UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2010

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)	(I.R.S. Employer Identification No.)

1402C Highway 72 West

Greenwood, SC 29649

(Address of principal executive offices, including zip code)

(864) 941-8200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes X No __

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes__   No ___

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer (  )     Accelerated Filer (  )   Non-Accelerated Filer (  ) Smaller Reporting Company (X)

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:  

9,926,820 shares of common stock, $1.00 par value per share, as of April 15, 2010

COMMUNITY CAPITAL CORPORATION

Index

PART I. - FINANCIAL INFORMATION		Page No.
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets – March 31, 2010 and December 31, 2009	3
	Condensed Consolidated Statements of Income - Three months ended March 31, 2010 and 2009	4
	Condensed Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income - Three months ended March 31, 2010 and 2009	5
	Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2010 and 2009	6
	Notes to Condensed Consolidated Financial Statements	7-15
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16-31
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	31
Item 4T.	Controls and Procedures	31-32
PART II. - OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	(Removed and Reserved)	33
Item 5.	Other Information	33
Item 6.	Exhibits	33

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COMMUNITY CAPITAL CORPORATION

Condensed Consolidated Balance Sheets

PART I. FINANCIAL STATEMENTS

Item 1. Financial Statements

	March 31,			December 31,
(Dollars in thousands, except for per share data)	2010			2009
Assets:
Cash and cash equivalents:
Cash and due from banks	$	10,384		$	10,141
Interest-bearing deposit accounts		60,002			38,990
Total cash and cash equivalents		70,386			49,131
Investment securities:
Securities available-for-sale		67,764			68,826
Securities held-to-maturity (estimated fair value of
$170 at March 31, 2010 and December 31, 2009)		160			160
Nonmarketable equity securities		10,364			10,186
Total investment securities		78,288			79,172
Loans held for sale		1,396			1,103
Loans receivable		549,010			567,178
Less allowance for loan losses		(14,018	)		(14,160	)
Loans, net		534,992			553,018
Other real estate owned		8,833			7,165
Premises and equipment, net		15,931			16,150
Interest receivable		2,683			3,046
Prepaid expenses		4,548			4,873
Intangible assets		1,560			1,663
Cash surrender value of life insurance		16,861			16,689
Deferred tax asset		5,955			6,622
Income tax receivable		1,640			9,634
Other assets		2,764			1,176
Total assets	$	745,837		$	749,442
Liabilities:
Deposits:
Noninterest-bearing	$	101,462		$	112,333
Interest-bearing		477,034			471,150
Total deposits		578,496			583,483
Advances from the Federal Home Loan Bank		95,400			95,400
Accrued interest payable		925			1,337
Junior subordinated debentures		10,310			10,310
Other liabilities		5,649			5,155
Total liabilities		690,780			695,685
Shareholders’ equity:
Common stock, $1.00 par value; 20,000,000 shares authorized;
10,721,450 shares issued at March 31, 2010 and December 31, 2009		10,721			10,721
Capital surplus		65,906			66,473
Accumulated other comprehensive income		444			909
Retained earnings (deficit)		(10,105	)		(11,705	)
Nonvested restricted stock		(293	)		(364	)
Treasury stock, at cost (800,129 and 845,627 shares in 2010 and 2009, respectively)		(11,616	)		(12,277	)
Total shareholders’ equity		55,057			53,757
Total liabilities and shareholders’ equity	$	745,837		$	749,442

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COMMUNITY CAPITAL CORPORATION

Condensed Consolidated Statements of Income

(Unaudited)

(Dollars in thousands, except for per share data)	Three Months Ended March 31,
	2010		2009
Interest income:
Loans, including fees	$	7,500	$	8,490
Investment securities:
Taxable		536		615
Tax-exempt		169		329
Nonmarketable equity securities		31		30
Other interest income		22		2
Total		8,258		9,466
Interest expense:
Deposits		1,930		1,842
Federal Home Loan Bank advances		727		1.457
Other interest expense		179		215
Total		2,836		3,514
Net interest income		5,422		5,952
Provision for loan losses		1,600		2,000
Net interest income after provision for loan losses		3,822		3,952
Other operating income:
Service charges on deposit accounts		482		563
Gain on sales of loans held for sale		298		322
Fees from brokerage services		64		37
Income from fiduciary activities		472		348
Gain on sale of premises and equipment		-		3
Gain on sale of securities available-for-sale		683		145
Other operating income		1,358		444
Total		3,357		1,862
Other operating expenses:
Salaries and employee benefits		2,439		2,594
Net occupancy expense		322		320
Amortization of intangible assets		103		108
Furniture and equipment expense		203		233
FDIC assessments		346		106
Write downs on other real estate owned		40		76
Other operating expenses		1,440		1,498
Total		4,893		4,753
Income before income taxes		2,286		1,059
Income tax provision		686		196
Net income	$	1,600	$	863
Basic net income per share	$	0.16	$	0.19
Diluted net income per share	$	0.16	$	0.19

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COMMUNITY CAPITAL CORPORATION

Condensed Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income

For the three months ended March 31, 2010 and 2009

(Unaudited)

(Dollars in thousands, except for per share amounts)

	Common Stock					Nonvested Restricted Stock			Capital Surplus			Retained Earnings (loss)			Accumulated Other Comprehensive Income (loss)			Treasury Stock			Total
	Shares			Amount
Balance, December 31, 2008		5,666,760		$	5,667	$	(445	)	$	62,405		$	14,218		$	527		$	(17,415	)	$	64,957
Net income													863									863
Other comprehensive income, net of tax expense																293						293
Comprehensive Income																						1,156
Issuance of restricted stock		49,500			49		(302	)		253												-
Amortization of deferred compensation on restricted stock							96															96
Forfeitures of restricted stock		(100	)																			-
Dividends paid ($0.15 per share)													(678	)								(678	)
Balance, March 31, 2009		5,716,160		$	5,716	$	(651	)	$	62,658		$	14,403		$	820		$	(17,415	)	$	65,531
Balance, December 31, 2009		10,721,450		$	10,721	$	(364	)	$	66,473		$	(11,705	)	$	909		$	(12,277	)	$	53,757
Net income													1,600									1,600
Other comprehensive loss, net of tax benefit																(465	)					(465	)
Comprehensive Income																						1,135
Sales of treasury shares  (45,498 shares)										(531	)								661			130
Capitalized expenses associated with rights offering										(36	)											(36	)
Amortization of deferred compensation on restricted stock							71															71
Balance, March 31, 2010		10,721,450		$	10,721	$	(293	)	$	65,906		$	(10,105	)	$	444		$	(11,616	)	$	55,057

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COMMUNITY CAPITAL CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)	Three Months Ended March 31,
	2010			2009
Cash flows from operating activities:
Net Income	$	1,600		$	863
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation		243			255
Provision for loan losses		1,600			2,000
Deferred income tax expense		667			-
Amortization of intangible assets		103			108
Amortization less accretion on investments		(53	)		3
Amortization of deferred loan costs and fees, net		218			285
Amortization of deferred compensation on restricted stock		71			96
Write downs of other real estate owned		40			-
Net gain on sales of securities available-for-sale		(683	)		(145	)
Net loss on sale of other real estate owned		86			68
Net gain on sale of premises and equipment		-			(3	)
Disbursements for loans held for sale		(6,853	)		(11,229	)
Proceeds from sales of loans held for sale		6,560			9,758
Decrease in income tax receivable		7,994			-
Decrease in interest receivable		363			336
Decrease in interest payable		(412	)		(279	)
Increase in other assets		(1,195	)		(318	)
Increase in other liabilities		494			23
Net cash provided by operating activities		10,843			1,821
Cash flows from investing activities:
Net decrease in loans to customers		12,809			5,849
Purchases of securities available-for-sale		(37,228	)		(5,618	)
Proceeds from maturities and sales of securities available-for-sale		38,321			12,462
Purchases of nonmarketable equity securities		(178	)		(966	)
Proceeds from sales of nonmarketable equity securities		-			2,146
Proceeds from sales of other real estate owned		1,605			2,339
Purchases of premises and equipment		(24	)		(34	)
Proceeds from sales of premises and equipment		-			28
Net cash provided by investing activities		15,305			16,206
Cash flows from financing activities:
Net increase (decrease) in deposit accounts		(4,987	)		4,802
Net increase in federal funds purchased and repos		-			2,168
Advances of Federal Home Loan Bank  borrowings		20,000			21,500
Repayments of Federal Home Loan Bank borrowings		(20,000	)		(47,285	)
Dividends paid		-			(678	)
Sales of treasury stock		130			-
Capitalized expenses associated with rights offering		(36	)		-
Net cash used by financing activities		(4,893	)		(19,493	)
Net increase (decrease) in cash and cash equivalents		21,255			(1,466	)
Cash and cash equivalents, beginning of period		49,131			13,612
Cash and cash equivalents, end of period	$	70,386		$	12,146

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COMMUNITY CAPITAL CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 - Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with the requirements for interim financial statements and, accordingly, they are condensed and omit disclosures that would substantially duplicate those contained in the most recent annual report to shareholders.  The financial statements as of March 31, 2010 and for the interim periods ended March 31, 2010 and 2009 are unaudited and include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation.  The financial information as of December 31, 2009 has been derived from the audited financial statements as of that date.  For further information, refer to the financial statements and the notes included in our 2009 Annual Report.

Note 2 - Supplemental Cash Flow Information

(Dollars in thousands)	Three Months Ended March 31,
	2010		2009
Cash paid during the period for:
Income taxes	$	-	$	162
Interest		3,248		3,793
Noncash investing and financing activities:
Foreclosures on loans	$	3,399	$	5,759

Note 3 - Shareholders' Equity

In April 2009, the Company’s 401(k) plan and Dividend Reinvestment and Stock Purchase Plan began to purchase shares from treasury versus the open market to generate additional capital for the Company.  During the first quarter of 2010, the Company issued 45,498 shares of treasury stock for total proceeds of $130,000.

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COMMUNITY CAPITAL CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 4 - Earnings Per Share

A reconciliation of the numerators and denominators used to calculate basic and diluted earnings per share are as follows:

(Dollars in thousands, except per share)	Three Months Ended March 31, 2010
	Income (Numerator)		Shares (Denominator)		Per Share Amount
Basic earnings per share
Income available to common shareholders	$	1,600		9,852,025	$	0.16
Effect of dilutive securities
Unvested restricted stock		-		42,863
Diluted earnings per share
Income available to common shareholders plus assumed conversions	$	1,600		9,894,888	$	0.16

(Dollars in thousands, except per share)	Three Months Ended March 31, 2009
	Income (Numerator)		Shares (Denominator)		Per Share Amount
Basic earnings per share
Income available to common shareholders	$	863		4,442,440	$	0.19
Effect of dilutive securities
Unvested restricted stock		-		56,738
Diluted earnings per share
Income available to common shareholders plus assumed conversions	$	863		4,499,178	$	0.19

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COMMUNITY CAPITAL CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 5 - Comprehensive Income (Loss)

The following tables set forth the amounts of other comprehensive income (loss) included in equity along with the related tax effects:

	Three Months Ended March 31, 2010
(Dollars in thousands)	Pre-tax Amount			(Expense) Benefit			Net-of-tax Amount
Unrealized gains (losses) on securities:
Unrealized holding losses arising during the period	$	(1,388	)	$	472		$	(916	)
Less: reclassification adjustment for gains realized in net income		683			(232	)		451
Net unrealized losses on securities		(705	)		240			(465	)
Other comprehensive loss	$	(705	)	$	240		$	(465	)

	Three Months Ended March 31, 2009
(Dollars in thousands)	Pre-tax Amount		(Expense) Benefit			Net-of-tax Amount
Unrealized gains on securities:
Unrealized holding gains arising during the period	$	588	$	(205	)	$	383
Less: reclassification adjustment for gains realized in net income		145		(55	)		90
Net unrealized gains on securities		443		(150	)		293
Other comprehensive income	$	443	$	(150	)	$	293

Note 6 – Stock Based Compensation

On May 19, 2004, we terminated our 1997 Stock Incentive Plan and replaced it with the 2004 Equity Incentive Plan.  Outstanding options issued under any former Plans are not subject to reissuance.  All outstanding options expired during the first quarter of 2009, therefore there were no options outstanding as of March 31, 2010 or March 31, 2009.

A summary of the status of our stock option plans for the three months ended March 31, 2010 and March 31, 2009, and changes during the period then ended are presented below:

	2010				2009
	Shares		Weighted- Average  Exercise Price		Shares		Weighted- Average  Exercise Price
Outstanding at beginning of period		-	$	-		52,009	$	18.01
Exercised		-		-		-		-
Cancelled		-		-		52,009		18.01
Outstanding at end of period		-		-		-		-

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COMMUNITY CAPITAL CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 6 – Stock Based Compensation - continued

The 2004 Equity Incentive Plan provides for the granting of restricted stock, statutory incentive stock options within the meaning of Section 422 of the Internal Revenue Code as well as nonstatutory stock options, or stock appreciation rights of up to 258,750 shares of our common stock, to officers, employees, and directors.  Awards may be granted for a term of up to ten years from the effective date of grant.  Under this Plan, our 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 have been no shares of restricted stock issued during the first quarter of 2010.  During 2009, we issued 49,500 shares of restricted stock pursuant to the 2004 Equity Incentive Plan.  The shares cliff vest in three years and are fully vested on February 1, 2012.  The weighted-average fair value of restricted stock issued during 2009 was $6.14.  Compensation cost associated with prior issuances of restricted stock was $71,000 and $96,000 for the three months ended March 31, 2010 and 2009, respectively.  At March 31, 2010, we had 97,098 stock awards available for grant under the 2004 Equity Incentive Plan.

Note 7 – Investment Securities

Securities available-for-sale at March 31, 2010 and December 31, 2009 consisted of the following:

	Amortized		Gross Unrealized				Estimated
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
March 31, 2010
Obligations of state and local governments	$	15,066	$	413	$	-	$	15,479
		15,066		413		-		15,479
Mortgage-backed securities		51,924		482		121		52,285
Total	$	66,990	$	895	$	121	$	67,764
December 31, 2009
Government-sponsored enterprises	$	12,996	$	91	$	-	$	13,087
Obligations of state and local governments		16,167		391		-		16,558
		29,163		482		-		29,645
Mortgage-backed securities		38,174		1,063		56		39,181
Total	$	67,337	$	1,545	$	56	$	68,826
Securities held-to-maturity as of March 31, 2010 and December 31, 2009 consisted of the following:
	Amortized		Gross Unrealized				Estimated
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
March 31, 2010
Obligations of state and local governments	$	160	$	10	$	-	$	170
December 31, 2009
Obligations of state and local governments	$	160	$	10	$	-	$	170

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COMMUNITY CAPITAL CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 7 – Investment Securities - continued

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 March 31, 2010.

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
Mortgage-backed securities	$	28,348	$	121	$	-	$	-	$	28,348	$	121
Total	$	28,348	$	121	$	-	$	-	$	28,348	$	121

Securities classified as available-for-sale are recorded at fair market value.  The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the securities before recovery of its amortized cost.  The Company believes, based on industry analyst reports and credit ratings, that the deterioration in value is attributable to changes in market rates and is not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary.  The Company did not have any securities in a continuous loss position for twelve months or more.

The Company reviews its investment portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether there is any indication of other-than-temporary impairment (“OTTI”).  Factors considered in the review include estimated cash flows, length of time and extent to which market value has been less than cost, the financial condition and near term prospects of the issuer, and our intent and ability to retain the security to allow for an anticipated recovery in market value.

If the review determines that there is OTTI, then an impairment loss is recognized in earnings equal to the entire difference between the investment’s cost and its fair value at the balance sheet date of the reporting period for which the assessment is made, or may recognize a portion in other comprehensive income.  The fair value of investments on which OTTI is recognized then becomes the new cost basis of the investment.

The following table summarizes the maturities of securities available-for-sale and held-to-maturity as of March 31, 2010, 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	$	855	$	861	$	-	$	-
Due after one year but within five years		2,909		2,948		160		170
Due after five years but within ten years		7,261		7,435		-		-
Due after ten years		4,041		4,235		-		-
		15,066		15,479		160		170
Mortgage-backed securities		51,924		52,285		-		-
Total	$	66,990	$	67,764	$	160	$	170

Proceeds from maturities and sales of securities available-for-sale during the three months ended March 31, 2010 were $38,321,000 which resulted in gross realized gains of $683,000 during the three months ended March 31, 2010.  Proceeds from maturities and sales of securities available-for-sale during the three months ended March 31, 2009 were $12,462,000 which resulted in gross realized gains of $145,000 during the three months ended March 31, 2009.

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COMMUNITY CAPITAL CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 7 – Investment Securities - continued

At March 31, 2010 and December 31, 2009, securities having amortized costs of approximately $32,265,000 and $36,317,000, 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.

The Company has nonmarketable equity securities consisting of investments in several financial institutions.  These investments totaled $10,364,000 at March 31, 2010 and $10,186,000 at December 31, 2009. During the first three months of 2010, there were no sales of nonmarketable equity securities, nor any losses related to OTTI.  During 2009, the Company recorded OTTI of $82,000 on its investment in Community Financial Services, Inc. stock.

Note 8 – Other Real Estate Owned

The Bank possessed $8,833,000 and $7,165,000 in other real estate owned at March 31, 2010 and December 31, 2009, respectively.  Transactions in other real estate owned for the three months ended March 31, 2010 are summarized below:

	March 31,
(Dollars in thousands)	2010
Balance, December 31, 2009	$	7,165
Additions		3,399
Sales		(1,691	)
Write downs		(40	)
Balance, March 31, 2010	$	8,833

Note 9 – Fair Value Measurements

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 and Loans Held for Sale- 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.

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

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COMMUNITY CAPITAL CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 9 – Fair Value Measurements - continued

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.

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 fair value of junior subordinated debentures is based on market prices of comparable securities.

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.

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

	March 31, 2010				December 31, 2009
	Carrying		Estimated		Carrying		Estimated
(Dollars in thousands)	Amount		Fair Value		Amount		Fair Value
Financial Assets:
Cash and due from banks	$	10,384	$	10,384	$	10,141	$	10,141
Interest-bearing deposit accounts		60,002		60,002		38,990		38,990
Securities available-for-sale		67,764		67,764		68,826		68,826
Securities held-to-maturity		160		170		160		170
Nonmarketable equity securities		10,364		10,364		10,186		10,186
Cash surrender value of life insurance		16,861		16,861		16,689		16,689
Loans and loans held for sale		550,406		551,202		568,281		562,072
Accrued interest receivable		2,683		2,683		3,046		3,046

Financial Liabilities:
Demand deposit, interest bearing
transaction, and savings accounts	$	341,300	$	341,300	$	345,226	$	345,226
Certificates of deposit and other time deposits		237,196		238,938		238,257		240,729
Advances from the Federal Home Loan Bank		95,400		90,429		95,400		90,478
Junior subordinated debentures		10,310		10,567		10,310		10,740
Accrued interest payable		925		925		1,337		1,337

- 13 -

COMMUNITY CAPITAL CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 9 – Fair Value Measurements - continued

Accounting standards require disclosure that establishes a framework for measuring fair value, and requires disclosure about fair value measurements for all assets and liabilities that are measured and reported on a fair value basis.  The objective is to enable the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values.  Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1	Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasuries, and money market funds.
Level 2	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, mortgage-backed securities, municipal bonds, corporate debt securities, and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain derivative contracts and impaired loans.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly-structured or long-term derivative contracts.

In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to fair value measurement.  At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis by level as of March 31, 2010 and December 31, 2009.

March 31, 2010 (Dollars in thousands)	Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Available-for-sale investment securities	$	-	$	67,764	$	-
Mortgage loans held for sale		-		1,396		-
Total	$	-	$	69,160	$	-

December 31, 2009
(Dollars in thousands)
Available-for-sale investment securities	$	-	$	68,826	$                                -
Loans held for sale		-		1,103	-
Total	$	-	$	69,929	$                                -

- 14 -

COMMUNITY CAPITAL CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 9 – Fair Value Measurements - continued

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  The following table presents the assets and liabilities carried on the balance sheet by caption and by level within the valuation hierarchy (as described above) as of March 31, 2010 for which a nonrecurring change in fair value has been recorded during the quarter ended March 31, 2010.

Assets and liabilities measured at fair value on a nonrecurring basis are as follows as of March 31, 2010 and December 31, 2009:

March 31, 2010 (Dollars in thousands)	Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Intangible assets	$	-	$	-	$	1,560
Other real estate owned		-		8,833		-
Impaired loans		-		66,424		10,943
Total	$	-	$	75,257	$	12,503

December 31, 2009
(Dollars in thousands)
Intangible assets	$	-	$	-	$	1,663
Other real estate owned		-		7,165		-
Impaired loans		-		66,735		5,221
Total	$	-	$	73,900	$	6,884

The table below presents reconciliation for all Level 3 assets and liabilities measured on a nonrecurring basis during the three months ended March 31, 2010.

(Dollars in thousands)	Intangible Assets			Impaired Loans
Balance, December 31, 2009	$	1,663		$	5,221
Amortization of core deposit premium		(103	)		-
Change in impaired loans measured with     present value of cash flows		-			5,722
Balance, March 31, 2010	$	1,560		$	10,943

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COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

In this quarterly report on Form 10-Q, or this “Quarterly Report,” we refer to Community Capital Corporation as “we,” “us,” “our,” or the “Company,” unless we specifically state otherwise or the context indicates otherwise, and we refer to our bank subsidiary, CapitalBank, as our “Bank,” unless we specifically state otherwise or the context indicates otherwise .

Cautionary Note Regarding Forward-Looking Statements

Some of our statements contained in, or incorporated by reference into, this Quarterly Report are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements may relate to our financial condition, results of operation, plans, objectives, or future performance. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “believe,” “continue,” “assume,” “believe,” “intend,” “plan,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ from those anticipated in any forward-looking statements include, but are not limited to, those described in our Annual Report on Form 10-K for the year ended December 31, 2009 under Item 1A “Risk Factors” and the following:

· reduced earnings due to higher credit losses generally and specifically because losses in the sectors of our loan portfolio secured by real estate are greater than expected due to economic factors, including, but not limited to, declining real estate values, increasing interest rates, increasing unemployment, or changes in payment behavior or other factors;

· reduced earnings due to higher credit losses because our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral;

· high concentration of our real estate-based loans collateralized by real estate in a weak commercial real estate market;

· adequacy of the level of our allowance for loan losses;

· the rate of delinquencies and amounts of charge-offs;

· challenges, costs, and complications associated with the continued development of our branches;

· changes in political conditions or the legislative or regulatory environment;

· significant increases in competitive pressure in CapitalBank’s banking and financial services industries;

· general economic conditions, either nationally or regionally and especially in our primary service area, becoming less favorable than expected, resulting in, among other things, a deterioration in credit quality;

· adverse conditions in the stock market, the public debt market, and other capital markets;

· changes occurring in business conditions and inflation;

· changes in technology;

· changes in monetary and tax policies;

· the rates of loan growth;

· adverse changes in asset quality and resulting credit risk-related losses and expenses;

· loss of consumer confidence and economic disruptions resulting from terrorist activities;

· changes in the securities markets; and

· other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”).

These risks are exacerbated by the developments over the past two years in national and international financial markets, and we are unable to predict what effect these uncertain market conditions will have on our Company.  During 2008 and 2009, the capital and credit markets experienced unprecedented levels of extended volatility and disruption.  There can be no assurance that these unprecedented recent developments will not materially and adversely affect our business, financial condition and results of operations.

All forward-looking statements in this report are based on information available to us as of the date of this report.  Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee you that these expectations will be achieved.  We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

- 16 -

COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - continued

Overview

We are a bank holding company headquartered in Greenwood, South Carolina with 18 banking offices located in 13 different cities throughout South Carolina. Since our formation in 1988, we have grown in our core markets through organic growth, and to expand our market presence from central South Carolina to the upstate region of South Carolina, we have made selective acquisitions and formed de novo banking operations. We continuously evaluate our branch network to determine how to best serve our customers efficiently and to improve our profitability.

We operate a general commercial and retail banking business through our bank subsidiary, CapitalBank.  We believe our commitment to quality and personalized banking services is a factor that contributes to our competitiveness and success. Through the Bank, we provide a full range of lending services, including real estate, consumer and commercial loans to individuals and small to medium-sized businesses in our market areas, as well as residential mortgage loans. Our primary focus has been on real estate construction loans, commercial mortgage loans and residential mortgage loans. We complement our lending services with a full range of retail and commercial banking products and services, including checking, savings and money market accounts, certificates of deposit, credit card accounts, individual retirement accounts, safe deposit accounts, money orders and electronic funds transfer services. In addition to our traditional banking services, we also offer customers trust and fiduciary services. We make discount securities brokerage services available through a third-party brokerage service that has contracted with CapitalBank.

Like most community banks, we derive the majority of our income from interest we receive on our loans and investments.  Our primary source of funds for making these loans and investments is our deposits, on which we pay interest.  Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income earned on our interest-earning assets, such as loans and investments, and the expense cost of our interest-bearing liabilities, such as deposits.  Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.

There are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for loan losses against our operating earnings.  In the following section we have included a detailed discussion of this process.

In addition to earning interest on our loans and investments, we earn income through fees and other expenses we charge to our customers. We describe the various components of this non-interest income, as well as our non-interest expenses, in the following discussion.

As of March 31, 2010, we had total consolidated assets of approximately $746 million, total deposits of approximately $578 million, total consolidated liabilities, including deposits, of approximately $691 million, and total consolidated shareholders’ equity of approximately $55 million. While the majority of our loan portfolio continues to perform well, real estate, construction and land development portion of our portfolio has been negatively impacted by current economic climate and the deterioration in the residential real estate sector. We continue to actively manage our non-performing assets and we may sell assets and take advantage of other market opportunities to dispose of problem assets. Recently, we have emphasized cost controls throughout our organization, which have been an important focus as economic growth has slowed.

The following is a discussion of our financial condition as of March 31, 2010 compared to December 31, 2009 and the results of operations for the three months ended March 31, 2010 compared to the three months ended March 31, 2009.  We encourage you to read this discussion and analysis in conjunction with our financial statements and the other statistical information included in this Quarterly Report.

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COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations– continued

Critical Accounting Policies

We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements.  Our significant accounting policies are described in the footnotes to the consolidated financial statements at December 31, 2009 as filed on our Annual Report on Form 10-K.  Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities.  We consider these accounting policies to be critical accounting policies.  The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances.  Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates, which could have a material impact on our carrying values of assets and liabilities and our results of operations.

We believe the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of our consolidated financial statements.  Refer to the portion of this discussion that addresses our allowance for loan losses for a description of our processes and methodology for determining our allowance for loan losses.

We believe the accounting for Other Real Estate Owned (“OREO”) is a critical accounting policy that requires judgments and estimates used in preparation of our consolidated financial statements.  OREO is initially recorded at fair value, less any costs to sell.  If the fair value, less cost to sell at the time of foreclosure, is less than the loan balance, the deficiency is charged against the allowance for loan losses.  If the fair value, less cost to sell, of the OREO decreases during the holding period, a valuation allowance is established with a charge to foreclosed property costs.  When the OREO is sold, a gain or loss is recognized on the sale for the difference between the sales proceeds and the carrying amount of the property.  Financed sales of OREO are accounted for in accordance with ASC 360-20, Real Estate Sales.

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.

Recent Developments

Markets in the United States and elsewhere have experienced extreme volatility and disruption over the past two years.  These circumstances have exerted significant downward pressure on prices of equity securities and virtually all other asset classes, and have resulted in substantially increased market volatility, severely constrained credit and capital markets, particularly for financial institutions, and an overall loss of investor confidence. Loan portfolio performances have deteriorated at many institutions resulting from, among other factors, a weak economy and a decline in the value of the collateral supporting their loans. Dramatic slowdowns in the housing industry, due in part to falling home prices and increasing foreclosures and unemployment, have created strains on financial institutions.  Many borrowers are now unable to repay their loans, and the collateral securing these loans has, in some cases, declined below the loan balance.  In response to the challenges facing the financial services sector, several regulatory and governmental actions have been announced including:

· The Emergency Economic Stabilization Act ("EESA"), approved by Congress and signed by President Bush on October 3, 2008, which, among other provisions, allowed the U.S. Treasury to purchase troubled assets from banks, authorized the SEC to suspend the application of marked-to-market accounting, and raised the basic limit of FDIC deposit insurance from $100,000 to $250,000 through  December 31, 2013;

· On October 7, 2008, the FDIC approved a plan to increase the rates banks pay for deposit insurance;

· On October 14, 2008, the U.S. Treasury announced the creation of a new program, the Capital Purchase Program, that encourages and allows financial institutions to build capital through the sale of senior preferred shares to the U.S. Treasury on terms that are non-negotiable;

- 18 -

COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations– continued

Recent Developments– continued

· On October 14, 2008, the FDIC announced the creation of the Temporary Liquidity Guarantee Program (“TLGP”), which seeks to strengthen confidence and encourage liquidity in the banking system.  The TLGP has two primary components that are available on a voluntary basis to financial institutions:

· Guarantee of newly-issued senior unsecured debt; the guarantee would apply to new debt issued on or before October 31, 2009 and would provide protection until December 31, 2012; issuers electing to participate would pay a 75 basis point fee for the guarantee; and

· Unlimited deposit insurance for non-interest bearing deposit transaction accounts; financial institutions electing to participate will pay a 10 basis point premium in addition to the insurance premiums paid for standard deposit insurance.

· On February 10, 2009, the U.S. Treasury announced the Financial Stability Plan, which earmarked $350 billion of the TARP funds authorized under EESA. Among other things, the Financial Stability Plan includes:

· A capital assistance program that will invest in mandatory convertible preferred stock of certain qualifying institutions determined on a basis and through a process similar to the Capital Purchase Program;

· A consumer and business lending initiative to fund new consumer loans, small business loans and commercial mortgage asset-backed securities issuances;

· A new public-private investment fund that will leverage public and private capital with public financing to purchase up to $500 billion to $1 trillion of legacy “toxic assets” from financial institutions; and

· Assistance for homeowners by providing up to $75 billion to reduce mortgage payments and interest rates and establishing loan modification guidelines for government and private programs.

· On February 17, 2009, the American Recovery and Reinvestment Act (the “Recovery Act”) was signed into law in an effort to, among other things, create jobs and stimulate growth in the United States economy.  The Recovery Act specifies appropriations of approximately $787 billion for a wide range of Federal programs and will increase or extend certain benefits payable under the Medicaid, unemployment compensation, and nutrition assistance programs.  The Recovery Act also reduces individual and corporate income tax collections and makes a variety of other changes to tax laws.  The Recovery Act also imposes certain limitations on compensation paid by participants in the U.S. Treasury's Troubled Asset Relief Program (“TARP”);

· On March 23, 2009, the U.S. Treasury, in conjunction with the FDIC and the Federal Reserve, announced the Public-Private Partnership Investment Program for Legacy Assets which consists of two separate plans, addressing two distinct asset groups:

· The first plan is the Legacy Loan Program, which has a primary purpose to facilitate the sale of troubled mortgage loans by eligible institutions, including FDIC-insured federal or state banks and savings associations. Eligible assets are not strictly limited to loans; however, what constitutes an eligible asset will be determined by participating banks, their primary regulators, the FDIC and the U.S. Treasury.  Under the Legacy Loan Program, the FDIC has sold certain troubled assets out of an FDIC receivership in two separate transactions relating to the failed Illinois bank, Corus Bank, NA, and the failed Texas bank, Franklin Bank, S.S.B.  These transactions were completed in September 2009 and October 2009, respectively.

· The second plan is the Securities Program, which is administered by the U.S. Treasury and involves the creation of public-private investment funds to target investments in eligible residential mortgage-backed securities and commercial mortgage-backed securities issued before 2009 that originally were rated AAA or the equivalent by two or more nationally recognized statistical rating organizations, without regard to rating enhancements (collectively, “Legacy Securities”). Legacy Securities must be directly secured by actual mortgage loans, leases or

- 19 -

COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations– continued

Recent Developments– continued

other assets, and may be purchased only from financial institutions that meet TARP eligibility requirements.  The U.S. Treasury received over 100 unique applications to participate in the Legacy Securities PPIP and in July 2009 selected nine public-private investment fund managers.  As of December 31, 2009, public-private investment funds have completed initial and subsequent closings on approximately $6.2 billion of private sector equity capital, which was matched 100% by the U.S. Treasury representing $12.4 billion of total equity capital.  The U.S. Treasury has also provided $12.4 billion of debt capital, representing $24.8 billion of total purchasing power.  As of December 31, 2009, public-private investment funds have drawn-down approximately $4.3 billion of total capital which has been invested in certain non-agency residential mortgage-backed securities and commercial mortgage backed securities and cash equivalents pending investment.

· On May 22, 2009, the FDIC levied a one-time special assessment on all banks due on September 30, 2009;

· On November 12, 2009, the FDIC issued a final rule to require banks to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012 and to increase assessment rates effective on January 1, 2011; and

· On February 2, 2010, the U.S. President called on the U.S. Congress to create a new Small Business Lending Fund.  Under this proposal, $30 billion in TARP funds would be transferred to a new program outside of TARP to support small business lending.  As proposed, only small- and medium-sized banks would qualify to participate in the program.

As a result of the enhancements to deposit insurance protection and the expectation that there will be demands on the FDIC’s deposit insurance fund, our deposit insurance costs increased significantly in 2009.  We have elected not to participate in the TARP Capital Purchase Program, but will consider participating in similar programs, if any, announced in the future.  Regardless of our lack of participation, governmental intervention and new regulations under these programs could materially and adversely affect our business, financial condition and results of operations.

Results of Operations

Net Interest Income

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.

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.

- 20 -

COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations– continued

Net Interest Income– continued

Average Balances, Income and Expenses, and Rates

	For the Three Months Ended
	March 31, 2010							March 31, 2009
(Dollars in thousands)	Average Balance		Income/ Expense		Yield/ Rate (1)			Average Balance		Income/ Expense		Yield/ Rate (1)
Assets:
Earning Assets:
Loans(2)(4)	$	560,249	$	7,506		5.43	%	$	637,298	$	8,499		5.41	%
Securities, taxable (3)		54,697		536		3.97	%		47,225		615		5.28	%
Securities, nontaxable (3)(4)		15,827		233		5.97	%		28,152		453		6.53	%
Nonmarketable equity securities		10,267		31		1.22	%		2,041		30		5.96	%
Fed funds sold and other		43,968		22		0.20	%		2,840		2		0.29	%
Total earning assets		685,008		8,328		4.93	%		717,556		9,599		5.43	%
Non-earning assets		64,760							65,849
Total assets	$	749,768						$	783,405
Liabilities:
Interest bearing liabilities:
Interest bearing transaction accounts		190,446		552		1.18	%		207,123		290		0.57	%
Savings accounts		43,175		138		1.30	%		37,360		168		1.82	%
Time deposits		237,570		1,240		2.12	%		187,563		1,384		2.99	%
Other short-term borrowings		-		-		-			36,218		34		0.38	%
Federal Home Loan Bank advances		95,400		727		3.09	%		146,800		1,457		4.03	%
Junior subordinated debentures		10,310		179		7.04	%		10,310		181		7.12	%
Total interest bearing liabilities		576,901		2,836		1.99	%		625,374		3,514		2.28	%
Non-interest bearing liabilities		118,471							92,757
Shareholders’ equity		54,396							65,274
Total liabilities and shareholders’ equity	$	749,768						$	783,405
Net interest spread						2.94	%						3.15	%
Net interest income/margin			$	5,492		3.25	%			$	6,085		3.44	%

(1) Annualized for the three-month period.

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

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

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

The tax-effected net interest spread and net interest margin were 2.94% and 3.25%, respectively, for the three-month period ended March 31, 2010, compared to 3.15% and 3.44%, respectively, for the three-month period ended March 31, 2009.  During the three months ended March 31, 2010, earning assets averaged $685,008,000, compared to $717,556,000 for the three months ended March 31, 2009.  Interest earning assets exceeded interest earning liabilities by $108,107,000, and $92,182,000 for the three-month periods ended March 31, 2010 and March 31, 2009, respectively.

For the three months ended March 31, 2010, our tax-effected net interest income, the major component of our net income, was $5,492,000 compared to $6,085,000 for the same period of 2009, a decrease of $593,000 or 9.75%.  The decline in net interest income is a result of a decline in volume of earning assets and the movement of assets on the balance sheet out of higher yielding loans in to lower yielding, more liquid investments and interest bearing bank balances.  The average rate realized on interest-earning assets decreased to 4.93% from 5.43%, while the average rate paid on interest-bearing liabilities decreased to 1.99% from 2.28% for the three month periods ended March 31, 2010 and 2009, respectively.

Our tax-effected interest income for the three months ended March 31, 2010 was $8,328,000, which consisted of $7,506,000 on loans, $800,000 on investments, and $22,000 on federal funds sold and interest bearing deposits with correspondent banks.  The tax-effected interest income for the three months ended March 31, 2009 was $9,599,000, which consisted of $8,499,000 on loans, $1,098,000 on investments, and $2,000 on federal funds sold and interest bearing deposits with correspondent banks.  Interest on loans for the three months ended March 31, 2010 and March 31, 2009, represented 90.13% and 88.54%, respectively, of total interest income.  Average loans represented 81.79% and 88.82% of average earning assets for the three-month periods ended March 31, 2010 and March 31, 2009, respectively.

Interest expense for the three months ended March 31, 2010 was $2,836,000, which consisted of $1,930,000 related to deposits and $906,000 related to other borrowings.  Interest expense for the three months ended March 31, 2009 was $3,514,000, which consisted of $1,842,000 related to deposits and $1,672,000 related to other borrowings.  Interest expense on deposits for the three months ended March 31, 2010 and March 31, 2009 represented 68.05% and 52.42%, respectively, of total interest expense.  Average interest bearing deposits represented 81.68% and 69.09% of average interest bearing liabilities for the three months ended March 31, 2010 and March 31, 2009, respectively.

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COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations– continued

Net Interest Income– continued

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 for the time periods indicated.

	Three Months Ended
	March 31, 2010 vs. 2009										March 31, 2009 vs. 2008
	Variance Due to										Variance Due to
(Dollars in thousands)	Volume (1)				Rate (1)			Total			Volume (1)				Rate (1)			Total
Earning Assets
Loans		$	(1,032	)	$	39		$	(993	)		$	(324	)	$	(2,062	)	$	(2,386	)
Securities, taxable			88			(167	)		(79	)			84			7			91
Securities, nontaxable			(184	)		(36	)		(220	)			(18	)		39			21
Nonmarketable equity securities			41			(40	)		1				(111	)		(1	)		(112	)
Federal funds sold and other			21			(1	)		20				4			(4	)		-
Total interest income			(1,066	)		(205	)		(1,271	)			(365	)		(2,021	)		(2,386	)
Interest-Bearing Liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts			(25)			287			262				(142	)		(742	)		(884	)
Savings accounts			24			(54	)		(30	)			9			(77	)		(68	)
Time deposits			318			(462	)		(144	)			(74	)		(682	)		(756	)
Total interest-bearing deposits			317			(229	)		88				(207	)		(1,501	)		(1,708	)
Other short-term borrowings			(17	)		(17	)		(34	)			(95	)		(302	)		(397	)
Federal Home Loan Bank advances			(439	)		(291	)		(730	)			113			(153	)		(40	)
Junior subordinate debt			-			(2	)		(2	)			-			-			-
Total interest expense			(139)			(539	)		(678	)			(189	)		(1,956	)		(2,145	)
Net interest income		$	(927	)	$	334		$	(593	)		$	(176	)	$	(65	)	$	(241	)

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

Provision and Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of probable losses inherent in the loan portfolio.  We have developed policies and procedures for evaluating the overall quality of our credit portfolio and the timely identification of potential problem credits.  The Board of Directors reviews and approves the appropriate level for CapitalBank’s allowance for loan losses quarterly based upon management’s recommendations, results of the internal monitoring and reporting system, analysis of economic conditions in our markets, and 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 periodically made to maintain the allowance at an appropriate level based on our analysis of the potential risk in the loan portfolio.  Loan losses, which include write downs and charge-offs, 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 overall portfolio quality through observable trends in delinquency, charge offs, and general and economic conditions in the service area.  Risks are inherent in making all loans, including risks with respect to the period of time over which loans may be repaid, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers, and, in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral.

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COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations– continued

Provision and Allowance for Loan Losses - continued

In developing our general reserve estimate, we have segmented the loan portfolio into ten risk categories: consumer loans, home equity lines, overdraft protection lines, 1-4 residential loans, commercial loans, commercial real estate loans, cash secured loans, mortgages held for resale, government guaranteed portions of loans, and DDA overdrafts.  Loss experience on each of the risk categories is compiled over the previous three-year period.  From this segmentation, we have identified several homogeneous pools and applied the corresponding three year loss factor for the reserve allocation.  The homogeneous pools we have identified include consumer installment loans, home equity lines of credit, overdraft protection lines, cash secured loans, mortgages held for resale, government guaranteed portions of loans, and DDA overdrafts in excess of 60 days. The remaining segments of the loan portfolio, which include 1-4 residential loans, commercial loans, and commercial real estate loans, are analyzed with the entire loan portfolio for progressions through our risk rating system.  We then apply the results generated from the three year historical loss migration analysis to each of these segments.  When a particular loan is identified as impaired, it is removed from the corresponding segment and individually analyzed and measured for specific reserve allocation.

Qualitative and environmental factors include external risk factors that we believe are representative of our overall lending environment.  We have identified the following factors in establishing a more comprehensive system of controls in which we can monitor the quality the quality of the loan portfolio:

· Portfolio risk

· Loan policy, procedures and monitoring risk

· National and local economic trends and conditions

· Concentration risk

· Acquisition and development loan portfolio risks

· Impaired loan portfolio additional risks

Certain problem loans are reviewed individually for impairment.  An impaired loan may not represent an expected loss; however a loan is considered 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.  In determining if a loan is impaired, the Bank considers all non-accrual loans, loans whose terms are modified in a troubled debt restructuring, and any other loan that is individually evaluated and determined to be impaired based on risk ratings and loan amounts of certain segments of the Bank’s loan portfolio.  If a loan is individually evaluated and identified as impaired, it is measured by using either the fair value of the collateral, less expected costs to sell, present value of expected future cash flows, discounted at the loans effective interest rate, or observable market price of the loan.  Management chooses a method on a loan-by-loan basis.  Measuring impaired loans requires judgment and estimates and the eventual outcomes may differ from those estimates.

Activity in the Allowance for Loan Losses is as follows:

(Dollars in thousands)	March 31,
	2010			2009
Balance, January 1,	$	14,160		$	13,617
Provision for loan losses for the period		1,600			2,000
Charge-offs		(1,918	)		(3,787	)
Recoveries		176			12
Balance, end of period	$	14,018		$	11,842
Gross loans outstanding, end of period	$	549,010		$	626,069
Allowance for loan losses to loans outstanding		2.55	%		1.89	%

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COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - continued

Provision and Allowance for Loan Losses - continued

For the three months ended March 31, 2010, total provision expense was $1,600,000, compared to $2,000,000 for the three-month period ended March 31, 2009.  The decrease in provision was due to the decrease in charge offs to $1,918,000 for the three months ended March 31, 2010, compared to $3,787,000 for the three months ended March 31, 2009.  The allowance for loan losses was 2.55% of total loans at March 31, 2010, as compared to 1.89% at March 31, 2009.

Based on present information and an ongoing evaluation, management considers the allowance for loan losses to be adequate to meet presently known and inherent losses in the loan portfolio.  However, underlying assumptions may be impacted in future periods by changes in economic conditions, the impact of regulatory examinations, and the discovery of information with respect to borrowers, which was not known to management at the time of the issuance of the Company’s consolidated financial statements.  Therefore, management’s assumptions may or may not prove valid.  Thus, there can be 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, especially considering the overall weakness in the real estate market in our market areas.  Additionally, no assurance can be given that management’s ongoing evaluation of the loan portfolio, in light of changing economic conditions and other relevant factors, will not require significant future additions to the allowance for loan losses, thus adversely impacting the Company’s business, financial condition, results of operations, and cash flows.

Noninterest Income

Total noninterest income for the three months ended March 31, 2010 was $3,357,000, an increase of $1,495,000, or 80.29% compared to $1,862,000 for the three months ended March 31, 2009.  During the first quarter of 2010, we received payment of $912,000 for the settlement of a lawsuit regarding the management of a participation loan.  Including the litigation settlement, other operating income increased $914,000, or 25.86%, to $1,358,000 for the three months ended March 31, 2010 compared to $444,000 for the three months ended March 31, 2009.

We also recognized gains on the sale of securities available-for-sale in the amount of $683,000 for the three months ended March 31, 2010, which were the result of management’s decision to shorten the duration of the bond portfolio.  We realized gains of $145,000 for the three months ended March 31, 2009.

Service charges on deposit accounts decreased $81,000, or 14.38 %, from the three months ended March 31, 2009 to the three months ended March 31, 2010.   Gains on sales of loans held for sale decreased $24,000, or 7.45%, from $322,000 to $298,000 for the three months ended March 31, 2010 compared to the three months ended March 31, 2009.  The income from fiduciary activities increased $124,000, or 35.63%, from the three-month period ended March 31, 2009 to the three-month period ended March 31, 2010.   The increase is primarily due to growth of new accounts as well as increased market value of assets under management.    Fees from brokerage services increased $27,000, or 72.97%, from the three months ended March 31, 2009 to the three months ended March 31, 2010.  The increase in our brokerage service income is primarily the result of the sale of annuities.

Noninterest Expense

Total noninterest expense for the first three months of 2010 was $4,893,000, an increase of $140,000, or 2.94%, when compared to $4,753,000 for the first three months of 2009.

The primary component of noninterest expense is salaries and benefits, which decreased $155,000, or 5.98%, from $2,594,000 for the three months ended March 31, 2009 to $2,439,000 for the three months ended March 31, 2010.  Net occupancy expense increased $2,000 for the three-month period ended March 31, 2010, an increase of 0.63% over the related period in 2009.  The amortization of intangible assets decreased $5,000, or 4.63%, to $103,000 from the three-month period ended March 31, 2009 to the three-month period ended March 31, 2010.  Furniture and equipment expense decreased $30,000, or 12.88% from the three-month period ended March 31, 2009 to the three-month period ended March 31, 2010.

We realized an increase in FDIC assessments of $240,000, or 226.42%, from $106,000 for the three-month period ended March 31, 2009 to $346,000 for the three-month period ended March 31, 2010.  The increase is primarily a result of increases in the FDIC insurance premiums due to the recession of the U.S. economy and failure of unaffiliated FDIC-insured depository institutions.

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COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - continued

Noninterest Expense - continued

Write downs on other real estate owned decreased 47.36% to $40,000 for the three months ended March 31, 2010 from $76,000 for the three-month period ended March 31, 2009.  Other operating expenses were $1,440,000 for the three months ended March 31, 2010, as compared to $1,498,000 for the same period in 2009, a decrease of $58,000, or 3.87%.

Income Taxes

For the three months ended March 31, 2010 and 2009, the effective income tax rate was 30.01% and 18.51%, respectively, and the income tax provision was $686,000 and $196,000, respectively.  The increase in the effective tax rate resulted from a lower percentage of pretax income being derived from tax free sources.

Net Income

The combination of the above factors resulted in net income of $1,600,000 for the three months ended March 31, 2010 compared to $863,000 for the comparable period in 2009, an increase of $737,000, or 85.40%.

Assets and Liabilities

During the first three months of 2010, total assets decreased $3,605,000, or 0.48%, when compared to December 31, 2009.  We experienced a decrease of $18,168,000, or 3.20%, in loans during the first three months of 2010.  Total investment securities decreased 1.12%, or $884,000, when compared to December 31, 2009.  Cash and due from banks including interest-bearing deposit accounts increased $21,255,000, or 43.26%, to $70,386,000 at March 31, 2010 compared to $49,131,000 at December 31, 2009.  The increase in cash at March 31, 2010 compared to December 31, 2009 was primarily due to our efforts in increase our on-balance sheet liquidity.  As a result, we retained significant balances in our Federal Reserve account rather than investing them in other types of assets.  On the liability side, total deposits decreased $4,987,000, or 0.85%, to $578,496,000 at March 31, 2010.

Investment Securities

Investment securities decreased $884,000 or 1.12%, to $78,288,000 at March 31, 2010 from $79,172,000 at December 31, 2009.  Securities available for sale decreased $1,062,000, or 1.54%, during the first three months of 2010 and nonmarketable equity securities increased $178,000, or 1.75%, during the first three months of 2010.  As of March 31, 2010, securities available for sale totaling $28,348,000 were in an unrealized loss position, all of which have been in a loss position for less than 12 months.  Based on industry analyst reports and credit ratings, we believe 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.

We review our investment portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether there is any indication of other-than-temporary impairment (“OTTI”).  Factors considered in the review include estimated cash flows, length of time and extent to which market value has been less than cost, the financial condition and near term prospects of the issuer, and our intent and ability to retain the security to allow for an anticipated recovery in market value.

If the review determines that there is OTTI, then an impairment loss is recognized in earnings equal to the entire difference between the investment’s cost and its fair value at the balance sheet date of the reporting period for which the assessment is made, or may recognize a portion in other comprehensive income.  The fair value of investments on which OTTI is recognized then becomes the new cost basis of the investment.

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COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - continued

Loans

Loans receivable decreased $18,168,000, or 3.20%, since December 31, 2009.  The largest decrease was in real estate construction, which decreased $17,020,000, or 11.73%, to $128,110,000 at March 31, 2010. Real estate mortgage and commercial loans decreased $4,325,000, or 1.37%, to $312,246,000 at March 31, 2010.  Commercial and agricultural loans increased $3,405,000, or 9.70%, to $38,487,000 at March 31, 2010.  Balances within the major loan receivable categories as of March 31, 2010 and December 31, 2009 are as follows:

(Dollars in thousands)	March 31, 2010		December 31, 2009
Commercial and agricultural	$	38,487	$	35,082
Real estate – construction		128,110		145,130
Real estate - mortgage and commercial		312,246		316,571
Home equity		46,548		47,409
Consumer, installment		22,344		21,564
Consumer, credit card and checking		1,275		1,422
	$	549,010	$	567,178

Risk Elements in the Loan Portfolio

We incorporate by reference under this heading the disclosures under the heading “Provision and Allowance for Loan Losses” under this Item 2 of Part I.

The following is a summary of risk elements in the loan portfolio:

(Dollars in thousands)	March 31,		December 31,
	2010		2009
Loans:
Nonaccrual loans	$	32,628	$	41,163
Other impaired loans*		44,841		30,793
Accruing loans more than 90 days past due		1,294		1,662
Loans identified by the internal review mechanism, including nonaccrual loans and accruing loans more than 90 days past due:
Criticized	$	29,728	$	18,725
Classified		56,247		64,848

*Other impaired loans consist of loans for which regular payments are still received; however, some uncertainty exists as to whether or not the full contractual amounts will be collected in accordance with the terms of the loan agreement.

Criticized and classified loans increased $2,402,000, or 2.88%, from $83,573,000 at December 31, 2009 to $85,975,000 at March 31, 2010.  The continued elevated level of criticized and classified loans is primarily due to the current economic downturn and related decline in demand for residential real estate.  As a result of the slowing demand, several development lenders are having significant cash flow issues.  Furthermore, residential real estate values are declining further exacerbating these cash flow issues.  Nonaccrual loans decreased $8,535,000, or 20.73%, from $41,163,000 December 31, 2009 to $32,628,000 at March 31, 2010, primarily due to our success at selling these assets.  We will continue our efforts to reduce our nonaccrual loan portfolio through the selling of these assets.  Other impaired loans increased $14,048,000, or 45.62%, from $30,793,000 at December 31, 2009 to $44,841,000 at March 31, 2010.  The increase in other impaired loans is primarily due to five relationships, all of which are secured by real estate.

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COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - continued

Risk Elements in the Loan Portfolio - continued

The following is a summary of information pertaining to impaired loans:

(Dollars in thousands)	March 31,		December 31,
	2010		2009
Impaired loans without a valuation allowance	$	75,605	$	71,295
Impaired loans with a valuation allowance		1,864		661
Total impaired loans	$	77,469	$	71,956
Valuation allowance related to impaired loans	$	102	$	181

(Dollars in thousands)	March 31,		December 31,
	2010		2009
Average investment in impaired loans	$	78,252	$	97,790
Interest income recognized on impaired loans	$	430	$	2,540
Interest income recognized on a cash basis on impaired loans	$	392	$	1,706

In order to concentrate our efforts on the timely resolution and disposition of nonperforming and foreclosed assets, in April 2008 we formed a special assets task force.  This group’s objective is to oversee, manage and form strategies for assets adversely rated or any other higher credit risks which have potential for further deterioration based on current market conditions.  This group is comprised of the Bank’s CEO, CFO, Chief Retail Officer, Chief Lending Officer, Senior Credit Officer, and the task force director who has extensive experience in problem credit workout and resolutions.  The task force works with all phases of foreclosures, including deed in lieu requests, troubled debt restructurings, nonaccrual assets, bankruptcies, and all loans with an internal rating of watch or worse. The primary goal of the task force is to efficiently and effectively provide a positive outcome, at the highest recovery value, for any collateral that is pursued through legal action.  For credits that continue to have positive merits that could warrant the Bank’s continuation of working with the borrower and guarantors, the group considers plans that would preserve, strengthen or otherwise enhance our position.  The group meets weekly and works in tandem with credit administration personnel.  Monthly reports are provided to the Board of Directors.

Premises and Equipment

Our purchases of fixed assets during the first three months of 2010 totaled $24,000, compared to $34,000 during the first three months of 2009.    Total fixed assets, net of depreciation, decreased $219,000 during the first three months of 2010.

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COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - continued

Deposits

Total deposits decreased $4,987,000, or 0.85%, to $578,496,000 at March 31, 2010 from $583,483,000 at December 31, 2009.  Expressed in percentages, noninterest-bearing deposits decreased 9.68% from $112,333,000 at December 31, 2009 to $101,462,000 at March 31, 2010, and interest-bearing deposits increased 1.25% from $471,150,000 at December 31, 2009 to $477,034,000 at March 31, 2010.  Balances within the major deposit categories as of March 31, 2010 and December 31, 2009 are as follows:

(Dollars in thousands)	March 31, 2010		December 31, 2009
Noninterest-bearing demand deposits	$	101,462	$	112,333
Interest-bearing demand deposits		64,366		66,807
Money market accounts		131,124		123,806
Savings deposits		44,348		42,280
Certificates of deposit		211,316		211,057
Brokered certificates of deposit		25,880		27,200
	$	578,496	$	583,483

Advances from the Federal Home Loan Bank

Advances from the Federal Home Loan Bank of Atlanta to us totaled $95,400,000 at March 31, 2010 and December 31, 2009.  During the three months ended March 31, 2010,  we made the decision to refinance two Federal Home Loan Bank advances, each in the amount of $10,000,000.  Although we incurred prepayment penalties of $1,516,000, which will be amortized over the life of the two new borrowings, we were able to significantly reduce our interest expense related to our Federal Home Loan Bank borrowings.  Of the $95,400,000 in advances with Federal Home Loan Bank, the following have scheduled maturities greater than one year:

Maturing on	Interest Rate	Principal
(Dollars in thousands)
12/07/11	4.12% - fixed, callable 06/07/10	$	10,000
03/01/12	4.32% - fixed, callable 06/01/10		10,000
05/18/12	4.62% - fixed, callable 05/18/10		5,000
03/05/13	1.94% - fixed, callable 06/07/10		5,400
01/06/14	0.36% - adjustable rate, resets 04/06/10		10,000
01/06/14	0.36% - adjustable rate, resets 04/06/10		10,000
01/16/15	2.77% - fixed, callable 04/16/10		10,000
06/03/15	3.36% - fixed, callable 06/03/10		15,000
02/02/17	4.31% - fixed, callable 05/04/09		10,000
05/18/17	4.15% - fixed, callable 05/18/09		10,000
		$	95,400

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 accounting standards, the Trust has not been consolidated in these financial statements.  We received from the Trust $10,000,000 of proceeds from the issuance of the securities and $310,000 of initial proceeds from the capital investment in the Trust, and accordingly have shown the funds due to the Trust as $10,310,000 junior subordinated debentures.

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COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- continued

Junior Subordinated Debentures - continued

 The proceeds from the issuance were used to extinguish short-term borrowings and to inject capital into the Bank, as the current regulatory rules allow certain amount of junior subordinated debentures to be included in the calculation of regulatory capital.

In January 2010, we announced the decision to defer future interest payments on our trust preferred subordinated debt, beginning with our interest payment due on March 15, 2010, for the foreseeable future to maintain cash levels at the holding company level.  The terms of the debentures and trust indentures allow for us to defer interest payments for up to 20 consecutive quarters without default or penalty.  During the period that the interest deferrals are elected, we will continue to record interest expense associated with the debentures.  Upon the expiration of the deferral period, all accrued and unpaid interest will be due and payable.

Capital

Quantitative measures established by the federal banking agencies to ensure capital adequacy require us to maintain minimum ratios 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 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 regulatory minimum requirements are 4% for Tier 1 and 8% for total risk-based capital.

We are also required to maintain capital at a minimum level based on total average assets, which is known as the leverage ratio.  Only the strongest banks are allowed to maintain capital at the minimum requirement of 3%.  All others are subject to maintaining ratios at least 1% to 2% above the minimum.

The following table summarizes capital ratios and the regulatory minimum requirements at March 31, 2010:

		Tier 1			Total			Tier 1
		Risk-based			Risk-based			Leverage
Actual ratio:
	Community Capital Corporation		11.67	%		12.94	%		8.43	%
	CapitalBank		11.38	%		12.65	%		8.22	%
Regulatory minimums:
	For capital adequacy purposes		4.00	%		8.00	%		4.00	%
	To be well-capitalized under prompt action provisions		6.00	%		10.00	%		5.00	%

Liquidity and Capital Resources

Shareholders’ equity was increased by net income of $1,600,000 during the three months ended March 31, 2010. Due to changes in the market rates of interest, the fair value of our securities available for sale decreased, which had the effect of decreasing shareholder’s equity by $465,000, net of deferred taxes, for the three months ended March 31, 2010 when compared to December 31, 2009.  Total equity also increased by $71,000 for the amortization of deferred compensation on restricted stock for the three months ended March 31, 2010.  Total equity was also increased by $130,000 for sales of treasury shares.

Our liquidity position increased during the quarter ended March 31, 2010, as we had no overnight wholesale borrowings and $59,200,000 in our Federal Reserve correspondent account at March 31, 2010.  For the near term, maturities and sales of securities available-for-sale are expected to be a source of liquidity as we deploy these funds into loans to achieve the desired mix of assets and liabilities.  At March 31, 2010, we had $34,869,000 million of securities available-for-sale as sources of liquidity.  We also expect to build our deposit base. Advances from the Federal Home Loan Bank, availability at Federal Reserve Bank Discount Window, and our correspondent banks will also continue to serve as a funding source, at least for the near future. At March 31, 2010, we had no borrowings outstanding and had the ability to receive $9,793,000 in funds under the terms of our agreement with the Federal Reserve Bank.  Additionally , we have the ability to receive an additional $90,800,000 in advances under the terms of our agreement with the Federal Home Loan Bank.  Short-term borrowings by CapitalBank are not expected to be a primary source of liquidity for the near term; however, we have approximately $15,000,000 of unused lines of credit to purchase federal funds.

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COMMUNITY CAPITAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations– continued

Off-Balance Sheet Risk

Through the operations of CapitalBank, we have made contractual commitments to extend credit in the ordinary course of our business activities.  These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time.  At March 31, 2010, we had issued commitments to extend credit of $58,831,000 and standby letters of credit of $1,897,000 through various types of commercial lending arrangements.  Approximately $46,633,000 of these commitments to extend credit had variable rates.

The following table sets forth the length of time until maturity for unused commitments to extend credit and standby letters of credit at March 31, 2009.

			After One		After Three
	Within		Through		Through				Greater
	One		Three		Twelve		Within		Than
(Dollars in thousands)	Month		Months		Months		One Year		One Year		Total
Unused commitments to extend credit	$	4,962	$	3,492	$	18,350	$	26,804	$	32,027	$	58,831
Standby letters of credit		386		497		992		1,875		22		1,897
Total	$	5,348	$	3,989	$	19,342	$	28,679	$	32,049	$	60,728

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

Recently Issued Accounting Standards

The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting, and / or disclosure of financial information by the Company.

In January 2010, fair value guidance was amended to require disclosures for significant amounts transferred in and out of Levels 1 and 2 and the reasons for such transfers and to require that gross amounts of purchases, sales, issuances and settlements be provided in the Level 3 reconciliation.  The new disclosures are effective for the Company for the current quarter and have been reflected in the Fair Value footnote.

Guidance related to subsequent events was amended in February 2010 to remove the requirement for an SEC filer to disclose the date through which subsequent events were evaluated.  The amendments were effective upon issuance and had no significant impact on the Company’s 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.

Regulatory Matters

We are not aware of any current recommendations by regulatory authorities, which, if they were to be implemented, would have a material effect on liquidity, capital resources, or operations.

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COMMUNITY CAPITAL CORPORATION

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 4T.  Controls and Procedures

Controls Evaluation and Related CEO and CFO Certifications.  We conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (Disclosure Controls) as of the end of the period covered by this Quarterly Report.  The controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO).

Attached as exhibits to this Quarterly Report are certifications of the CEO and the CFO, which are required in accordance with Rule 13a-14 of the Exchange Act.  This “Controls and Procedures” section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

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 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 Quarterly 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.

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COMMUNITY CAPITAL CORPORATION

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 Quarterly 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.

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COMMUNITY CAPITAL CORPORATION

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

We are party to certain litigation that we consider routine and incidental to our business.  Management does not expect the results of any of these actions to have a material effect on our business, results of operations or financial condition.

Item 1A.  Risk Factors

Not Applicable.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable.

Item 3.  Defaults Upon Senior Securities

Not Applicable.

Item 4.  (Removed and Reserved)

Item 5.  Other Information

None.

Item 6. Exhibits

Exhibit 31.1 Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2 Certificate of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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COMMUNITY CAPITAL CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

COMMUNITY CAPITAL CORPORATION
By:	/s/ WILLIAM G. STEVENS
	William G. Stevens
	President & Chief Executive Officer

Date: May 6, 2010	By:	/s/ R. WESLEY BREWER
		R. Wesley Brewer
		Chief Financial Officer

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