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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

|X| Quarterly report under section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2005 or

|_| Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [no fee required]

For the Transition Period from _________ to __________

Commission File Number 0-18460

COMMUNITY CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)

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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES          NO  X  

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING YEAR

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

YES          NO      

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:

3,875,867 shares of common stock, $1.00 par value, as of April 25, 2005

COMMUNITY CAPITAL CORPORATION

Index

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COMMUNITY CAPITAL CORPORATION

Condensed Consolidated Balance Sheets

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

See notes to condensed consolidated financial statements.

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COMMUNITY CAPITAL CORPORATION

Condensed Consolidated Statements of Operations
(Unaudited)

See notes to condensed consolidated financial statements.

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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, 2005 and 2004
(Unaudited)

See notes to condensed consolidated financial statements.

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COMMUNITY CAPITAL CORPORATION

Condensed Consolidated Statements of Cash Flows
(Unaudited)

See notes to condensed consolidated financial statements.

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COMMUNITY CAPITAL CORPORATION

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, which would substantially duplicate those contained in the most recent annual report to shareholders. The financial statements as of March 31, 2005 and for the interim periods ended March 31, 2005 and 2004 are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. The financial information as of December 31, 2004 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 2004 Annual Report.

Note 2 – Acquisitions

On March 5, 2004, we acquired 100 percent of the outstanding shares of Abbeville Capital Corporation, the parent company of The Bank of Abbeville. The Bank of Abbeville became a branch of CapitalBank, our wholly owned banking subsidiary. The acquisition allowed us to expand strategically our operations into a contiguous market in which we had no full-service branch facilities.

The aggregate acquisition cost was $15,411,000, including $7,226,000 of cash, 371,695 shares of our common stock valued at $7,612,000 and direct acquisition — related costs of $573,000. The value of the 371,695 shares of common stock issued at $20.48 per share was determined based on the average closing price of our common shares over the three-day period before and after January 16, 2004 (the “measurement date”). The measurement date was determined pursuant to the provisions of the Emerging Issues Task Force Consensus 99-12, “Determination of the Measurement Date for the Market Price of Acquired Securities Issued in a Purchase Business Combination”, due to the application of a formula to determine the number of shares to be issued.

The primary intangible assets acquired in conjunction with the purchase of Abbeville Capital Corporation are core deposit intangible assets with an estimated useful life of approximately twelve years and goodwill. The transaction was a tax-free reorganization for federal income tax purposes and intangible assets are not deductible in determining taxable income.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed March 5, 2004.

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COMMUNITY CAPITAL CORPORATION

Note 3 – Supplemental Cash Flow Information

Note 4 - Advances from the Federal Home Loan Bank

Advances from the Federal Home Loan Bank of Atlanta to us were $45,300,000 as of March 31, 2005. Of this amount, the following have scheduled maturities greater than one year:

Note 5 – Shareholders’ Equity

During the first three months of 2005, there were 21,689 options exercised by our employees and directors with total proceeds of $242,000 at an average exercise price of $11.16. On January 19, 2005, the Board of Directors declared a cash dividend of $0.15 per share, which was paid to shareholders on March 4, 2005. We issued 30,600 shares of restricted stock on January 21, 2005 at a price of $23.00 per share. The shares cliff vest in three years and are fully vested on January 21, 2008. We purchased 4,800 shares during the first three months of 2005 through a previously announced stock buyback program, with total proceeds of $111,000 at an average price of $23.05.

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COMMUNITY CAPITAL CORPORATION

Note 6 – Stock-Based Compensation

We have a stock-based employee compensation plan that is accounted for under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. We grant stock options and restricted stock to eligible employees. The stock option awards are generally for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of grant. No stock-based employee compensation cost is reflected in net income, as all stock options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. We recognize compensation expense related to its restricted stock grants based on the fair value of the shares awarded on the date that the shares are awarded. The fair value of the grants are amortized over the vesting period. The following table illustrates the effect on net income and earnings per share as if we had applied the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

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COMMUNITY CAPITAL CORPORATION

Note 7 – Earnings Per Share

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

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COMMUNITY CAPITAL CORPORATION

Note 8 – Comprehensive Income

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

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COMMUNITY CAPITAL CORPORATION

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our financial condition as of March 31, 2005 compared to December 31, 2004 and the results of operations for the three months ended March 31, 2005 compared to the three months ended March 31, 2004. Please read these comments in conjunction with our condensed consolidated financial statements and accompanying footnotes appearing in this report.

Results of Operations

Net Interest Income

For the three months ended March 31, 2005, net interest income, the major component of our net income, was $4,738,000 compared to $4,208,000 for the same period of 2004, an increase of $530,000 or 12.60%. The average rate realized on interest-earning assets increased to 5.78% from 5.73%, while the average rate paid on interest-bearing liabilities increased to 2.12% from 1.57% for the three month periods ended March 31, 2005 and 2004, respectively.

The net interest spread and net interest margin were 3.66% and 3.90%, respectively, for the three-month period ended March 31, 2005, compared to 4.16% and 4.31% for the three month period ended March 31, 2004.

Provision and Allowance for Loan Losses

The provision for loan losses is the charge to operating earnings that we believe is necessary to maintain the allowance for loan losses at an adequate level. For the three months ended March 31, 2005 and 2004, the provision was $100,000 and $100,000, respectively. Our nonperforming and impaired loans totaled $2,348,000 at March 31, 2005 compared to $1,779,000 at March 31, 2004. Criticized and classified loans have decreased from $13,898,000 at March 31, 2004 to $11,136,000 at March 31, 2005. The allowance for loan losses was 1.37% of total loans at March 31, 2005, as compared to 1.34% at March 31, 2004.

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. We maintain an allowance for loan losses based on, among other things, historical experience, an evaluation of economic conditions, and regular reviews of delinquencies and loan portfolio quality. Our judgment about the adequacy of the allowance is based upon a number of assumptions about future events, which we believe to be reasonable, but which may not prove to be accurate. Thus, charge-offs in future periods could exceed the allowance for loan losses, or substantial additional increases in the allowance for loan losses could be required. Additions to the allowance for loan losses would result in a decrease of our net income and possibly, our capital. Based on present information, we believe the allowance for loan losses is adequate at March 31, 2005 to meet presently known and inherent risks in the loan portfolio.

Noninterest Income

Total noninterest income for the three months ended March 31, 2005 was $1,496,000, an increase of $300,000, or 25.08%, compared to $1,196,000 for the three months ended March 31, 2004.

Service charges on deposit accounts increased $163,000 or 28.75% from $567,000 for the three months ended March 31, 2004 to $730,000 for the three months ended March 31, 2005. The increase is mainly due to the increase in deposit accounts as a result of our merger with Abbeville Capital Corporation in March, 2004. Residential mortgage origination fees decreased $52,000 or 22.61% from $230,000 to $178,000 for the three months ended March 31, 2005, compared to the three months ended March 31, 2004. The decline in mortgage fees was a result of increased market rates which reduced our volume of mortgage refinancings. Commissions from the sales of mutual funds decreased $14,000, or 26.42%, to $39,000 for the three months ended March 31, 2005 compared to $53,000 for the three months ended March 31, 2004. Income from our fiduciary activities increased $81,000, or 64.80%, to $206,000 for the three months ended March 31, 2005 compared to $125,000 for the three months ended March 31, 2004. The increase is primarily a result of our continuing successful efforts to expand assets under management in our wealth management group. Other operating income increased $101,000, or 45.70% to $322,000 for the three months ended March 31, 2005 from $221,000 for the three months ended March 31, 2004. This increase is primarily due to an increase of income realized on Bank Owned Life Insurance (BOLI) that was acquired through our merger with Abbeville Capital Corporation in March, 2004. Also included in noninterest income is the gain of $21,000 on the sale of securities available for sale in the first quarter of 2005 compared to no gains during the same period in 2004.

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COMMUNITY CAPITAL CORPORATION

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

Noninterest Expense

Total noninterest expense for the first three months of 2005 was $4,065,000, an increase of $360,000, or 9.72%, when compared to the first three months of 2004.

The primary component of noninterest expense is salaries and benefits, which increased to $2,327,000, or 11.82% for the three month period ended March 31, 2005 compared to $2,081,000 for the three months ended March 31, 2004. The amortization of intangible assets increased $28,000 or 27.18% to $131,000 for the three months ended March 31, 2005 from $103,000 for the same period in 2004. This increase is due solely to the increase in core deposit intangibles related to the Abbeville merger.

Income Taxes

For the three months ended March 31, 2005 and 2004, the effective income tax rate was 25.91% and 20.33%, respectively, and the income tax provision was $536,000 and $325,000, respectively.

Net Income

The combination of the above factors resulted in net income of $1,533,000 for the three months ended March 31, 2005 compared to $1,274,000 for the comparable period in 2004. This was an increase of $259,000 or 20.33% over the prior year.

Assets and Liabilities

During the first three months of 2005, total assets increased $12,547,000, or 2.29%, to $561,633,000 when compared to $549,086,000 at December 31, 2004. Total loans increased $2,564,000, or 0.60% to $428,192,000 at March 31, 2005 when compared to $425,628,000 at December 31, 2004. Total securities increased $184,000, or 0.24%, to $77,780,000 at March 31, 2005. On the liability side, total deposits increased $59,735,000, or 15.70%, to $440,092,000 at March 31, 2005 from $380,357,000 at December 31, 2004. During a limited time in January, 2005, CapitalBank offered a 13-month certificate of deposit special in an effort to reduce reliance on overnight funding in an environment where short term rates were increasing rapidly. The total dollars generated with the special were approximately $50,104,000. The increase in deposits allowed us to payoff our daily rate credit with Federal Home Loan Bank and our federal funds purchased position. Additionally, total cash and cash equivalents, which include federal funds sold, increased $8,584,000, or 94.04% to $17,712,000 at March 31, 2005 compared to $9,128,000 at December 31, 2004, which was also a result of funds generated through the certificate of deposit special.

Investment Securities

Investment securities increased $184,000 or 0.24% during the three month period ended March 31, 2005. Securities available for sale increased $998,000 or 1.40% during the first quarter, which was offset by a decrease in nonmarketable equity securities of $814,000, or 13.45% during the three month period ended March 31, 2005.

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

Loans

Loans receivable increased $2,564,000, or 0.60%, since December 31, 2004. The largest increase was in real estate construction, which increased $9,314,000, or 19.31%, to $57,537,000 at March 31, 2005. Home equity loans increased $2,111,000, or 5.37%, to $41,408,000 at March 31, 2005. Commercial and agricultural loans decreased $6,416,000, or 14.18% to $38,806,000 at March 31, 2005. Balances within the major loan receivable categories as of March 31, 2005 and December 31, 2004 are as follows:

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:

Loans identified by the internal review mechanism, including nonaccrual loans and accruing loans more than 90 days past due:

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

Activity in the Allowance for Loan Losses is as follows:

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

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

Premises and Equipment

Purchases of fixed assets during the first quarter of 2005 totaled $370,000. Total fixed assets, net of depreciation, increased $143,000 during the first three months of 2005.

Deposits

Total deposits increased $59,735,000, or 15.70%, to $440,092,000 at March 31, 2005 from $380,357,000 at December 31, 2004. Expressed in percentages, noninterest-bearing deposits increased 11.81% from $45,504,000 at December 31, 2004 to $50,880,000 at March 31, 2005, and interest-bearing deposits increased 16.23% from $334,853,000 at December 31, 2004 to $389,212,000 at March 31, 2005. During a limited time in January, 2005, CapitalBank offered a 13-month certificate of deposit special in an effort to reduce reliance on overnight funding in an environment where short term rates were increasing rapidly. The total dollars generated with the special were approximately $50,104,000. The accounts required balances of a minimum of $10,000 and will pay interest of 3.99%.

Balances within the major deposit categories as of March 31, 2005 and December 31, 2004 are as follows:

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

Advances from the Federal Home Loan Bank

Advances from the Federal Home Loan Bank of Atlanta to us decreased $21,025,000 to $45,300,000 as of March 31, 2005 compared to $66,325,000 at December 31, 2004. The decrease was primarily the result of paying off our daily rate credit in the amount of $21,000,000 during January 2005. The funds utilized to decrease the borrowings were generated through a certificate of deposit special that we offered during a limited time in January 2005, in an effort to reduce reliance on overnight funding in an environment where short term rates were increasing rapidly. Of the $45,300,000 in advances with Federal Home Loan Bank, the following have scheduled maturities greater than one year:

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 our capital ratios and the regulatory minimum requirements at March 31, 2005:

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

Liquidity and Capital Resources

Shareholders’ equity was increased by the $242,000 in proceeds from the exercise of stock options and net income of $1,533,000. 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 shareholders’ equity by $636,000, net of the deferred taxes, for the three months ended March 31, 2005 when compared to December 31, 2004. Total equity was reduced by cash dividends paid, which totaled $581,000 and also by the $111,000 paid for treasury stock during the three months ended March 31, 2005.

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. We also expect to build our deposit base. Advances from the Federal Home Loan Bank and the Bankers Bank will also continue to serve as a funding source, at least for the near future. We have the ability to receive an additional $95,000,000 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 $62,000,000 of unused lines of credit to purchase federal funds.

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. At March 31, 2005, we had issued commitments to extend credit of $67,036,000 and standby letters of credit of $1,686,000 through various types of commercial lending arrangements. Approximately $53,700,000 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, 2005.

We evaluate 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.

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, 2004 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.

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

To account for our acquisition of Abbeville Capital Corporation, and in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” and No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), we used the purchase method of accounting. Under this method, we are required to record assets acquired and liabilities assumed at their fair value, which in many instances involves estimates based on third party, internal, or other valuation techniques. These estimates also include the establishment of various accruals for planned facilities dispositions and employee benefit related considerations, among other acquisition-related items. In addition, purchase acquisitions typically result in goodwill or other intangible assets, which are subject to periodic impairment tests. These tests use estimates such as discount rates, time periods, and comparable market values in their calculations. Furthermore, the determination of which intangible assets have finite lives is subjective, as well as the determination of the amortization period for such intangible assets.

We test for goodwill impairment by determining the fair value for each reporting unit and comparing it to the carrying amount. If the carrying amount exceeds its fair value, the potential for impairment exists, and a second step of impairment testing will be performed. In the second step, the implied fair value of the reporting unit’s goodwill is determined by allocating the reporting unit’s fair value to all of its assets (recognized and unrecognized) and liabilities as if the reporting unit had been acquired in a business combination at the date of the impairment test. If the implied fair value of reporting unit goodwill is lower than its carrying amount, goodwill is impaired and is written down to its fair value.

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.

Recently Issued Accounting Standards

The following is a summary of recent authoritative pronouncements that affect accounting, reporting, and disclosure of financial information:

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) will require companies to measure all employee stock-based compensation awards using a fair value method and record such expense in its financial statements. In addition, the adoption of SFAS No. 123(R) requires additional accounting and disclosure related to the income tax and cash flow effects resulting from share-based payment arrangements. SFAS No. 123(R) is effective beginning as of the first annual reporting period beginning after June 15, 2005. The Company is currently evaluating the impact that the adoption of SFAS No. 123(R) will have on its financial position, results of operations and cash flows. The cumulative effect of adoption, if any, will be measured and recognized in the statement of operations on the date of adoption.

In April 2005, the Securities and Exchange Commission’s Office of the Chief Accountant and its Division of Corporation Finance has released Staff Accounting Bulletin (SAB) No.107 to provide guidance regarding the application of FASB Statement No.123 (revised 2004), Share-Based Payment. Statement No.123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SAB 107 provides interpretive guidance related to the interaction between Statement No.123R and certain SEC rules and regulations, as well as the staff’s views regarding the valuation of share-based payment arrangements for public companies. SAB 107 also reminds public companies of the importance of including disclosures within filings made with the SEC relating to the accounting for share-based payment transactions, particularly during the transition to Statement No.123R.

In December 2003, the FASB issued FIN No. 46 (revised), “Consolidation of Variable Interest Entities” (“FIN No. 46(R)”), which addresses consolidation by business enterprises of variable interest entities. FIN No. 46(R) requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns, or both. FIN No. 46(R) also requires disclosures about variable interest entities that a company is not required to consolidate, but in which it has a significant variable interest. FIN No. 46(R) provides guidance for determining whether an entity qualifies as a variable interest entity by considering, among other considerations, whether the entity lacks sufficient equity or its equity holders lack adequate decision-making ability. The consolidation requirements of FIN No. 46(R) applied immediately to variable interest entities created after January 31, 2003. The consolidation requirements applied to the Company’s existing variable

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