.68	%

	Tier 1			Total			Tier 1
	Risk-Based			Risk-Based			Leverage
CapitalBank’s capital ratios at December 31, 2007 were:		9.79	%		10.85	%		8.11	%

Liquidity Management and Capital Resources

Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Without proper liquidity management, we would not be able to perform the primary function of a financial intermediary and would, therefore, not be able to meet the needs of the communities we serve.

Liquidity management is made more complex because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of the investment portfolio is very predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to nearly the same degree of control.

Our loans-to-assets ratio increased slightly from 2006 to 2007 and our loans-to-funds ratio decreased from 2006 to 2007. The loans-to-assets ratio at December 31, 2007 was 80.58% compared to 80.50% at December 31, 2006, and the loans-to-funds ratio at December 31, 2007 was 89.87% compared to 90.02% at December 31, 2006. The amount of advances from the Federal Home Loan Bank were approximately $135.5 million at December 31, 2007 compared to $105.6 million at December 31, 2006. We expect to continue using these advances as a source of funding. Additionally, we had approximately $22.0 million of unused lines of credit for federal funds purchases and $777,000 of securities available-for-sale at December 31, 2007 as sources of liquidity. We have $10.0 million available in a revolving line of credit with another bank. We also have the ability to receive an additional $64.2 million in advances under the term of our agreement with the Federal Home Loan Bank.

We depend on dividends from CapitalBank as our primary source of liquidity. The ability of CapitalBank to pay dividends is subject to general regulatory restrictions that may, but are not expected to, have a material impact on the liquidity available to us. We paid stock dividends in September 1998, June 2000, May 2001, and November 2007 and may do so in the future. We have paid cash dividends on a quarterly basis since September 2001 and anticipate continuing to do so.

Critical Accounting Policies

Our accounting and financial reporting policies are in conformity with generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with such principals requires us to make estimates and assumptions that impact the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities during the reporting period, and the reported amounts of revenues and expenses during the reporting period. We, in conjunction with our independent auditors, have discussed the development and selection of the critical accounting estimates discussed herein with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the related disclosures herein.

Our significant accounting policies are discussed in Note 1 of Notes to Consolidated Financial Statements contained in Item 8 herein. Of these significant accounting policies, we consider our policies regarding the accounting for the Allowance, benefit plans, mortgage-servicing rights, accounting for past acquisitions, and income taxes, to be the most critical accounting policies due to the valuation techniques used and the sensitivity of these financial statement amounts to the methods, assumptions, and estimates underlying these balances. Accounting for these critical areas requires a significant degree of judgment that could be subject to revision as newer information becomes available. In order to determine our critical accounting policies, we consider whether the accounting estimate requires assumptions about matters that were highly uncertain at the time the accounting estimate was made and if different estimates that reasonably could have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on the presentation of financial condition, changes in financial condition, or results of operations.

Critical Accounting Policies – continued

The Allowance represents our estimate of probable losses inherent in the lending portfolio. See Provision and Allowance for Losses for additional discussion including factors impacting the Allowance and the methodology for analyzing the adequacy of the Allowance. This methodology relies upon our judgment. Our judgments is based on an assessment of various issues, including, but not limited to, the pace of loan growth, emerging portfolio concentrations, the risk management system relating to lending activities, entry into new markets, new product offerings, loan portfolio quality trends, and uncertainty in current economic and business conditions. We consider the year-end Allowance appropriate and adequate to cover probable losses in the loan portfolio. However, our judgment is based upon a number of assumptions about current events, which are believed to be reasonable, but which may or may not prove valid. Thus, there can be no assurance that loan losses in future periods will not exceed the current Allowance amount or that future increases in the Allowance will not be required. No assurance can be given that our ongoing evaluation of the loan portfolio, in light of changing economic conditions and other relevant circumstances, will not require significant future additions to the Allowance, thus adversely impacting the results of operations of the Company.

We have increased our market share through bank and branch acquisitions (the last of these acquisitions occurred in 2004). These acquisitions resulted in goodwill or other intangible assets, which are subject to periodic impairment tests in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” These tests, which we performed as of June 30, 2007 and 2006, use estimates in their calculations. Furthermore, the determination of which intangible assets have finite lives is subjective, as is the determination of the amortization period for such intangible assets. We test for goodwill impairment by determining the fair market value for each reporting unit and comparing it to the carrying amount. If the carrying amount exceeds its fair market value, the potential for impairment exists, and a second step of impairment testing is performed. In the second step, the implied fair market value of the reporting unit’s goodwill is determined by allocating the reporting unit’s fair market value to all of its assets (recognized and unrecognized) and liabilities as if the reporting unit had been acquired in a business combination at the date of the impairment test. If the implied fair market value of reporting unit goodwill is lower than its carrying amount, goodwill is impaired and is written-down to its fair market value. The valuations as of June 30, 2007 indicated that no impairment charge was required as of that date, and we are not aware of any reason that a material change will occur in the future.

We use assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax liabilities and assets for events recognized differently in its financial statements and income tax returns, and income tax expense. Determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations. We exercise considerable judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments and estimates are reevaluated on a continual basis as regulatory and business factors change. No assurance can be given that either the tax returns submitted by us or the income tax reported on the Consolidated Financial Statements will not be adjusted by either adverse rulings by the United States Tax Court, changes in the tax code, or assessments made by the Internal Revenue Service. We are subject to potential adverse adjustments, including, but not limited to, an increase in the statutory federal or state income tax rates, the permanent nondeductibility of amounts currently considered deductible either now or in future periods, and the dependency on the generation of future taxable income, including capital gains, in order to ultimately realize deferred income tax assets. Historically, our estimated income taxes have been materially correct, and we are not aware of any reason that a material change will occur in the future. See Note 19 of Notes to Consolidated Financial Statements contained in Item 8 herein that summarizes current period income tax expense as well as future tax liabilities associated with differences in the timing of expenses and income recognition for book and tax accounting purposes.

Non-GAAP Financial Information

This report contains financial information determined by methods other than in accordance with GAAP. We use these non-GAAP measures to analyze performance. Such disclosures include, but are not limited to, certain designated net interest income amounts presented on a tax-equivalent basis. We believe that the presentation of net interest income on a tax-equivalent basis aids in the comparability of net interest income arising from both taxable and tax-exempt sources. These disclosures should not be viewed as a substitute for GAAP measures, and furthermore, our non-GAAP measures may not necessarily be comparable to non-GAAP performance measures of other companies.

Impact of Inflation

Unlike most industrial companies, the assets and liabilities of financial institutions such as our subsidiary and ours are primarily monetary in nature. Therefore, interest rates have a more significant effect on our performance than do the effects of changes in the general rate of inflation and change in prices. In addition, interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. As discussed previously, we seek to manage the relationships between interest sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.

Impact of Off-Balance Sheet Instruments

We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments consist of commitments to extend credit and standby letters of credit. Commitments to extend credit are legally binding agreements to lend to a customer at predetermined interest rates as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. A commitment involves, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. The exposure to credit loss in the event of nonperformance by the other party to the instrument is represented by the contractual amount of the instrument. Because certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Letters of credit are conditional commitments issued to guarantee a customer’s performance to a third party and have essentially the same credit risk as other lending facilities. Standby letters of credit often expire without being used.

We use the same credit underwriting procedures for commitments to extend credit and standby letters of credit as we do for our on-balance sheet instruments. The credit worthiness of each borrower is evaluated and the amount of collateral, if deemed necessary, is based on the credit evaluation. Collateral held for commitments to extend credit and standby letters of credit varies but may include accounts receivable, inventory, property, plant, equipment, and income-producing commercial properties.

We are not involved in off-balance sheet contractual relationships, other than those disclosed in this report, that could result in liquidity needs or other commitments or that could significantly impact earnings.

Through its operations, CapitalBank has made contractual commitments to extend credit in the ordinary course of its business activities. These commitments are legally binding agreements to lend money to CapitalBank’s customers at predetermined interest rates for a specified period of time. At December 31, 2007, CapitalBank had issued commitments to extend credit of $108.6 million and standby letters of credit of $5.4 million through various types of commercial lending arrangements. Approximately $81.5 million of these commitments to extend credit had variable rates. Our experience has been that a significant portion of these commitments often expire without being used.

The following table sets forth the length of time until maturity for unused commitments to extend credit and standby letters of credit at December 31, 2007.

			After One		After Three
			Through		Through				Greater
	Within One		Three		Twelve		Within One		Than
(Dollars in thousands)	Month		Months		Months		Year		One Year		Total
Unused commitments to extend credit	$	4,294	$	8,387	$	23,156	$	35,837	$	72,776	$	108,613
Standby letters of credit		2,025		1,557		1,705		5,287		131		5,418
Totals	$	6,319	$	9,944	$	24,861	$	41,124	$	72,907	$	114,031

The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on its credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plants, equipment and commercial and residential real estate.

Industry Developments

As more fully discussed under the heading “Government Supervision and Regulation” in Item 1 of this annual report, in November of 1999, the Gramm-Leach-Bliley Act, previously known as the Financial Services Modernization Act of 2000, was enacted. The Act is intended to grant to community banks certain powers as a matter of right that larger institutions have accumulated on an ad hoc basis. Nevertheless, the Act may have the result of increasing the amount of competition that we face from larger institutions and other types of companies. We cannot predict the full effect that the Act will have on us.

From time to time, various bills are introduced in the United States Congress with respect to the regulation of financial institutions. Certain of these proposals, if adopted, could significantly change the regulation of banks and the financial services industry. We cannot predict whether any of these proposals will be adopted or, if adopted, how these proposals would affect us.

Contractual Obligations

We utilize a variety of short-term and long-term borrowings to supplement our supply of lendable funds, to assist in meeting deposit withdrawal requirements, and to fund growth of interest-earning assets in excess of traditional deposit growth. Repurchase agreements, Federal Home Loan Bank Advances, and junior subordinate debentures serve as our primary sources of such funds.

Obligations under noncancelable operating lease agreements are payable over several years with the longest obligation expiring in 2016. We do not feel that any existing noncancelable operating lease agreements are likely to materially impact our financial condition or results of operations in an adverse way. Contractual obligations relative to these agreements are noted in the table below. Option periods that we have not yet exercised are not included in this analysis as they do not represent contractual obligations until exercised.

The following table provides payments due by period for obligations under borrowings and operating lease obligations as of December 31, 2007.

	Payments Due by Period
			After One		After Three
			Through		Through		Greater
	Within One		Three		Five		Than
(Dollars in thousands)	Year		Years		Years		Five Years		Total
Operating lease obligations	$	118	$	166	$	100	$	178	$	562
Repurchase agreements		14,561		-		-		-		14,561
FHLB advances		15,400		30,125		55,000		35,000		135,525
Junior subordinated debentures		-		-		-		10,310		10,310
Totals	$	30,079	$	30,291	$	55,100	$	45,488	$	160,958

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises principally from interest rate risk inherent in our lending, deposit, and borrowing activities. Management actively monitors and manages our interest rate risk exposure. In addition to other risks that we manage in the normal course of business, such as credit quality and liquidity, management considers interest rate risk to be a significant market risk that could potentially have a material effect on our financial condition and results of operations. The information contained in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Net Interest Income” is incorporated herein by reference. Other types of market risks, such as foreign currency risk and commodity price risk, do not arise in the normal course of our business activities.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements identified in Item 15 of this Report on Form 10-K are included herein beginning on page F-1.

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

ITEM 9A. CONTROLS AND PROCEDURES.

Management's Annual Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f). A system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2007 based on the criteria established in a report entitled “Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission” and the interpretive guidance issued by the Commission in Release No. 34-55929. Based on this evaluation, the Company’s management has evaluated and concluded that the Company's internal control over financial reporting was effective as of December 31, 2007.

The Company is continuously seeking to improve the efficiency and effectiveness of its operations and of its internal controls. This results in modifications to its processes throughout the Company. However, there has been no change in its internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. The Company's registered public accounting firm was not required to issue an attestation on its internal controls over financial reporting pursuant to temporary rules of the Securities and Exchange Commission.

Definition of Disclosure Controls. Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our Disclosure Controls include components of our internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the U.S. To the extent that components of our internal control over financial reporting are included within our Disclosure Controls, they are included in the scope of our quarterly controls evaluation.

Limitations on the Effectiveness of Controls. The company’s management, including the CEO and CFO, does not expect that our Disclosure Controls or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation. The evaluation of our Disclosure Controls included a review of the controls’ objectives and design, the company’s implementation of the controls and the effect of the controls on the information generated for use in this Annual Report. In the course of the controls evaluation, we sought to identify data errors, control problems or acts of fraud and confirm that appropriate corrective actions, including process improvements, were being undertaken. This type of evaluation is performed on a quarterly basis so that the conclusions of management, including the CEO and CFO, concerning the effectiveness of the controls can be reported in our Quarterly Reports on Form 10-Q and to supplement our disclosures made in our Annual Report on Form 10-K. Many of the components of our Disclosure Controls are also evaluated on an ongoing basis by our finance personnel, as well as our independent auditors who evaluate them in connection with determining their auditing procedures related to their report on our annual financial statements and not to provide assurance on our controls. The overall goals of these various evaluation activities are to monitor our Disclosure Controls, and to modify them as necessary. Our intent is to maintain the Disclosure Controls as dynamic systems that change as conditions warrant.

Among other matters, we also considered whether our evaluation identified any “significant deficiencies” or “material weaknesses” in our internal control over financial reporting, and whether the company had identified any acts of fraud involving personnel with a significant role in our internal control over financial reporting. This information was important both for the controls evaluation generally, and because item 5 in the certifications of the CEO and CFO requires that the CEO and CFO disclose that information to our Board’s Audit Committee and to our independent auditors. In the professional auditing literature, “significant deficiencies” are referred to as “reportable conditions,” which are deficiencies in the design or operation of controls that could adversely affect our ability to record, process, summarize and report financial data in the financial statements. Auditing literature defines “material weakness” as a particularly serious reportable condition in which the internal control does not reduce to a relatively low level the risk that misstatements caused by error or fraud may occur in amounts that would be material in relation to the financial statements and the risk that such misstatements would not be detected within a timely period by employees in the normal course of performing their assigned functions. We also sought to address other controls matters in the controls evaluation, and in each case if a problem was identified, we considered what revision, improvement and/or correction to make in accordance with our ongoing procedures.

Conclusions. Based upon the controls evaluation, our CEO and CFO have concluded that, subject to the limitations noted above, as of the end of the period covered by this Annual Report, our Disclosure Controls were effective to provide reasonable assurance that material information relating to us and our consolidated subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared.

ITEM 9B. OTHER INFORMATION

None.

PART III

Information called for by PART III (Items 10, 11, 12, 13 and 14) of this Report on Form 10-K has been omitted as we intend to file with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2007 a definitive Proxy Statement pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934. Such information will be set forth in such Proxy Statement.

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

ITEM 11.

EXECUTIVE COMPENSATION.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)(1)-(2) Financial Statements and Schedules:

Our consolidated financial statements and schedules identified in the accompanying Index to Financial Statements at page F-1 herein are filed as part of this Report on Form 10-K.

(a)(3) Exhibits:

The accompanying Exhibit Index on page E-1 sets forth the exhibits that are filed as part of this Report on Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant, Community Capital Corporation, has duly caused this amendment to the report to be signed on its behalf by the undersigned, thereunto duly authorized.

	COMMUNITY CAPITAL CORPORATION


Dated: March 31 , 2008	By:	/s/ William G. Stevens
		William G. Stevens President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this amendment to the report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ William G. Stevens	President, Chief Executive	March 31 , 2008
William G. Stevens	Officer, and Director

/s/ R. Wesley Brewer	Chief Financial Officer, Executive	March 31 , 2008
R. Wesley Brewer	Vice President, and Secretary

*	Chair	March 31 , 2008
Patricia C. Hartung

*	Director	March 31 , 2008
Harold Clinkscales, Jr.

*	Director	March 31 , 2008
Wayne Q. Justesen, Jr.

*	Director	March 31 , 2008
B. Marshall Keys

*	Director	March 31 , 2008
Clinton C. Lemon, Jr.

*	Director	March 31 , 2008
Miles Loadholt

*	Director	March 31 , 2008
Thomas C. Lynch, Jr.

*	Director	March 31 , 2008
H. Edward Munnerlyn

*	Director	March 31 , 2008
George B. Park

*	Director	March 31 , 2008
George D. Rodgers

*	Director	March 31 , 2008
Lex D. Walters

*By: /s/ William G. Stevens		March 31 , 2008
(William G. Stevens) (As
Attorney-in-Fact for each
of the persons indicated)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

COMMUNITY CAPITAL CORPORATION

	Page No.

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Income	F-4
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7 to F-31

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Community Capital Corporation

Greenwood, South Carolina

We have audited the accompanying consolidated balance sheets of Community Capital Corporation and subsidiary as of December 31, 2007 and 2006, and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Community Capital Corporation and subsidiary as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to examine management’s assertion about the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 included in the accompanying management’s evaluation of internal control over financial reporting and, accordingly, we do not express an opinion thereon.

Elliott Davis, LLC

Greenville, South Carolina

March 24, 2008

F-2

Community Capital Corporation

Consolidated Balance Sheets

	December 31,
(Dollars in thousands, shares are not in dollars)	2007			2006
Assets:
Cash and cash equivalents:
Cash and due from banks	$	29,142		$	22,167
Interest-bearing deposit accounts		267			307
Total cash and cash equivalents		29,409			22,474
Investment securities:
Securities available-for-sale		71,542			65,496
Securities held-to-maturity (estimated fair value of $290 and $388 at December 31, 2007 and 2006, respectively)		270			380
Nonmarketable equity securities		9,503			8,073
Total investment securities		81,315			73,949
Loans held for sale		631			554
Loans receivable		645,154			573,639
Less allowance for loan losses		(6,759	)		(6,200	)
Loans, net		638,395			567,439
Premises and equipment, net		16,729			15,429
Accrued interest receivable		4,412			3,954
Intangible assets		9,956			10,427
Cash surrender value of life insurance		15,293			14,617
Other assets		4,458			4,401
Total assets	$	800,598		$	713,244

Liabilities:
Deposits:
Noninterest-bearing	$	62,175		$	63,733
Interest-bearing		457,897			423,223
Total deposits		520,072			486,956
Federal funds purchased and securities sold under
agreements to repurchase		62,266			45,282
Advances from the Federal Home Loan Bank		135,525			105,625
Accrued interest payable		3,134			2,686
Junior subordinated debentures		10,310			10,310
Other liabilities		4,444			3,459
Total liabilities		735,751			654,318
Commitments and contingencies - Notes 4, 12, and 16

Shareholders’ equity:
Common stock, $1.00 par value; 10,000,000 shares authorized;
5,603,570 and 4,817,827 shares issued and outstanding at
December 31, 2007 and 2006, respectively		5,604			4,818
Nonvested restricted stock		(443	)		(558	)
Capital surplus		61,600			47,671
Accumulated other comprehensive income		485			(269	)
Retained earnings		15,016			24,386
Treasury stock, at cost (1,199,470 shares in 2007, and 1,029,322 shares in 2006)		(17,415	)		(17,122	)
Total shareholders’ equity		64,847			58,926
Total liabilities and shareholders’ equity	$	800,598		$	713,244

The accompanying notes are an integral part of these consolidated financial statements.

F-3

Community Capital Corporation

Consolidated Statements of Income

	For the years ended
	December 31,
(Dollars in thousands, except for per share data amounts)	2007		2006		2005
Interest income:
Loans, including fees	$	45,247	$	37,277	$	27,554
Investment securities:
Taxable		2,119		1,796		1,683
Tax-exempt		1,211		1,219		1,306
Nonmarketable equity securities		534		373		239
Federal funds sold and other		21		14		96
Total interest income		49,132		40,679		30,878

Interest expense:
Deposits		16,491		13,491		8,376
Advances from the Federal Home Loan Bank		5,709		3,479		1,892
Federal funds purchased and securities sold under
agreements to repurchase		2,310		2,253		680
Obligations under capital leases		-		-		10
Other		719		402		-
Total interest expense		25,229		19,625		10,958

Net interest income		23,903		21,054		19,920
Provision for loan losses		1,025		1,140		825

Net interest income after provision for loan losses		22,878		19,914		19,095

Noninterest income:
Service charges on deposit accounts		2,425		2,627		3,035
Gain on sales of nonmarketable equity securities		-		-		1,092
Gain on sale of loans held for sale		1,204		760		828
Commissions from sales of mutual funds		261		245		178
Income from fiduciary activities		1,590		1,177		901
Gain on sale of premises and equipment		15		2		101
Other operating income		1,380		1,217		1,258
Total noninterest income		6,875		6,028		7,393

Noninterest expenses:
Salaries and employee benefits		11,087		10,687		9,723
Net occupancy		1,162		1,113		977
Amortization of intangible assets		470		492		515
Furniture and equipment		888		838		945
Loss on sale of securities available-for-sale		469		61		66
Other operating expenses		5,650		4,974		4,689
Total noninterest expenses		19,726		18,165		16,915

Income before income taxes		10,027		7,777		9,573
Income tax expense		3,139		2,018		2,479

Net income	$	6,888	$	5,759	$	7,094

Earnings per share:1
Basic earnings per share	$	1.58	$	1.34	$	1.63
Diluted earnings per share	$	1.56	$	1.31	$	1.58

The accompanying notes are an integral part of these consolidated financial statements.

1 Restated to reflect 15% stock dividend in 2007.

F-4

Community Capital Corporation

Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income

For the years ended December 31, 2007, 2006, and 2005

													Accumulated
													other
													compre-
							Nonvested						hensive
(Dollars in thousands,	Common stock						restricted			Capital			income			Retained			Treasury
except for per share amounts)	Shares			Amount			stock			surplus			(loss)			earnings			stock			Total
Balance, December 31, 2004		4,660,944		$	4,661		$	(183	)	$	45,751		$	785		$	16,653		$	(12,564	)	$	55,103

Net income																	7,094						7,094
Other comprehensive loss,
net of tax benefit														(1,206	)								(1,206	)
Comprehensive income																							5,888
Dividends paid ($0.75
per share)																	(2,854	)					(2,854	)
Stock options exercised		59,757			59						505												564
Issuance of restricted stock		30,600			31			(704	)		673												-
Amortization of deferred
compensation on restricted
stock								292															292
Purchase of treasury stock
(193,661 shares)																				(4,488	)		(4,488	)
Balance, December 31, 2005		4,751,301		$	4,751		$	(595	)	$	46,929		$	(421	)	$	20,893		$	(17,052	)	$	54,505
Net income																	5,759						5,759
Other comprehensive income,
net of tax effects														152									152
Comprehensive income																							5,911
Dividends paid ($0.60																	(2,266	)					(2,266	)
per share)
Stock options exercised		49,766			50						377												427
Issuance of restricted stock		17,350			17			(396	)		379												-
Amortization of deferred
compensation on restricted
stock								419															419
Forfeitures of restricted stock		(600	)					14			(14	)											-
Purchase of treasury stock
(3,095 shares)																				(70	)		(70	)
Balance, December 31, 2006		4,817,827		$	4,818		$	(558	)	$	47,671		$	(269	)	$	24,386		$	(17,122	)	$	58,926
Net income																	6,888						6,888
Other comprehensive income,
net of tax effects														754									754
Comprehensive income																							7,642
Dividends paid ($0.60																	(2,386	)					(2,386	)
per share)
Stock options exercised		37,125			37						440												477
Issuance of restricted stock		21,300			21			(443	)		422												-
Amortization of deferred
compensation on restricted
stock								491															491
Forfeitures of restricted stock		(3,105	)		(3	)		67			(66	)					6						4
15% stock dividend		730,423			731						13,133						(13,878	)					(14	)
Purchase of treasury stock
(15,000 shares)																				(293	)		(293	)
Balance, December 31, 2007		5,603,570		$	5,604		$	(443	)	$	61,600		$	485		$	15,016		$	(17,415	)	$	64,847

The accompanying notes are an integral part of these consolidated financial statements.

1 Restated to reflect 15% stock dividend in 2007.

F-5

Community Capital Corporation

Consolidated Statements of Cash Flows

	For the years ended
	December 31,
(Dollars in thousands)	2007			2006			2005
Cash flows from operating activities:
Net income	$	6,888		$	5,759		$	7,094
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		947			890			872
Provision for loan losses		1,025			1,140			825
Deferred income tax benefit (expense)		427			(1,071	)		(639	)
Amortization of intangible assets		471			491			516
Amortization of deferred compensation on restricted stock		491			419			292
Premium amortization less discount accretion
on securities available-for-sale		56			8			11
Amortization of deferred loan costs and fees, net		1,452			981			932
Write down of other real estate		-			181			-
Gain on sale of premises and equipment		(15	)		(2	)		(101	)
Net loss on sale of other real estate		6			21			64
Net loss on sales or calls of securities available-for-sale		469			61			66
Net gain on sales of nonmarketable equity securities		-			-			(1,092	)
Proceeds of loans held for sale		31,742			26,016			33,987
Disbursements for loans held for sale		(31,819	)		(26,181	)		(33,120	)
Increase in interest receivable		(458	)		(1,288	)		(530	)
Increase in interest payable		448			1,365			585
Increase in other assets		(1,510	)		(1,149	)		(406	)
Increase in other liabilities		989			464			404
Net cash provided by operating activities		11,609			8,105			9,760

Cash flows from investing activities:
Net increase in loans made to customers		(73,865	)		(110,380	)		(41,776	)
Proceeds from sales of securities available-for-sale		17,218			2,924			9,628
Proceeds from calls and maturities of securities available-for-sale		12,134			10,217			7,932
Purchases of securities available-for-sale		(34,780	)		(8,244	)		(18,577	)
Proceeds from calls and maturities of securities held-to-maturity		110			-			45
Proceeds from sales of nonmarketable equity securities		1,036			1,350			2,674
Purchase of nonmarketable equity securities		(2,466	)		(4,148	)		(805	)
Purchase of premises and equipment		(2,247	)		(2,660	)		(2,461	)
Proceeds from sales of premises and equipment		15			34			543
Proceeds from sales of other real estate		387			145			212

Net cash used by investing activities		(82,458	)		(110,762	)		(42,585	)

Cash flows from financing activities:
Net increase in demand and savings accounts		44,768			34,718			24,519
Net increase (decrease) in time deposits		(11,652	)		18,592			28,772
Net increase (decrease) in federal funds purchased and securities
sold under agreements to repurchase		16,984			(3,817	)		5,121
Proceeds from advances from the Federal Home Loan Bank		108,000			171,900			51,500
Repayments of advances from the Federal Home Loan Bank		(78,100	)		(123,500	)		(60,600	)
Proceeds from advances of other short term borrowings		-			2,000			-
Repayments of advances of other short term borrowings		-			(2,000	)		-
Proceeds from the issuance of junior subordinated debentures		-			10,310			-
Dividends paid		(2,400	)		(2,266	)		(2,854	)
Proceeds from exercise of stock options		477			427			564
Purchase of treasury stock		(293	)		(70	)		(4,488	)
Net cash provided by financing activities		77,784			106,294			42,534

Net increase in cash and cash equivalents		6,935			3,637			9,709
Cash and cash equivalents, beginning of year		22,474			18,837			9,128
Cash and cash equivalents, end of year	$	29,409		$	22,474		$	18,837

The accompanying notes are an integral part of these consolidated financial statements.

F-6

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - Community Capital Corporation (the Company) serves as a bank holding company for CapitalBank (the Bank). CapitalBank operates eighteen branches throughout South Carolina. The Bank offers a full range of banking services, including a wealth management group featuring a wide array of financial services, with personalized attention, local decision making and strong emphasis on the needs of individuals and small to medium-sized businesses.

The accounting and reporting policies of the Company reflect industry practices and conform to generally accepted accounting principles in all material respects. The consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates - In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and income and expenses for the period. Actual results could differ significantly from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, including valuation allowances for impaired loans, the carrying amount of real estate acquired in connection with foreclosures or in satisfaction of loans, and the assumptions used in computing the fair value of stock options granted and the pro forma disclosures required by Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share Based Payment.” Management must also make estimates in determining the estimated useful lives and methods for depreciating premises and equipment.

While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowance may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowances for losses on loans and foreclosed real estate. Such agencies may require the Company to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowances for losses on loans and foreclosed real estate may change materially in the near term.

Securities Available-for-sale - Securities available-for-sale held by the Company are carried at amortized cost and adjusted to estimated fair value by recording the aggregate unrealized gain or loss in a valuation account. Management does not actively trade securities classified as available-for-sale. Reductions in fair value considered by management to be other than temporary are reported as a realized loss and a reduction in the cost basis in the security. Generally, amortization of premiums and accretion of discounts are charged or credited to earnings on a straight-line basis over the life of the securities. The adjusted cost basis of securities available-for-sale is determined by specific identification and is used in computing the gain or loss from a sales transaction.

Securities Held-To-Maturity - Securities held-to-maturity are those securities which management has the intent and the Company has the ability to hold until maturity. Securities held-to-maturity are carried at cost and adjusted for amortization of premiums and accretion of discounts, both computed by the straight-line method. Reductions in fair value considered by management to be other than temporary are reported as a realized loss and a reduction in the cost basis of the security.

Nonmarketable Equity Securities - Nonmarketable equity securities include the costs of the Company’s investments in the stock of the Federal Reserve Bank and the Federal Home Loan Bank. The stocks have no quoted market value and no ready market exists. Investment in Federal Reserve Bank stock is required for state-chartered member banks. Investment in Federal Home Loan Bank stock is a condition of borrowing from the Federal Home Loan Bank, and the stock is pledged to secure the borrowings. At December 31, 2007 and 2006, the investment in Federal Reserve Bank stock was $1,686,300 and $1,686,100, respectively. At December 31, 2007 and 2006, the investment in Federal Home Loan Bank stock was $7,380,300 and $5,950,800, respectively.

F-7

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Nonmarketable Equity Securities (continued) - The Company has invested in the stock of several unrelated financial institutions. The Company owns less than five percent of the outstanding shares of each institution, and the stocks either have no quoted market value or are not readily marketable. At December 31, 2007 and 2006, the investments in the stock of the unrelated financial institutions, at cost, was $126,464. The Company also invested in a financial services company that offers internet banking. During 2005, the Company sold its investment in this company and recorded a gain on the sale of $1,092,000. Also included in nonmarketable equity securities is the investment in the Community Capital Corporation Statutory Trust I which totaled $310,000 at December 31, 2007 and 2006.

Loans receivable - Loans are recorded at their unpaid principal balance. Direct loan origination costs and loan origination fees are deferred and amortized over the lives of the loans as an adjustment to yield. Unamortized net deferred loan costs included in loans at December 31, 2007 and 2006 were $29,136 and $283,348, respectively.

Loans are defined as impaired when “based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement.” All loans are subject to this criteria except for: “smaller-balance homogeneous loans that are collectively evaluated for impairment” and loans “measured at fair value or at the lower of cost or fair value.” The Company considers its consumer installment portfolio, credit cards, and home equity lines as meeting this criteria. Therefore, the real estate and commercial loan portfolios are primarily subject to possible impairment.

Impaired loans are measured based on the present value of discounted expected cash flows. When it is determined that a loan is impaired, a direct charge to bad debt expense is made for the difference between the net present value of expected future cash flows based on the contractual rate and the Company’s recorded investment in the related loan. The corresponding entry is to a related valuation account. Interest is discontinued on impaired loans when management determines that a borrower may be unable to meet payments as they become due.

The Company identifies impaired loans through its normal internal loan review process. Loans on the Company’s problem loan watch list are considered potentially impaired loans. These loans are evaluated in determining whether all outstanding principal and interest are expected to be collected. Loans are not considered impaired if a minimal delay occurs and all amounts due including accrued interest at the contractual interest rate for the period of delay are expected to be collected. At December 31, 2007 and 2006, the Company had impaired loans of approximately $2,424,000 and $1,716,000.

Interest income is computed using the simple interest method and is recorded in the period earned. When serious doubt exists as to the collectibility of a loan or a loan is contractually 90 days past due, the accrual of interest income is generally discontinued unless the estimated net realizable value of the collateral is sufficient to assure collection of the principal balance and accrued interest. When interest accruals are discontinued, unpaid accrued interest is reversed and charged against current year income.

Allowance for Loan Losses - Management provides for losses on loans through specific and general charges to operations and credits such charges to the allowance for loan losses. Specific provision for losses is determined for identified loans based upon estimates of the excess of the loan’s carrying value over the net realizable value of the underlying collateral. General provision for loan losses is estimated by management based upon factors including industry loss experience for similar lending categories, actual loss experience, delinquency trends, as well as prevailing and anticipated economic conditions. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. Delinquent loans are charged against the allowance at the time they are determined to be uncollectible. Recoveries are added to the allowance.

Residential Mortgages Held For Sale - The Company’s mortgage activities are comprised of accepting residential mortgage loan applications, qualifying borrowers to standards established by investors, funding residential mortgages and selling mortgages to investors under pre-existing commitments. Funded residential mortgages held temporarily for sale to investors are recorded at the lower of cost or market value. Application and origination fees collected by the Company are recognized as income upon sale to the investor.

F-8

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Premises and Equipment - Premises and equipment are stated at cost, less accumulated depreciation. Gain or loss on retirement of premises and equipment is recognized in the statements of income when incurred. Expenditures for maintenance and repairs are charged to expense; betterments and improvements are capitalized. Depreciation charges are computed principally on the straight-line method over the estimated useful lives as follows: building and improvements - 40 years; furniture, fixtures and equipment - 3 to 15 years.

Other Real Estate Owned - Other real estate owned includes real estate acquired through foreclosure. Other real estate owned is carried at the lower of cost (principal balance at the date of foreclosure) or fair value minus estimated costs to sell. Any write-downs at the date of foreclosure are charged to the allowance for loan losses. Expenses to maintain such assets, subsequent changes in the valuation allowance, and gains and losses on disposal are included in other expenses.

Intangible Assets - Intangible assets consist of goodwill and core deposit premiums resulting from the Company’s acquisitions. The core deposit premiums are being amortized over twelve to fifteen years using the straight-line method. Goodwill is being evaluated for impairment on an annual basis in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 147, Acquisitions of Certain Financial Institutions.

Income Taxes - The income tax provision is the sum of amounts currently payable to taxing authorities and the net changes in income taxes payable or refundable in future years. Income taxes deferred to future years are determined utilizing a liability approach. This method gives consideration to the future tax consequences associated with differences between the financial accounting and tax bases of certain assets and liabilities, principally the allowance for loan losses and depreciable premises and equipment.

In 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes – an Interpretation of SFAS No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 also prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in an enterprise’s tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. Accordingly, the Company adopted FIN 48 effective January 1, 2007. The adoption of FIN 48 did not have an impact on the Company’s consolidated financial position.

Advertising Expense - Advertising and public relations costs are generally expensed as incurred. External costs incurred in producing media advertising are expensed the first time the advertising takes place. External costs relating to direct mailing costs are expended in the period in which the direct mailings are sent. Advertising and public relations costs of $316,338, $425,831 and $158,276 were included in the Company's results of operations for 2007, 2006, and 2005, respectively.

Stock-Based Compensation - The Company has a stock-based employee compensation plan which is further described in Note 14. On January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123(R), Share-based Payment, to account for compensation costs under its stock option plans. The Company previously utilized the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (as amended) (“APB 25”). Under the intrinsic value method prescribed by APB 25, no compensation costs were recognized for the Company’s stock options because the option exercise price in its plans equals the market price on the date of grant. Prior to January 1, 2006, the Company only disclosed the pro forma effects on net income and earnings per share as if the fair value recognition provisions of SFAS 123(R) had been utilized.

In adopting SFAS No. 123(R), the Company elected to use the modified prospective method to account for the transition from the intrinsic value method to the fair value recognition method. Under the modified prospective method, compensation cost is recognized from the adoption date forward for all new stock options granted and for any outstanding unvested awards as if the fair value method had been applied to those awards as of the date of grant.

F-9

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Cash Flow Information - For purposes of reporting cash flows, the Company considers certain highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents include amounts due from depository institutions, interest-bearing deposit accounts, and federal funds sold. Generally, federal funds are sold for one-day periods.

The following summarizes supplemental cash flow information:

	Year ended December 31,
(Dollars in thousands)	2007		2006		2005
Cash paid for interest	$	24,781	$	18,259	$	10,373

Cash paid for income taxes		3,603		3,028		2,832

Supplemental noncash investing and financing activities:
Foreclosures on loans		432		388		271

Change in unrealized gain (loss) on securities available-
for sale, net of tax		754		152		(1,206	)

Concentrations of Credit Risk - Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of loans receivable, investment securities, federal funds sold and amounts due from banks.

The Company makes loans to individuals and small businesses for various personal and commercial purposes throughout South Carolina. The Company’s loan portfolio is not concentrated in loans to any single borrower or a relatively small number of borrowers. Additionally, management is not aware of any concentrations of loans to classes of borrowers or industries that would be similarly affected by economic conditions.

In addition to monitoring potential concentrations of loans to particular borrowers or groups of borrowers, industries and geographic regions, management monitors exposure to credit risk from concentrations of lending products and practices such as loans that subject borrowers to substantial payment increases (e.g. principal deferral periods, loans with initial interest-only periods, etc), and loans with high loan-to-value ratios. Management has determined that there is no concentration of credit risk associated with its lending policies or practices. Additionally, there are industry practices that could subject the Company to increased credit risk should economic conditions change over the course of a loan’s life. For example, the Company makes variable rate loans and fixed rate principal-amortizing loans with maturities prior to the loan being fully paid (i.e. balloon payment loans). These loans are underwritten and monitored to manage the associated risks. Therefore, management believes that these particular practices do not subject the Company to unusual credit risk.

The Company’s investment portfolio consists principally of obligations of the United States, its agencies or its corporations and general obligation municipal securities. In the opinion of management, there is no concentration of credit risk in its investment portfolio. The Company places its deposits and correspondent accounts with and sells its federal funds to high quality institutions. Management believes credit risk associated with correspondent accounts is not significant.

Per-Share Data - Basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding for the period. Diluted earnings per share is similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued using the treasury stock method. Share and per-share data have been restated to reflect the 15% stock dividend issued in November 2007.

F-10

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Comprehensive Income - Accounting principles generally require that recognized income, expenses, gains, and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

The components of other changes in comprehensive income and related tax effects are as follows:

	Year ended December 31,
(Dollars in thousands)	2007			2006			2005
Unrealized holding gains (losses) on
available-for-sale securities	$	674		$	169		$	(1,892	)
Reclassification adjustment for (gains) losses
realized in income		469			61			66
Net unrealized gains (losses) on securities		1,143			230			(1,826	)
Tax effect		(389	)		(78	)		620
Net-of-tax amount	$	754		$	152		$	(1,206	)

Common Stock Owned by the Employee Stock Ownership Plan (ESOP) - ESOP purchases and redemptions of the Company’s common stock are at estimated fair value. Dividends on ESOP shares are charged to retained earnings. All shares held by the ESOP are treated as outstanding for purposes of computing earnings per share.

Off-Balance-Sheet Financial Instruments - In the ordinary course of business, the Company enters into off-balance-sheet financial instruments consisting of commitments to extend credit and letters of credit. These financial instruments are recorded in the financial statements when they become payable by the customer.

Recent Accounting Pronouncements – The following is a summary of recent authoritative pronouncements:

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement on Financial Accounting Standards (“SFAS”) No. 157, "Fair Value Measurements" (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This standard eliminates inconsistencies found in various prior pronouncements but does not require any new fair value measurements. SFAS 157 is effective for the Company on January 1, 2008 and will not impact the Company’s accounting measurements but it is expected to result in additional disclosures.

In September 2006, The FASB ratified the consensuses reached by the FASB’s Emerging Issues Task Force (“EITF”) relating to EITF 06-4, “Accounting for the Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“EITF 06-4”). Entities purchase life insurance for various reasons including protection against loss of key employees and to fund postretirement benefits. The two most common types of life insurance arrangements are endorsement split dollar life and collateral assignment split dollar life. EITF 06-4 covers the former and EITF 06-10 (discussed below) covers the latter. EITF 06-4 states that entities with endorsement split-dollar life insurance arrangements that provide a benefit to an employee that extends to postretirement periods should recognize a liability for future benefits in accordance with SFAS No. 106, “Employers' Accounting for Postretirement Benefits Other Than Pensions,” (if, in substance, a postretirement benefit plan exists) or Accounting Principles Board (“APB”) Opinion No. 12, “Omnibus Opinion—1967” (if the arrangement is, in substance, an individual deferred compensation contract). Entities should recognize the effects of applying this Issue through either (a) a change in accounting principle through a cumulative-effect adjustment to retained earnings or to other components of equity or net assets in the statement of financial position as of the beginning of the year of adoption or (b) a change in accounting principle through retrospective application to all

F-11

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

prior periods. EITF 06-4 is effective for the Company on January 1, 2008. The Company does not believe the adoption of EITF 06-4 will have a material impact on its financial position, results of operations or cash flows.

In September 2006, the FASB ratified the consensus reached on EITF 06-5, “Accounting for Purchases of Life Insurance—Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance” (“EITF 06-5”). EITF 06-5 states that a policyholder should consider any additional amounts included in the contractual terms of the insurance policy other than the cash surrender value in determining the amount that could be realized under the insurance contract. EITF 06-5 also states that a policyholder should determine the amount that could be realized under the life insurance contract assuming the surrender of an individual-life by individual-life policy (or certificate by certificate in a group policy). EITF 06-5 is effective for the Company on January 1, 2008. The Company does not believe the adoption of EITF 06-5 will have a material impact on its financial position, results of operations or cash flows.

In March 2007, the FASB ratified the consensus reached on EITF 06-10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements” (“EITF 06-10”). The postretirement aspect of this EITF is substantially similar to EITF 06-4 discussed above and requires that an employer recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement in accordance with either FASB Statement No. 106 or APB Opinion No. 12, as appropriate, if the employer has agreed to maintain a life insurance policy during the employee's retirement or provide the employee with a death benefit based on the substantive agreement with the employee. In addition, a consensus was reached that an employer should recognize and measure an asset based on the nature and substance of the collateral assignment split-dollar life insurance arrangement. EITF 06-10 is effective for the Company on January 1, 2008. The Company does not believe the adoption of EITF 06-10 will have a material impact on its financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115” (“SFAS 159”). This statement permits, but does not require, entities to measure many financial instruments at fair value. The objective is to provide entities with an opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Entities electing this option will apply it when the entity first recognizes an eligible instrument and will report unrealized gains and losses on such instruments in current earnings. This statement 1) applies to all entities, 2) specifies certain election dates, 3) can be applied on an instrument-by-instrument basis with some exceptions, 4) is irrevocable and 5) applies only to entire instruments. One exception is demand deposit liabilities which are explicitly excluded as qualifying for fair value. With respect to SFAS 115, available-for-sale and held-to-maturity securities at the effective date are eligible for the fair value option at that date. If the fair value option is elected for those securities at the effective date, cumulative unrealized gains and losses at that date shall be included in the cumulative-effect adjustment and thereafter, such securities will be accounted for as trading securities. SFAS 159 is effective for the Company on January 1, 2008. The Company is currently analyzing the fair value option that is permitted, but not required, under SFAS 159.

In June 2007, the FASB ratified the consensus reached by the EITF with respect to EITF 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (“EITF 06-11”). Under EITF 06-11, a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity-classified nonvested equity shares, nonvested equity share units and outstanding equity share options should be recognized as an increase in additional paid-in capital. This EITF is to be applied prospectively to the income tax benefits that result from dividends on equity-classified employee share-based payment awards that are declared beginning in 2008, and interim periods within those fiscal years. Early application is permitted. The Company does not believe the adoption of EITF 06-11 will have a material impact on its financial position, results of operations or cash flows.

F-12

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

In November 2007, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 109, “Written Loan Commitments Recorded at Fair Value Through Earnings” (“SAB 109”). SAB 109 expresses the current view of the SEC staff that the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. SEC registrants are expected to apply this guidance on a prospective basis to derivative loan commitments issued or modified in the first quarter of 2008 and thereafter. The Company is currently analyzing the impact of this guidance, which relates to the Company’s mortgage loans held for sale.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (“SFAS 141(R)”) which replaces SFAS 141. SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141(R) is effective for acquisitions by the Company taking place on or after January 1, 2009. Early adoption is prohibited. Accordingly, a calendar year-end company is required to record and disclose business combinations following existing accounting guidance until January 1, 2009. The Company will assess the impact of SFAS 141(R) if and when a future acquisition occurs.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Before this statement, limited guidance existed for reporting noncontrolling interests (minority interest). As a result, diversity in practice exists. In some cases minority interest is reported as a liability and in others it is reported in the mezzanine section between liabilities and equity. Specifically, SFAS 160 requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financials statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interests. SFAS 160 is effective for the Company on January 1, 2009. Earlier adoption is prohibited. The Company is currently evaluating the impact, if any, the adoption of SFAS 160 will have on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Risks and Uncertainties - In the normal course of its business, the Company encounters two significant types of risks: economic and regulatory. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different basis, than its interest-earning assets. Credit risk is the risk of default on the Company's loan portfolio that results from borrower's inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of collateral underlying loans receivable and the valuation of real estate held by the Company.

The Company is subject to the regulations of various governmental agencies. These regulations can and do change significantly from period to period. The Company also undergoes periodic examinations by the regulatory agencies, which may subject it to further changes with respect to asset valuations, amounts of required loss allowances and operating restrictions from the regulators' judgments based on information available to them at the time of their examination.

Cash surrender value of life insurance – Cash surrender value of life insurance policies represents the cash value of policies on certain officers of the bank.

F-13

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Reclassifications - Certain captions and amounts in the 2006 and 2005 financial statements were reclassified to conform with the 2007 presentation.

Accounting for Transfers of Financial Assets - A sale is recognized when the Company relinquishes control over a financial asset and is compensated for such asset. The difference between the net proceeds received and the carrying amount of the financial asset being sold or securitized is recognized as a gain or loss on the sale.

NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS

The Company is required to maintain average reserve balances computed as a percentage of deposits. At December 31, 2007 and 2006, the required cash reserves were satisfied by vault cash on hand and amounts due from correspondent banks.

NOTE 3 - INVESTMENT SECURITIES

Securities available-for-sale at December 31, 2007 and 2006 consisted of the following:

	Amortized		Gross Unrealized				Estimated
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
December 31, 2007
Government-sponsored enterprises	$	25,686	$	477	$	-	$	26,163
Obligations of state and local governments		28,931		458		10		29,379
		54,617		935		10		55,542
Mortgage-backed securities		15,988		99		87		16,000
Total	$	70,605	$	1,034	$	97	$	71,542

December 31, 2006
Government-sponsored enterprises	$	17,447	$	11	$	215	$	17,243
Obligations of state and local governments		26,637		625		7		27,255
		44,084		636		222		44,498
Mortgage-backed securities		21,565		18		585		20,998
Total	$	65,649	$	654	$	807	$	65,496

F-14

NOTE 3 - INVESTMENT SECURITIES - continued

Securities held-to-maturity as of December 31, 2007 and 2006 consisted of the following:

	Amortized		Gross Unrealized				Estimated
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
December 31, 2007
Obligations of state and local governments	$	270	$	20	$	-	$	290

December 31, 2006
Obligations of state and local governments	$	380	$	8	$	-	$	388

The following table shows gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2007.

Securities Available-for-Sale

	Less than				Twelve months
	twelve months				or more				Total
			Unrealized				Unrealized				Unrealized
(Dollars in thousands)	Fair value		losses		Fair value		losses		Fair value		losses
Obligations of state and local	$	1,304	$	4	$	666	$	6	$	1,970	$	10
governments
Mortgage-backed securities		330		-		7,965		87		8,295		87

Total	$	1,634	$	4	$	8,631	$	93	$	10,265	$	97

Securities classified as available-for-sale are recorded at fair market value. Approximately 95.88% of the unrealized losses, or ten individual securities, consisted of securities in a continuous loss position for twelve months or more. The Company has the ability and intent to hold these securities until such time as the value recovers or the securities mature. The Company believes, based on industry analyst reports and credit ratings, that the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary.

The following table summarizes the maturities of securities available-for-sale and held-to-maturity as of December 31, 2007, based on the contractual maturities. Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.

	Securities				Securities
	Available-For-Sale				Held-To-Maturity
	Amortized		Estimated		Amortized		Estimated
(Dollars in thousands)	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	1,631	$	1,633	$	-	$	-
Due after one year but within five years		18,995		19,253		270		290
Due after five years but within ten years		25,952		26,554		-		-
Due after ten years		8,039		8,102		-		-
		54,617		55,542		270		290
Mortgage-backed securities		15,988		16,000		-		-
Total	$	70,605	$	71,542	$	270	$	290

F-15

NOTE 3 - INVESTMENT SECURITIES - continued

Proceeds from sales of securities available-for-sale during 2007, 2006, and 2005 were $17,218,000, $2,924,000 and $9,628,000, respectively, resulting in gross realized losses of $469,000, $61,000and $66,000 in 2007, 2006, and 2005, respectively. There were no sales of securities held-to-maturity in 2007, 2006, or 2005.

At December 31, 2007 and 2006, securities having amortized costs of approximately $70,226,000 and $62,818,000, respectively, and estimated fair values of $71,177,000 and $62,454,000, respectively, were pledged as collateral for short-term borrowings, to secure public and trust deposits, and for other purposes as required and permitted by law.

As noted in Note 1, the Company has nonmarketable equity securities consisting of investments in several financial institutions. These investments totaled $9,503,000 and $8,073,000 at December 31, 2007 and 2006, respectively. During 2007 and 2006, the Company recorded no gains on the sale of nonmarketable equity securities. During 2005, the Company recorded $1,092,000 in gains on the sale of nonmarketable equity securities.

NOTE 4 - LOANS RECEIVABLE

Loans receivable are summarized as follows:

	December 31,
(Dollars in thousands)	2007		2006
Commercial and industrial	$	44,467	$	44,910
Real estate - construction		167,180		142,694
Real estate - mortgage and commercial		364,667		321,440
Home equity		42,628		40,805
Consumer - installment		24,706		22,092
Consumer - credit card and checking		1,506		1,698
Total gross loans	$	645,154	$	573,639

At December 31, 2007 and 2006, the Company had sold participations in loans aggregating $833,000 and $6,429,000, respectively, to other financial institutions on a nonrecourse basis. Collections on loan participations and remittances to participating institutions conform to customary banking practices.

The Bank accepts residential mortgage loan applications and fund loans of qualified borrowers (see Note 1). Funded loans are sold without recourse to investors under the terms of pre-existing commitments. The Company does not sell residential mortgages having market or interest rate risk. The Company does not service residential mortgage loans for the benefit of others.

At December 31, 2007 and 2006, the Company had pledged approximately $210,807,000 and $203,832,000, respectively, of loans on residential and commercial real estate as collateral for advances from the Federal Home Loan Bank (see Note 9).

An analysis of the allowance for loan losses for the years ended December 31, 2007, 2006, and 2005, is as follows:

(Dollars in thousands)	2007			2006			2005
Balance, beginning of year	$	6,200		$	6,324		$	5,808
Provision charged to operations		1,025			1,140			825
Recoveries on loans previously charged-off		83			167			85
Loans charged-off		(549	)		(1,431	)		(394	)
Balance, end of year	$	6,759		$	6,200		$	6,324

F-16

NOTE 4 - LOANS RECEIVABLE - continued

At December 31, 2007 and 2006, the Company had impaired loans of approximately $2,424,000 and $1,716,000. Valuation allowances for credit losses on impaired loans totaled $123,573 and $84,426 for the years ended December 31, 2007 and 2006, respectively. Interest income on impaired loans totaled $69,381 and $41,142 for the years ended December 31, 2007 and 2006, respectively and was measured using the cash basis. Average investment in impaired loans was $2,606,000 and $2,615,000 for the years ended December 31, 2007 and 2006, respectively. At December 31, 2007, there were no nonaccrual loans for which impairment had not been recognized. The Company had loans contractually past due 90 days or more and still accruing interest totaling $115,000 and $489,000 at December 31, 2007 and 2006, respectively.

In the normal course of business, the Company is a party to financial instruments with off-balance-sheet risk. These financial instruments are commitments to extend credit, commitments under credit card arrangements and letters of credit and have elements of risk in excess of the amount recognized in the balance sheet. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. A commitment involves, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the instrument is represented by the contractual notional amount of the instrument. Since certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Letters of credit are conditional commitments issued to guarantee a customer’s performance to a third party and have essentially the same credit risk as other lending facilities. The Company uses the same credit policies in making commitments to extend credit as it does for on-balance-sheet instruments.

At December 31, 2007 and 2006, the Company had unfunded commitments, including standby letters of credit, of $114,031,000 and $148,868,000, of which $7,756,000 and $6,379,000, respectively, were unsecured. At December 31, 2007, the Company was not committed to lend additional funds to borrowers having loans in nonaccrual status. The fair value of any potential liabilities associated with standby letters of credit is insignificant.

Loans sold with limited recourse are 1-4 family residential mortgages originated by the Company and sold to various other financial institutions. Various recourse agreements exist, ranging from forty-five days to twelve months. The Company’s exposure to credit loss in the event of nonperformance by the other party to the loan is represented by the contractual notional amount of the loan. Since none of the loans sold have ever been returned to the Company, the total loans sold with limited recourse amount does not necessarily represent future cash requirements. The Company uses the same credit policies in making loans held for sale as it does for on-balance-sheet instruments. Total loans sold with limited recourse in 2007 and 2006 was $62,205,000 and $44,848,000, respectively.

NOTE 5 - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

	December 31,
(Dollars in thousands)	2007			2006
Land	$	4,445		$	4,220
Building and land improvements		12,520			11,207
Furniture and equipment		8,756			8,120
Total		25,721			23,547
Less, accumulated depreciation		(8,992	)		(8,118	)
Premises and equipment, net	$	16,729		$	15,429

Depreciation and amortization expense was approximately $947,000, $890,000 and $872,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

F-17

NOTE 6 - INTANGIBLE ASSETS

Intangible assets, net of accumulated amortization are summarized as follows:

	December 31,
(Dollars in thousands)	2007		2006
Core deposit premium, net	$	2,537	$	3,008
Goodwill		7,419		7,419
	$	9,956	$	10,427

In accordance with SFAS No. 147, the Company evaluates its goodwill on an annual basis. The evaluations were performed in June of 2007 and 2006. At the time of the evaluations, the Company determined that no impairment existed. Therefore, there was no amortization of goodwill for the years ended December 31, 2007 or 2006. Amortization expense related to the core deposit premium was $470,000, $492,000 and $515,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

NOTE 7 - DEPOSITS

The following is a summary of deposit accounts:

	December 31,
(Dollars in thousands)	2007		2006
Noninterest-bearing demand deposits	$	62,175	$	63,733
Interest-bearing demand deposits		64,175		64,743
Money market accounts		179,369		129,801
Savings		36,117		38,791
Certificates of deposit and other time deposits		178,236		189,888
Total deposits	$	520,072	$	486,956

At December 31, 2007 and 2006, certificates of deposit of $100,000 or more totaled approximately $66,617,000 and $65,149,000, respectively. Interest expense on these deposits was approximately $3,481,000, $2,786,000 and $1,768,000 in 2007, 2006 and 2005, respectively.

Scheduled maturities of certificates of deposit and other time deposits as of December 31, 2007 were as follows:

(Dollars in thousands)
Maturing in	Amount

2008	$	173,896
2009		2,514
2010		1,466
2011		27
2012 and thereafter		333
Total	$	178,236

F-18

NOTE 8 - FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Company had federal funds purchased and securities sold under agreements to repurchase which generally mature within one day. At December 31, 2007 and 2006, the securities sold under agreements to repurchase totaled $14,561,000 and $18,329,000, respectively. At December 31, 2007 and 2006, the amortized costs of securities pledged to collateralize the repurchase agreements were $17,368,000 and $18,918,000, respectively, and estimated fair values were $17,711,000 and $19,248,000, respectively. The securities underlying the agreements are held by a third-party custodian. At December 31, 2007 and 2006, federal funds purchased were $47,705,000 and $26,953,000, respectively.

NOTE 9 - ADVANCES FROM THE FEDERAL HOME LOAN BANK

Advances from the Federal Home Loan Bank consisted of the following:

(Dollars in thousands)			December 31,
Description		Interest Rate	2007		2006
Advances maturing:
	May 18, 2007	5.44%, floating	$	-	$	15,000
	March 5, 2008	5.16, fixed		5,400		5,400
	October 31, 2008	4.40, floating		10,000		-
	February 2, 2009	4.95, fixed		125		225
	July 13, 2009	5.21, fixed		5,000		5,000
	July 13, 2009	5.03, fixed		10,000		10,000
	November 9, 2009	4.57, fixed		-		10,000
	February 26, 2010	4.77, fixed		10,000		-
	March 17, 2010	5.92, fixed		5,000		5,000
	March 14, 2011	4.63, fixed		-		10,000
	March 28, 2011	4.68, fixed		10,000		10,000
	December 7, 2011	4.12, fixed		10,000		10,000
	February 9, 2012	4.61, fixed		10,000		-
	March 1, 2012	4.32, fixed		10,000		-
	May 18, 2012	4.62, fixed		5,000		-
	June 14, 2012	4.94, fixed		10,000		-
	June 3, 2015	3.36, fixed		15,000		15,000
	November 2, 2016	3.98, fixed		-		10,000
	February 2, 2017	4.31, fixed		10,000		-
	May 18, 2017	4.15, fixed		10,000		-
			$	135,525	$	105,625

Scheduled principal reductions of Federal Home Loan Bank advances are as follows:

(Dollars in thousands)	Amount
2008	$	15,400
2009		15,125
2010		15,000
2011		20,000
2012 and thereafter		70,000
Total	$	135,525

As collateral, the Company had pledged first mortgage loans on one to four family residential loans aggregating $112,674,000, multi-family residential loans aggregating $12,222,000, home equity lines of credit aggregating $42,992,000, and commercial real estate loans aggregating $42,919,000 (see Note 4) at December 31, 2007. In addition, the Company’s Federal Home Loan Bank stock is pledged to secure the borrowings. Certain advances are subject to prepayment penalties.

F-19

NOTE 10 – JUNIOR SUBORDINATED DEBENTURES

On June 15, 2006, Community Capital Corporation Statutory Trust I (a non-consolidated subsidiary) issued $10,000,000 in trust preferred securities with a maturity of June 15, 2036. The rate is fixed at 7.04% until June 14, 2011, at which point the rate adjusts quarterly to the three-month LIBOR plus 1.55%, and can be called without penalty beginning on June 15, 2011. In accordance with the revised FIN 46, the Trust has not been consolidated in these financial statements. The Company received from the Trust the $10,000,000 proceeds from the issuance of the securities and the $310,000 initial proceeds from the capital investment in the Trust, and accordingly has shown the funds due to the Trust as $10,310,000 junior subordinated debentures.

The current regulatory rules allow certain amounts of junior subordinated debentures to be included in the calculation of regulatory capital of the Bank.

NOTE 11 - SHAREHOLDERS’ EQUITY

The Company declared a 15% stock dividend for shareholders of record on November 2, 2007. Amounts equal to the estimated fair value of the additional shares issued have been charged to retained earnings and credited to common stock and capital surplus. Dividends representing fractional shares were paid in cash. Net income per share, average shares outstanding, treasury shares, employee stock ownership plan shares, and stock option plan shares have been adjusted to reflect the stock distribution for all periods presented.

The Board of Directors has approved stock repurchase plans whereby the Company could repurchase up to $19,100,000 of its outstanding shares of common stock. As of December 31, 2007, the Company had purchased approximately 1,044,000 shares under the plans (and prior plans), at an average cost of $16.68.

The Board of Directors may issue up to 2,300,000 shares of a special class of stock, par value $1.00 per share, the rights and preferences of which are to be designated at issuance. At December 31, 2007 and 2006, no shares of the undesignated stock had been issued or were outstanding.

NOTE 12 - LEASES

The Bank occupies and uses office space, land and equipment under operating leases with initial terms expiring on various dates through 2016. The lease agreements generally provide that the Bank is responsible for ongoing costs of repairs and maintenance, insurance and real estate taxes. The leases also provide for renewal options and certain scheduled increases in monthly lease payments. Rental expenses under operating leases were $137,131, $119,832 and $108,460 for the years ended December 31, 2007, 2006 and 2005, respectively. Minimum lease commitments under noncancelable operating leases are as follows:

(Dollars in thousands)	Amount
2008	$	118,041
2009		93,941
2010		72,061
2011		49,781
2012 and thereafter		228,160
Total	$	561,984

The cost of renewals is not included in the above.

NOTE 13 - CAPITAL REQUIREMENTS AND REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

F-20

NOTE 13 - CAPITAL REQUIREMENTS AND REGULATORY MATTERS - continued

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum ratios (set forth in the table below) of Tier 1 and total capital as a percentage of assets and off-balance-sheet exposures, adjusted for risk-weights ranging from 0% to 100%. Tier 1 capital of the Company and the Bank consists of common shareholders’ equity, excluding the unrealized gain or loss on securities available-for-sale, minus certain intangible assets. Tier 2 capital consists of the allowance for loan losses subject to certain limitations. Total capital for purposes of computing the capital ratios consists of the sum of Tier 1 and Tier 2 capital.

The Company and the Bank are also required to maintain capital at a minimum level based on average assets (as defined), which is known as the leverage ratio. Only the strongest institutions are allowed to maintain capital at the minimum requirement of 3%. All others are subject to maintaining ratios 1% to 2% above the minimum.

As of the most recent regulatory examination, the Bank was deemed well-capitalized under the regulatory framework for prompt corrective action. To be categorized well capitalized, the Bank must maintain total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events that management believes have changed the Bank’s categories.

The following tables summarize the capital ratios and the regulatory minimum requirements of the Company and the Bank at December 31, 2007 and 2006.

											To Be Well-
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2007
The Company
Total capital (to risk-weighted assets)	$	71,163		11.10	%	$	51,273		8.00	%		-		N/A
Tier 1 capital (to risk-weighted assets)		64,404		10.05			25,637		4.00			-		N/A
Tier 1 capital (to average assets)		64,404		8.33			30,911		4.00			-		N/A

CapitalBank
Total capital (to risk-weighted assets)	$	69,373		10.85	%	$	51,150		8.00	%	$	63,937		10.00	%
Tier 1 capital (to risk-weighted assets)		62,614		9.79			25,575		4.00			38,362		6.00
Tier 1 capital (to average assets)		62,614		8.11			30,868		4.00			38,585		5.00

December 31, 2006
The Company
Total capital (to risk-weighted assets)	$	64,968		11.09	%	$	46,884		8.00	%		-		N/A
Tier 1 capital (to risk-weighted assets)		58,768		10.03			23,442		4.00			-		N/A
Tier 1 capital (to average assets)		58,768		8.46			27,775		4.00			-		N/A

CapitalBank
Total capital (to risk-weighted assets)	$	60,659		10.37	%	$	46,785		8.00	%	$	58,482		10.00	%
Tier 1 capital (to risk-weighted assets)		54,459		9.31			23,393		4.00			35,089		6.00
Tier 1 capital (to average assets)		54,459		7.85			27,745		4.00			34,681		5.00

F-21

NOTE 14 - STOCK COMPENSATION PLANS

On May 19, 2004, the Company terminated its 1997 Stock Incentive Plan and replaced it with the 2004 Equity Incentive Plan. Outstanding options issued under any former Plans will be honored in accordance with the terms and conditions in effect at the time they were granted, except that they are not subject to reissuance. At December 31, 2007, there were 91,339 options outstanding that had been issued under the Plans.

The 2004 Equity Incentive Plan provides for the granting of statutory incentive stock options within the meaning of Section 422 of the Internal Revenue Code as well as nonstatutory stock options, stock appreciation rights, or restricted stock of up to 258,750 shares of the Company’s common stock, to officers, employees, and directors of the Company. Awards may be granted for a term of up to ten years from the effective date of grant. Under this Plan, the Company’s Board of Directors has sole discretion as to the exercise date of any awards granted. The per-share exercise price of incentive stock options may not be less than the fair value of a share of common stock on the date the option is granted. The per-share exercise price of nonqualified stock options may not be less than 50% of the fair value of a share on the effective date of grant. Any options that expire unexercised or are canceled become available for reissuance. No awards may be made on or after May 19, 2014.

There were no stock options granted in 2007, 2006 or 2005.

A summary of the status of the Company’s stock option plans as of December 31, 2007, 2006, and 2005 and changes during the years ended on those dates is presented below:

	2007				2006				2005
			Weighted-				Weighted-				Weighted-
			Average				Average				Average
			Exercise				Exercise				Exercise
	Shares		Price		Shares		Price		Shares		Price
Outstanding at beginning of year		142,341	$	14.26		200,824	$	12.31		271,923	$	11.24
Granted		-		-		-		-		-		-
Exercised		42,435		11.24		57,242		7.44		68,721		8.21
Cancelled		8,567		14.79		1,241		12.88		2,378		9.24

Outstanding at end of year		91,339		15.62		142,341		14.26		200,824		12.31

Options exercisable at December 31, 2007, 2006, and 2005 were 91,339, 142,341 and 200,824, respectively.

The aggregate intrinsive value (the difference between the Company’s closing stock price on the last trading day of 2007 and the exercise price, multiplied by the number of in-the-money options) for options outstanding and exercisable at December 31, 2007 amounted to $99,239. This amount represents what would have been received by the option holders had all option holders exercised their options on December 31, 2007. This amount changes based on changes in the fair market value of the Company’s stock.

F-22

NOTE 14 - STOCK COMPENSATION PLANS - continued

The following table summarizes information about the stock options outstanding under the Company’s plans at December 31, 2007:

Weighted

Average

Options

Remaining

Exercise

Range of Exercise Prices

Outstanding

Life (years)

Price

Exercisable:

$12.43 to $13.04

39,330

0.12

12.46

$17.48 to $19.48

52,009

1.08

18.01

Total exercisable

91,339

During 2007 and 2006, the Company issued 24,495 and 19,952 shares, respectively, of restricted stock pursuant to the 2004 Equity Incentive Plan. The shares cliff vest in three years and are fully vested on February 1, 2010 and 2009, respectively. The weighted-average fair value of restricted stock issued during 2007 and 2006 was $18.10 and $19.87, respectively. Compensation cost associated with the issuances was $491,000, $419,000 and $292,000 for the years ended December 31, 2007, 2006 and 2005, respectively. Forfeitures totaled $67,000 and $14,000 for the years ended December 31, 2007 and 2006, respectively. There were no restricted stock forfeitures for the year ended December 31, 2005. At December 31, 2007, the Company had 171,753 stock awards available for grant under the 2004 Equity Incentive Plan.

NOTE 15 - RELATED PARTY TRANSACTIONS

Certain parties (primarily certain directors and executive officers, their immediate families and business interests) were loan customers and had other transactions in the normal course of business with the Company. Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and generally do not involve more than normal risk of collectability. Total loans and commitments outstanding to related parties at December 31, 2007, 2006, and 2005 were $18,976,000, $17,175,000 and $17,774,000, respectively. During 2007, $4,793,000 of new loans were made to related parties and repayments totaled $2,992,000. During 2006, $1,363,000 of new loans were made to related parties and payments totaled $1,962,000.

The Company purchases various types of insurance from agencies that are owned by two directors. Amounts paid for insurance premiums were $86,894, $175,867 and $197,451 in 2007, 2006, and 2005, respectively.

NOTE 16 - COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements. In addition, the Company is a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of the Company.

NOTE 17 - RESTRICTION ON SUBSIDIARY DIVIDENDS

The ability of the Company to pay cash dividends to shareholders is dependent upon receiving cash in the form of dividends from the Bank. However, certain restrictions exist regarding the ability of the Bank to transfer funds in the form of cash dividends, loans, or advances to the Company. Dividends are payable only from the retained earnings of the Bank. At December 31, 2007, retained earnings of the bank was $16,341,000.

F-23

NOTE 18 - EARNINGS PER-SHARE

Earnings per share - basic is computed by dividing net income by the weighted-average number of common shares outstanding. Earnings per share - diluted is computed by dividing net income by the weighted-average number of common shares outstanding and dilutive common share equivalents using the treasury stock method.

	Year ended December 31,
(Dollars in thousands, except per share data)	2007		2006		2005
Basic earnings per share:
Net income available to common shareholders	$	6,888	$	5,759	$	7,094
Average basic common shares outstanding		4,371,345		4,299,359		4,370,031
Basic earnings per share	$	1.58	$	1.34	$	1.63
Diluted earnings per share:
Net income available to common shareholders	$	6,888	$	5,759	$	7,094
Average common shares outstanding - basic		4,371,345		4,299,359		4,370,031
Incremental shares from assumed conversions:
Restricted Stock		16,234		36,676		35,352
Stock options		34,733		47,463		90,831
Average diluted common shares outstanding		4,422,312		4,383,498		4,496,214
Diluted earnings per share	$	1.56	$	1.31	$	1.58

The above computation of diluted earnings per share does not include the following options that were outstanding at year-end since their exercise price was greater than the average market price of the common shares:

	2007		2006		2005
Number of options		13,800		13,800		N/A
Weighted-average of these options
outstanding during the year		13,800		13,800		N/A
Weighted-average exercise price	$	19.48	$	19.48		N/A

F-24

NOTE 19 - INCOME TAXES

Income tax expense consisted of the following:

	Year ended December 31,
(Dollars in thousands)	2007		2006			2005
Currently payable:
Federal	$	2,793	$	2,777		$	2,629
State		346		(274	)		260
Total current		3,139		2,503			2,889
Deferred income tax provision (benefit)		401		(407	)		(1,030	)
Income tax expense	$	3,540	$	2,096		$	1,859
Income tax expense (benefit) is allocated as follows:
To continuing operations	$	3,139	$	2,018		$	2,479
To shareholders’ equity		401		78			(620	)
Income tax expense	$	3,540	$	2,096		$	1,859

The gross amounts of deferred tax assets and deferred tax liabilities were as follows:

	December 31,
(Dollars in thousands)	2007		2006
Deferred tax assets:
Allowance for loan losses	$	2,298	$	2,002
Net operating loss carryforward - state		251		172
Deferred compensation		840		690
Nonaccrual of interest		85		39
Other real estate owned		61		61
Loans fees and costs		10		96
Director fees		58		43
Restricted stock		378		274
Available-for-sale securities		-		151
Deferred revenue		64		82
Total deferred tax assets		4,045		3,610

Deferred tax liabilities:
Accumulated depreciation		131		136
Federal Home Loan Bank stock dividends		16		16
Available-for-sale securities		250		-
Merger related, net		71		96
Core deposit intangibles		112		154
Prepaids		57		66
Total deferred tax liabilities		637		468
Net deferred tax asset recognized	$	3,408	$	3,142

Deferred tax assets represent the future tax benefit of deductible differences and, if it is more likely than not that a tax asset will not be realized, a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value. Management has determined that it is more likely than not that the entire deferred tax asset at December 31, 2007 will be realized, and accordingly, has not established a valuation allowance. Net deferred tax assets are included in other assets.

F-25

NOTE 19 - INCOME TAXES - continued

A reconciliation of the income tax provision and the amount computed by applying the Federal statutory rate of 34% to income before income taxes follows:

	Year ended December 31,
(Dollars in thousands)	2007			2006			2005
Income tax at the statutory rate	$	3,409		$	2,644		$	3,254
State income tax, net of federal income tax benefit		228			184			197
Tax-exempt interest income		(473	)		(460	)		(493	)
Disallowed interest expense		66			73			48
Stock option compensation		(22	)		(167	)		(181	)
Increase in cash surrender value of life insurance		(230	)		(203	)		(198	)
Other, net		161			(53	)		(148	)
Income tax expense	$	3,139		$	2,018		$	2,479

The company had analyzed the tax positions taken or expected to be taken in its tax returns and concluded it has no liability related to uncertain tax positions in accordance with FIN 48.

NOTE 20 - OTHER OPERATING EXPENSES

Other operating expenses are summarized below:

	Year ended December 31,
(Dollars in thousands)	2007		2006		2005
Banking and ATM supplies	$	476	$	427	$	530
Directors’ fees		299		274		252
Mortgage loan department expenses		212		129		119
Data processing and supplies		1,340		1,091		670
Postage and freight		210		212		432
Professional fees		501		351		410
Telephone expenses		370		351		294
Other		2,242		2,139		1,982
Total	$	5,650	$	4,974	$	4,689

NOTE 21 - RETIREMENT AND BENEFIT PLANS

The Company sponsors a voluntary nonleveraged employee stock ownership plan (ESOP) as part of a 401(k) savings plan covering substantially all full-time employees. The Company matches 75 cents per dollar, up to a maximum of 6% of employee compensation. Company contributions to the savings plan were $304,000, $408,000 and $297,000 in 2007, 2006, and 2005, respectively. The Company’s policy is to fund amounts approved by the Board of Directors. At December 31, 2007 and 2006, the savings plan owned 211,289 and 196,291 shares of the Company’s common stock purchased at an average cost of $16.32 and $16.23 per share, respectively. The estimated value of shares held at December 31, 2007 and 2006 was $3,165,000 and $3,513,000, respectively.

The Company had an Incentive Plan for 2004 which provided incentive pay for outstanding accomplishments of officers and employees of the Company. Cash awards were based upon various performance measures including earnings per share growth and asset growth. Incentive payments accrued at December 31, 2007 and 2006 totaled $795,000 and $375,000, respectively.

The Company has an Executive Supplemental Compensation Plan that provides certain officers with salary continuation benefits upon retirement. The plan also provides for benefits in the event of early retirement, death, or substantial change of control of the Company. In connection with, but not directly related to, the Executive Supplemental Compensation Plan, life insurance contracts were purchased on the officers. No insurance premiums were paid in the years ended December 31, 2007, 2006, or 2005.

F-26

NOTE 21 - RETIREMENT AND BENEFIT PLANS - continued

During 1999, certain officers opted out of the Executive Supplemental Compensation Plan. Under a new agreement, split-dollar life insurance policies were obtained on the lives of these officers. In 2002 upon the purchase of Bank Owned Life Insurance (BOLI) Policies as described below, these officers forfeited any benefits associated with these policies and as a result these policies are in essence key man policies. The officers are entitled to all of the benefits of these policies, with the exception of the premiums paid by the Company. There was no expense associated with this plan in 2007, 2006, or 2005. No insurance premiums were paid on the plan during 2007 or 2006. The policies increased their cash values by $255,000 and $735,000 during 2007 and 2006, respectively. Cash values at December 31, 2007 and 2006 were $4,137,000 and $3,882,000, respectively. The significant increase in cash value in 2006 was the result of the extinguishment of debt against the same policies.

In 2002, the Company purchased BOLI Policies on certain key officers of the Company. Earnings on such policies will be used to offset expenses associated with retirement benefits for these officers. There were no premiums paid on the policies during the years ended December 31, 2007, 2006, or 2005. The policies increased their cash values by $421,000 and $400,000 during 2007 and 2006, respectively. Cash values at December 31, 2007 and 2006 were $11,156,000 and $10,735,000, respectively.

NOTE 22 - UNUSED LINES OF CREDIT

As of December 31, 2007, the subsidiary bank had unused lines of credit to purchase federal funds from unrelated banks totaling $22,048,000. These lines of credit are available on a one to thirty day basis for general corporate purposes. The lenders have reserved the right not to renew their respective lines. The Bank also has a line of credit to borrow funds from the Federal Home Loan Bank up to 25% of the Bank’s total assets which provided total availability of $199,755,000 at December 31, 2007. As of December 31, 2007, the Bank had borrowed $135,525,000 on this line.

As of December 31, 2007, the Company had a line of credit with an unrelated bank in the amount of $10,000,000 for general corporate purposes. The line bears interest at a rate of LIBOR plus 1.75% and expires February 6, 2008. At December 31, 2007, there were no outstanding borrowings on the line.

NOTE 23 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount at which an asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.

The following methods and assumptions were used to estimate the fair value of significant financial instruments:

Cash and Due from Banks and Interest-Bearing Deposit Accounts - The carrying amount is a reasonable estimate of fair value.

Investment Securities - The fair values of securities held-to-maturity are based on quoted market prices or dealer quotes. For securities available-for-sale, fair value equals the carrying amount which is the quoted market price. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities.

Nonmarketable Equity Securities - Cost is a reasonable estimate of fair value for nonmarketable equity securities because no quoted market prices are available and the securities are not readily marketable. The carrying amount is adjusted for any permanent declines in value.

Cash Surrender Value of Life Insurance - The carrying amount is a reasonable estimate of fair value.

Loans Receivable - For certain categories of loans, such as variable rate loans which are repriced frequently and have no significant change in credit risk and credit card receivables, fair values are based on the carrying amounts. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to the borrowers with similar credit ratings and for the same remaining maturities.

F-27

NOTE 23 - FAIR VALUE OF FINANCIAL INSTRUMENTS - continued

Accrued Interest Receivable and Payable - The carrying value of these instruments is a reasonable estimate of fair value.

Deposits - The fair value of demand deposits, savings, and money market accounts is the amount payable on demand at the reporting date. The fair values of certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to a schedule of aggregated expected maturities.

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase - The carrying amount is a reasonable estimate of fair value because these instruments typically have terms of one day.

Advances from the Federal Home Loan Bank - The carrying amounts of variable rate borrowings are reasonable estimates of fair value because they can be repriced frequently. The fair values of fixed rate borrowings are estimated using a discounted cash flow calculation that applies the Company’s current borrowing rate from the Federal Home Loan Bank.

Junior Subordinated Debentures – The carrying value of junior subordinated debentures is a reasonable estimate of fair value since the debentures were issued at a floating rate.

The carrying values and estimated fair values of the Company’s financial instruments are as follows:

	December 31,
	2007				2006
	Carrying		Estimated		Carrying		Estimated
(Dollars in thousands)	Amount		Fair Value		Amount		Fair Value
Financial Assets:
Cash and due from banks	$	29,142	$	29,142	$	22,167	$	22,167
Interest-bearing deposit accounts		267		267		308		308
Securities available-for-sale		71,542		71,542		65,496		65,496
Securities held-to-maturity		270		290		380		388
Nonmarketable equity securities		9,503		9,503		8,073		8,073
Cash surrender value of life insurance		15,293		15,293		14,617		14,617
Loans and loans held for sale		645,785		642,612		574,193		564,351
Accrued interest receivable		4,412		4,412		3,954		3,954

Financial Liabilities:
Demand deposit, interest bearing
transaction, and savings accounts	$	341,836	$	341,836	$	297,068	$	297,068
Certificates of deposit and other time deposits		178,236		179,832		189,888		191,043
Federal funds purchased and securities
sold under agreements to repurchase		62,266		62,266		45,282		45,282
Advances from the Federal Home Loan Bank		135,525		132,097		105,625		105,794
Junior subordinated debentures		10,310		10,310		10,310		10,310
Accrued interest payable		3,134		3,134		2,686		2,686

F-28

NOTE 24 - COMMUNITY CAPITAL CORPORATION (PARENT COMPANY ONLY)

Condensed financial statements for Community Capital Corporation (Parent Company Only) follow:

Condensed Balance Sheets

	December 31,
(Dollars in thousands)	2007			2006
Assets
Cash and cash equivalents	$	613		$	3,307
Investment in banking subsidiary		73,036			64,597
Nonmarketable equity securities		310			310
Premises and equipment, net		1,178			1,163
Other assets		1,392			1,223
Total assets	$	76,529		$	70,600

Liabilities and Shareholders’ Equity
Notes payable to subsidiary	$	993		$	1,004
Junior subordinated debentures		10,310			10,310
Other liabilities		379			360
Total liabilities		11,682			11,674
Common stock		5,604			4,818
Nonvested restricted stock		(443	)		(558	)
Capital surplus		61,600			47,671
Retained earnings		15,016			24,386
Accumulated other comprehensive expense		485			(269	)
Treasury stock		(17,415	)		(17,122	)
Total shareholders’ equity		64,847			58,926
Total liabilities and shareholders’ equity	$	76,529		$	70,600

Condensed Statements of Income

	For the years ended December 31,
(Dollars in thousands)	2007			2006			2005
Income:
Dividend income from subsidiary	$	-		$	2,900		$	5,050
Dividend income from equity securities		22			11			-
Net gain on sale of nonmarketable equity securities		-			-			1,092
Other interest income		112			120			10
Other income		4			4			3
Total income		138			3,035			6,155

Expenses:
Salaries		498			429			304
Net occupancy expense		(203	)		(105	)		(75	)
Furniture and equipment expense		6			5			36
Interest expense		814			485			70
Other operating expenses		375			288			334
Total expense		1,490			1,102			669
Income (loss) before income taxes and equity in undistributed
earnings of subsidiary		(1,352	)		1,933			5,486
Income tax expense (benefit)		(555	)		534			31
Income (loss) before equity in undistributed earnings of subsidiary		(797	)		2,467			5,517
Equity in undistributed earnings of subsidiary		7,685			3,292			1,577
Net income	$	6,888		$	5,759		$	7,094

F-29

NOTE 24 - COMMUNITY CAPITAL CORPORATION (PARENT COMPANY ONLY) - continued

Condensed Statements of Cash Flows

	For the years ended December 31,
(Dollars in thousands)	2007			2006			2005
Operating activities:
Net income	$	6,888		$	5,759		$	7,094
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of banking subsidiary		(7,685	)		(3,292	)		(1,577	)
Depreciation and amortization expense		36			45			77
Amortization of deferred compensation on restricted stock		491			419			292
Deferred taxes		(189	)		362			100
Gain on sale of nonmarketable equity securities		-			-			(1,092	)
Increase (decrease) in other liabilities		23			80			(24	)
(Increase) decrease in other assets		20			(978	)		417
Net cash provided (used) by operating activities		(416	)		2,395			5,287

Investing activities:
Purchase of premises and equipment		(51	)		(203	)		(34	)
Proceeds from sales on nonmarketable equity securities		-			-			1,592
Purchases of nonmarketable equity securities		-			(310	)		-
Investment in Bank subsidiary		-			(7,000	)		-
Net cash provided (used) by investing activities		(51	)		(7,513	)		1,558

Financing activities:
Dividends paid		(2,400	)		(2,266	)		(2,854	)
Proceeds from exercise of stock options		477			427			564
Proceeds from junior subordinated debentures		-			10,310			-
Proceeds of long term debt		-			2,700			-
Repayment of long term debt		-			(2,700	)		-
Repayments on borrowings from subsidiary		(11	)		(39	)		(50	)
Purchase of treasury stock		(293	)		(70	)		(4,488	)
Net cash provided (used) by financing activities		(2,227	)		8,362			(6,828	)

Net increase (decrease) in cash and cash equivalents		(2,694	)		3,244			17
Cash and cash equivalents, beginning of year		3,307			63			46
Cash and cash equivalents, end of year	$	613		$	3,307		$	63

F-30

NOTE 25 - QUARTERLY DATA (UNAUDITED)

	December 31,
	2007								2006
(Dollars in thousands	Fourth		Third		Second		First		Fourth		Third		Second		First
except per share)	Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter
Interest income	$	12,746	$	12,695	$	12,216	$	11,475	$	11,248	$	10,696	$	9,847	$	8,888
Interest expense		6,422		6,565		6,315		5,927		5,796		5,288		4,684		3,857

Net interest income		6,324		6,130		5,901		5,548		5,452		5,408		5,163		5,031

Provision for loan losses		400		300		125		200		340		650		150		-

Net interest income after
provision for loan losses		5,924		5,830		5,776		5,348		5,112		4,758		5,013		5,031
Noninterest income		1,865		1,756		1,646		1,608		1,629		1,588		1,457		1,360
Noninterest expenses		4,997		5,252		4,825		4,652		4,620		4,711		4,432		4,408

Income before taxes		2,792		2,334		2,597		2,304		2,121		1,635		2,038		1,983
Income tax expense		958		698		809		674		577		441		490		510

Net income	$	1,834	$	1,636	$	1,788	$	1,630	$	1,544	$	1,194	$	1,548	$	1,473

Earnings per share:
Basic	$	0.42	$	0.37	$	0.41	$	0.37	$	0.36	$	0.28	$	0.36	$	0.35
Diluted	$	0.41	$	0.36	$	0.40	$	0.37	$	0.35	$	0.27	$	0.36	$	0.34

F-31

EXHIBIT INDEX

Exhibit
Number	Description
2.11	Merger Agreement dated as of October 15, 2003 between Community Capital Corporation and Abbeville Capital Corporation
3.12	Articles of Incorporation of Registrant
3.22	Articles of Amendment to Articles of Incorporation of Registrant (re: Change of Name)
3.33	Amended and Restated Bylaws of Registrant dated November 28, 2007
3.44	First Amendment to Amended and Restated Bylaws of Registrant dated March 19, 2008
4.15	Form of Common Stock Certificate. (The rights of security holders of the Registrant are set forth in the Registrant’s Articles of Incorporation and Bylaws included as Exhibits 3.1 through 3.3.)
4.26	Indenture dated as of June 15, 2006, between Community Capital Corporation and Wilmington Trust Company, as Trustee
10.32	*Registrant’s Executive Supplemental Income Plan (Summary) and form of Executive Supplemental Income Agreement
10.42	*Registrant’s Management Incentive Compensation Plans (Summary)
10.65	Lease Agreement With Options dated June 11, 1996 between Robert C. Coleman and the Registrant
10.187	*1997 Stock Incentive Plan, as amended
10.218	*Salary Continuation Agreement between CapitalBank and William G. Stevens dated October 17, 2002
10.228	*Salary Continuation Agreement between CapitalBank and Ralph W. Brewer dated October 17, 2002
10.238	*Split Dollar Agreement between CapitalBank and Ralph W. Brewer dated October 17,
	2002
10.248	*Salary Continuation Agreement between CapitalBank and Helen A. Austin dated October 17, 2002
10.258	*Split Dollar Agreement between CapitalBank and Helen A. Austin dated October 17, 2002
10.268	*Salary Continuation Agreement between CapitalBank and James A. Lollis dated October
	17, 2002
10.278	*Split Dollar Agreement between CapitalBank and James A. Lollis dated October 17,
	2002
10.288	*Salary Continuation between CapitalBank and Taylor T. Stokes dated October 17, 2002
10.298	*Split Dollar Agreement CapitalBank and Taylor T. Stokes dated October 17, 2002
10.308	*Salary Continuation Agreement between CapitalBank and Walter G. Stevens dated October 17, 2002
10.318	*Split Dollar Agreement between CapitalBank and Walter G. Stevens dated October 17,
	2002
10.328	*Salary Continuation Agreement between CapitalBank and Sonja Hazel Hughes dated October 17, 2002
10.338	*Salary Continuation Agreement between CapitalBank and Steve O. White dated October
	17, 2002
10.379	Marketing Agreement dated May 21, 2003, by and between CapitalBank and Benefit Coordinators, Inc.
10.397	*Split Dollar Agreement between CapitalBank and William G. Stevens dated December 31, 2003
10.407	*Split Dollar Agreement between CapitalBank and Steve O. White dated December 31, 2003
10.4410	*Restricted Stock Agreement
10.4511	*2004 Equity Incentive Plan
10.4612	Banking Support Services Master Agreement between CapitalBank and First-Citizens Bank & Trust Company dated June 15, 2005
10.4813	Share Repurchase Agreement between Community Capital Corporation and FIG Partners, LLC dated August 18, 2005
10.4914	*First Amendment to Salary Continuation Agreement between CapitalBank and Steve O. White dated January 10, 2006

E-1

10.506	Amended and Restated Declaration of Trust dated as of June 15, 2006, among Community Capital Corporation, as sponsor, Wilmington Trust Company, as Delaware trustee, Wilmington Trust Company, as institutional trustee, and Mary Beth Ginn, Heather N. Price and R. Wesley Brewer, as administrators
10.516	Guarantee Agreement dated as of June 15, 2006, between Community Capital Corporation, as guarantor, and Wilmington Trust Company, as guarantee trustee.
10.5215	*CapitalBank Director Deferred Fee Agreement Dated August 12, 2003 for Wayne Q. Justesen
10.5315	*First Amendment to the CapitalBank Director Deferred Fee Agreement Dated August 12, 2003 for Wayne Q. Justesen
10.5415	*CapitalBank Director Deferred Fee Agreement Dated August 20, 2003 for Lex D. Walters
10.5515	*First Amendment to the CapitalBank Director Deferred Fee Agreement Dated August 20, 2003 for Lex D. Walters
10.5615	*CapitalBank Director Deferred Fee Agreement Dated August 20, 2003 for Miles Loadholt
10.5715	*First Amendment to the CapitalBank Director Deferred Fee Agreement Dated August 20, 2003 for Miles Loadholt
10.5815	*CapitalBank Director Deferred Fee Agreement Dated August 21, 2003 for B. Marshall Keys
10.5915	*First Amendment to the CapitalBank Director Deferred Fee Agreement Dated August 21, 2003 for B. Marshall Keys
10.6016	*First Amendment to the CapitalBank Salary Continuation Agreement Dated October 17, 2002 for Helen A. Austin
10.6116	*First Amendment to the CapitalBank Salary Continuation Agreement Dated October 17, 2002 for Sonja Hazel Hughes
10.6216	*First Amendment to the CapitalBank Salary Continuation Agreement Dated October 17, 2002 for Ralph W. Brewer
10.6316	*First Amendment to the CapitalBank Salary Continuation Agreement Dated October 17, 2002 for William G. Stevens
10.6416	*First Amendment to the CapitalBank Salary Continuation Agreement Dated October 17, 2002 for James A. Lollis
10.6516	*First Amendment to the CapitalBank Salary Continuation Agreement Dated October 17, 2002 for Walter G. Stevens
10.6616	*First Amendment to the CapitalBank Salary Continuation Agreement Dated October 17, 2002 for Taylor T. Stokes
10.6716	*Second Amendment to the CapitalBank Salary Continuation Agreement Dated October 17, 2002 and Amended January 10, 2006 for Steve O. White
10.6816	*CapitalBank (fka The Bank of Abbeville) Salary Continuation Agreement Dated October 7, 2003 for Thomas D. Sherard, Jr.
10.6916	*First Amendment to the CapitalBank (fka The Bank of Abbeville) Salary Continuation Agreement Dated October 7, 2003 for Thomas D. Sherard, Jr.
10.7016	*CapitalBank (fka The Bank of Abbeville) Salary Continuation Agreement Dated October 7, 2003 for C. William Knapp, Jr.
10.7116	*First Amendment to the CapitalBank (fka The Bank of Abbeville) Salary Continuation Agreement Dated October 7, 2003 for C. William Knapp, Jr.
10.7216	*CapitalBank (fka The Bank of Abbeville) Salary Continuation Agreement Dated October 7, 2003 for Patricia P. Howie
10.7316	*First Amendment to the CapitalBank (fka The Bank of Abbeville) Salary Continuation Agreement Dated October 7, 2003 for Patricia P. Howie
10.7416	*CapitalBank Salary Continuation Agreement Dated June 1, 2004 for Tony Lawton
10.7516	*First Amendment to the CapitalBank Salary Continuation Agreement Dated June 1, 2004 for Tony Lawton
10.7616	*CapitalBank Salary Continuation Agreement Dated June 1, 2004 for Elaine Crawford
10.7716	*First Amendment to the CapitalBank Salary Continuation Agreement Dated June 1, 2004 for Elaine Crawford
10.7816	*CapitalBank Salary Continuation Agreement Dated June 1, 2004 for Chase Christopher
10.7916	*First Amendment to the CapitalBank Salary Continuation Agreement Dated June 1, 2004 for Chase Christopher
10.8016	*First Amendment to the CapitalBank Salary Continuation Agreement Dated December 14, 2006 for Cindy A. Pugh
10.8116	*Employment Agreement by and between Community Capital Corporation and William G. Stevens dated March 3, 2008

E-2

10.8216	*Employment Agreement by and between Community Capital Corporation and R. Wesley Brewer dated March 3, 2008
147	Code of Ethics
21.117	Subsidiaries of the Registrant
23.1	Consent of Elliott Davis, LLC
24.1	Directors’ Powers of Attorney
31.1	Rule 13a-14(a)/15d-14(a) Certification by William G. Stevens
31.2	Rule 13a-14(a)/15d-14(a) Certification by R. Wesley Brewer
32	Section 1350 Certifications

1	Incorporated by reference to Appendix A of the Proxy Statement/Prospectus filed in connection with the Registrant’s Registration Statement on Form S-4 on December 2, 2003 (File No. 333-110870).

2	Incorporated by reference to the Exhibit of the same number filed in connection with the Registrant’s Registration Statement on Form S-4 on December 2, 2003 (File No. 333-110870).

3	Incorporated by reference to the Exhibit of the same number filed in connection with the Registrant’s Form 8-K on November 28, 2007.

4	Incorporated by reference to Exhibit of the same number filed in connection with the Registrant’s Form 8-K filed on March 20, 2008.

5	Incorporated by reference to the Exhibit of the same number filed in connection with the Registrant’s Registration Statement on Form S-2 initially filed on December 20, 1996 (File No. 333-18457).

6	Incorporated by reference to Exhibit of the same number filed in connection with the Registrant’s Form 8-K filed on June 16, 2006.

7	Incorporated by reference to the Exhibit of the same number filed in connection with the Registrant’s 10-K for the fiscal year ended December 31, 2003 and filed on March 26, 2004.

8	Incorporated by reference to the Exhibit of the same number filed in connection with the Registrant’s 10-Q for the quarter ended September 30, 2002 and filed on November 13, 2002.

9	Incorporated by reference to Exhibit of the same number filed in connection with the Registrant’s Form 8-K filed on May 22, 2003.

10	Incorporated by reference to the Exhibit of the same number filed in connection with the Registrant’s Form 10-Q for the quarter ended September 30, 2004 and filed on November 9, 2004.

11	Incorporated by reference to Appendix A of Amendment No. 1 to the Registrant’s Proxy Statement filed on April 26, 2004.

12	Incorporated by reference to Exhibit of the same number filed in connection with the Registrant’s Form 8-K filed on June 20, 2005.

13	Incorporated by reference to Exhibit of the same number filed in connection with the Registrant’s Form 8-K filed on August 18, 2005.

14	Incorporated by reference to Exhibit of the same number filed in connection with the Registrant’s Form 8-K filed on January 11, 2006.

15	Incorporated by reference to Exhibit of the same number filed in connection with the Registrant’s Form 8-K filed on January 3, 2008.

16	Incorporated by reference to Exhibit of the same number filed in connection with the Registrant’s Form 8-K filed on March 4, 2008.

17	Incorporated by reference to the Exhibit of the same number filed in connection with the Registrant’s 10-K for the fiscal year ended December 31, 2001 and filed on March 28, 2002.

* Management contract or compensation plan or arrangement.

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