**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-K**

** **

| **x**      | ** ** | **Annual  Report Under Section 13 or 15(d) of The Securities Exchange Act of  1934** |
|------------|------------|------------------------------------------------------------------------------------------------|
|       |       |                                                                                           |
| ** ** | ** ** | **For The Fiscal Year  December 31, 2008**                                                |

 

**Commission file number: 333-117053**

 

**CommunitySouth Financial Corporation**

(Name of small business issuer in its charter)

 

| **South Carolina******                                        | ** ** | **20-0934786******                    |
|---------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction ofincorporation or organization) |       | (I.R.S. Employer Identification  No.) |
|                                                          |       |                                  |
| **6602 Calhoun Memorial Highway**                             |       |                                  |
| **Easley, South Carolina**                                    |       | **29640**                             |
| (Address of principal executive offices)                      |       | (Zip Code)                            |

 

Issuer’s telephone number: **(864) 306-2540**

 

Securities registered under Section 12(b) ofthe Exchange Act:  **None**

 

Securities registered under Section 12(g) ofthe Exchange Act:  **Common Stock**

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.

Yes   o      No   x

 

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act.

Yes  o       No   x

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the ExchangeAct of 1934 during the past 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.                   Yes  x      No   o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained herein, and will notbe contained, to the best of registrant’s knowledge, in definitive proxy orinformation statement incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K.  x

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See the definitions of “largeaccelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large accelerated filer o                                              | Accelerated filer o         |
|------------------------------------------------------------------------|-----------------------------|
| Non-accelerated filer o (Do not check  if a smaller reporting company) | Smaller reporting company x |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Act). Yes  o      No   x

 

Theestimated aggregate market value of the Common Stock held by non-affiliates(shareholders holding less than 5% of an outstanding class of stock, excludingdirectors and executive officers) of the Company on June 30, 2008 was$28,086,499.

 

Thenumber of shares outstanding of the issuer’s common stock, as of March 23,2009 was 4,698,697.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

** **

| Annual  Report to Shareholders for the Year Ended December 31, 2008                 | Part II  (Items 6 and 7)                  |
|------------------------------------------------------------------------------------------|------------------------------------------------|
|                                                                                     |                                           |
| Proxy  Statement for the Annual Meeting of Shareholders to be held on May 19,  2009 | Part III  (Portions of Items 9-12 and 14) |

 

| Transitional  Small Business Disclosure Format. (Check one): | Yes o         Nox |
|--------------------------------------------------------------|---------------------------------------------------------------------|

 

 

 

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**Part I**

 

**Item1.  Description of Business.**

 

This Report, includinginformation included or incorporated by reference in this document, containsstatements which constitute forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934. These statements are based on many assumptions and estimates andare not guarantees of future performance. Our actual results may differ materially from those anticipated in anyforward-looking statements, as they will depend on many factors about which weare unsure, including many factors which are beyond our control.  The words “may,”  “would,” “could,” “will,” “expect,” “anticipate,”“believe,” “intend,” “plan,” and “estimate,” as well as similar expressions,are meant to identify such forward-looking statements.  Potential risks and uncertainties that couldcause our actual results to differ from those anticipated in anyforward-looking statements include, but are not limited to, those describedbelow under Item 1A- Risk Factors and the following:

 

·                  significant increases in competitivepressure in the banking and financial services industries;

·                  changes in the interest rate environmentwhich could reduce anticipated or actual margins;

·                  changes in political conditions or thelegislative or regulatory environment;

·                  general economic conditions, eithernationally or regionally and especially in our primary service area, becomingless favorable than expected resulting in, among other things, a deteriorationin credit quality;

·                  changes occurring in business conditionsand inflation;

·                  changes in technology;

·                  changes in monetary and tax policies;

·                  adequacy of the level of our allowancefor loan losses;

·                  the rate of delinquencies and amounts ofcharge-offs;

·                  the rates of loan growth and the lack ofseasoning of our loan portfolio;

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

·                  loss of consumer confidence and economicdisruptions resulting from terrorist activities;

·                  changes in the securities markets; and

·                  other risks and uncertainties detailed from time to time in our filingswith the Securities and Exchange Commission.

 

We undertake noobligation to publicly update or otherwise revise any forward-lookingstatements, whether as a result of new information, future events, orotherwise.

 

**General**

 

CommunitySouth FinancialCorporation was incorporated in South Carolina in March 2004 for purposesof operating as a bank holding company. Our wholly-owned subsidiary, CommunitySouth Bank & Trust,commenced business on January 18, 2005, and is primarily engaged in thebusiness of accepting savings, demand, and time deposits and providingmortgage, consumer and commercial loans to the general public.

 

**MarketingFocus**

 

Most of the banks in Anderson,Greenville, Pickens and Spartanburg Counties are now local branches of largeregional banks.  Although size gives thelarger banks certain advantages in competing for business from largecorporations, including higher lending limits and the ability to offer servicesin all of South Carolina, we believe we have a niche in the community bankingmarket in our market area.  As a result,we generally do not attempt to compete for the banking relationships of largecorporations, but concentrate our efforts on small- to medium-sized businessesand professional concerns.  The bankadvertises to emphasize the company’s local ownership, community bank nature,and ability to provide more personalized service than its competition.

 

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**Location and Service Area**

 

Our main office islocated at 6602 Calhoun Memorial Highway, Easley, South Carolina 29640.  Our telephone number is (864) 306-2540. Oursite is approximately 1.2 acres in size, and the building is approximately10,000 square feet. We have five full service branch sites in addition to themain office. The branch sites are in the towns of Anderson, Greenville, Greer,Mauldin and Spartanburg, South Carolina. Our full service branches service theentire upstate of South Carolina, which we refer to as the “Upstate,” butprimarily the counties of Anderson, Greenville, Pickens and Spartanburg.  The Upstate is generally northwest portion ofSouth Carolina along the I-85 corridor between Atlanta, Georgia and Charlotte,North Carolina.

 

Like much of the Upstate,Pickens County’s primary source of economic growth is manufacturing.  With its access to applied automobilematerials research and technology at Clemson University and location in theautomobile hub of the southeast, the area is also developing a reputation amongleaders in the automobile industry. Major employers in the area include Clemson University, Pickens CountySchools, and Palmetto Health Alliance.

 

Anderson County islocated along the I-85 corridor west of Pickens County. Significant industriesin Anderson include manufacturers of automotive products, plastics, metalproducts, industrial machinery, publishing and textiles.

 

 Greenville Countyis located east of Pickens County and is South Carolina’s most populous countywith over 407,000 residents. Greenville is also one of the state’s wealthiestcounties, with a per capita income of $30,814 in 2005, compared to the stateaverage of $27,185.  Greenville County isthe home to more corporate headquarters than any other region in SouthCarolina.

 

Spartanburg County isalso located east of Greenville County and has an economic history rooted inagriculture and textiles.  BMWManufacturing Corporation calls Spartanburg home.  It began its assembly operation inSpartanburg in 1994.  The amenities andopportunities Spartanburg County offers are wide-ranging from housing,education, healthcare, shopping, recreation, and culture.  We believe these factors make the quality oflife in the area attractive.  Additionally,Spartanburg’s mild climate and location and access to the mountains, the coast,and larger cities such as Atlanta and Charlotte add to the attractiveness ofthe area.

 

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**Lending Activities**

 

***General*****.**  We emphasize arange of lending services, including real estate, commercial, and equity-lineand consumer loans to individuals, small- to medium-sized businesses, andprofessional concerns that are located in or conduct a substantial portion oftheir business in our bank’s market area.

 

***RealEstate Loans*****.**  Real estate loans generally fall into one oftwo categories: construction real estate loans or mortgage loans. Each of thesecategories is discussed in more detail below, including their specific risks.  Interest rates for all categories may befixed or adjustable.  We generally chargean origination fee for each loan.

 

Real estate loans aresubject to the same general risks as other loans.  Real estate loans are also sensitive tofluctuations in the value of the real estate securing the loan.  On first and second mortgage loans, wegenerally do not advance more than regulatory limits.  We require a valid mortgage lien on all realproperty loans along with a title lien policy which insures the validity and priorityof the lien.  We also require borrowersto obtain hazard insurance policies and flood insurance, if applicable.  Additionally, certain types of real estateloans have specific risk characteristics that vary according to the collateraltype securing the loan and the terms and repayment sources for the loan.

 

We have the ability tooriginate some real estate loans for sale into the secondary market.  We can limit our interest rate and creditrisk on these loans by locking the interest rate for each loan with thesecondary investor and receiving the investor’s underwriting approval prior tooriginating the loan.

 

·                  ***Real Estate Loans -Mortgage*****.**  Mortgage real estate loans generally haveterms of five years or less, although payments may be structured on a longeramortization basis.  Inherent in mortgagereal estate loans’ credit risk is the risk that the primary source ofrepayment, the operating commercial real estate company or residentialborrower, will be insufficient to service the debt.  If a real estate loan is in default, we alsorun the risk that the value of the real estate securing the loan will decrease,and thereby be insufficient to satisfy the loan.  To mitigate these risks, we evaluate eachborrower on an individual basis and attempt to determine its business risks andcredit profile.  We attempt to reducecredit risk in the real estate portfolio by emphasizing loans on owner-occupiedoffice/residential and retail buildings where the loan-to-value ratio isestablished by independent appraisals. We typically review the personal financial statements of the principalowners/borrower and require their personal guarantees.  These reviews often reveal secondary sourcesof payment and liquidity to support a loan request.

 

·                  ***Real Estate Loans -Construction.**** *We offer adjustable and fixed rate residential andcommercial construction loans to builders and developers and to consumers whowish to build their own home.  The termof construction and development loans generally is limited to 18 months,although payments may be structured on a longer amortization basis.  Most loans mature and require payment in fullupon the sale of the property.  Constructionloans generally carry a higher degree of risk than long term financing ofexisting properties.  Repayment usuallydepends on the ultimate completion of the project within cost estimates and onthe sale of the property.  Specific risksinclude:

 

·                  cost overruns;

·                  mismanaged construction;

·                  inferior or improper construction techniques;

·                  economic changes or downturns during construction;

·                  a downturn in the real estate market;

·                  rising interest rates which may prevent sale of theproperty; and

·                  failure to sell completed projects in a timely manner.

 

We attempt to reduce riskby obtaining personal guarantees where possible, and by keeping theloan-to-value ratio of the completed project below specified percentages.  We also reduce risk by selling participationsin larger loans to other institutions when possible.

 

***CommercialLoans*****.** We make loans for commercial purposes in various lines ofbusinesses.  Equipment loans typicallyare made for a term of five years or less at fixed or variable rates, with theloan fully amortized over the term and secured by the financed equipment.  Working capital loans typically have termsnot exceeding one year 

 

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and are usually securedby accounts receivable, inventory, or personal guarantees of the principals ofthe business.  For loans secured byaccounts receivable or inventory, principal is typically repaid as the assetssecuring the loan are converted into cash, and in other cases principal is dueat maturity.  Trade letters of credit,standby letters of credit, and foreign exchange are handled through acorrespondent bank as agent for the bank. Commercial loans primarily have risk that the primary source ofrepayment, the borrowing business, will be insufficient to service thedebt.  Often this occurs as the result ofchanges in local economic conditions or in the industry in which the borroweroperates which impact cash flow or collateral value.

 

***ConsumerLoans*****.** We make a variety of loans to individuals for personal and householdpurposes, including secured and unsecured installment loans and revolving linesof credit such as credit cards. Installment loans typically carry balances of less than $50,000 and areamortized over periods up to 60 or more months. Consumer loans are offered on a single maturity basis where a specificsource of repayment is available. Revolving loan products typically require monthly payments of interestand a portion of the principal.

 

Consumer loans aregenerally considered to have greater risk than first or second mortgages onreal estate because the value of the secured property may depreciate rapidly,they are often dependent on the borrower’s employment status as the sole sourceof repayment, and some of them are unsecured. To mitigate these risks, we analyze selective underwriting criteria foreach prospective borrower, which may include the borrower’s employment history,income history, credit bureau reports, or debt to income ratios.  If the consumer loan is secured by property,such as an automobile loan, we also attempt to offset the risk of rapiddepreciation of the collateral with a shorter loan amortization period.  Despite these efforts to mitigate our risks,consumer loans have a higher rate of default than real estate loans.  For this reason, we attempt to reduce ourloss exposure to these types of loans by limiting their sizes relative to othertypes of loans.

 

We also offer home equityloans.  Our underwriting criteria for andassessment of the risks associated with home equity loans and lines of creditare generally the same as those for first mortgage loans.  Home equity lines of credit typically haveterms of 10 years or less, carry balances less than $125,000, and may extend upto 90% of the available equity of each property.

 

We also have the abilityto offer small business loans utilizing government enhancements such as theSmall Business Administration’s 7(a) program and SBA’s 504 and “LowDoc”programs.  These loans will typically bepartially guaranteed by the government which may help to reduce the bank’srisk.  Government guarantees of SBA loanswill not exceed 80% of the loan value, and will generally be less.

 

***RelativeRisks of Loans*****.**  Each category of loan has a different levelof credit risk.  Real estate loans aregenerally safer than loans secured by other assets because the value of theunderlying security, real estate, is generally ascertainable and does notfluctuate as much as some other assets. Certain real estate loans are less risky than others.  Residential real estate loans are generallythe least risky type of real estate loans, followed by commercial real estateloans and construction and development loans. Commercial loans, which can be secured by real estate or other assets,or which can be unsecured, are generally more risky than real estate loans, butless risky than consumer loans.  Finally,consumer loans, which can also be secured by real estate or other assets, orwhich can also be unsecured, are generally considered to be the most risky ofthese categories of loans.  Any type ofloan which is unsecured is generally more risky than secured loans.  These levels of risk are general in nature,and many factors including the creditworthiness of the borrower or theparticular nature of the secured asset may cause any type of loan to be more orless risky than another.  Additionally,these levels of risk are limited to an analysis of credit risk, and they do nottake into account other risk factors associated with making loans such as theinterest rate risk inherent in long-term, fixed-rate loans.

 

***LoanApproval and Review*****.**  Our loan approval policies provide forvarious levels of officer lending authority. When the amount of aggregate loans to a single borrower exceeds thatindividual officer’s lending authority, the loan request is considered andapproved by an officer with a higher lending limit, the management loancommittee or the board of directors’ loan committee.  We do not make any loans to any director ofthe bank unless the loan is approved by the board of directors of the bank andis made on terms not more favorable to the person than would be available to aperson not affiliated with the bank.  Weadhere to Federal National Mortgage Association and Federal Home Loan MortgageCorporation guidelines in its mortgage loan review process, but we may chooseto alter this policy in the future.

 

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***LendingLimits.***  Our lending activities are subject to avariety of lending limits imposed by federal law.  In general, we are subject to a legal limiton loans to a single borrower equal to 15% of the bank’s capital and unimpairedsurplus.  Different limits may applybased on the type of loan or the nature of the borrower, including the borrower’srelationship to the bank.  These limitswill increase or decrease as the bank’s capital increases or decreases.

 

**BankingServices**

 

We offer a full range ofdeposit services that are typically available in most banks and savings andloan associations, including checking accounts, NOW accounts, commercialaccounts, savings accounts, and other time deposits of various types, rangingfrom daily money market accounts to longer-term certificates of deposit.  The transaction accounts and timecertificates are tailored to our principal market area at rates competitive tothose offered in the upstate South Carolina region.  In addition, we offer certain retirementaccount services, including IRAs.

 

**OtherBanking Services**

 

We also offer safedeposit boxes, cashier’s checks, banking by mail, direct deposit of payroll andsocial security checks, U.S. Savings Bonds, and travelers checks.  Our bank is associated with the Star and PlusATM networks that may be used by our customers throughout the country.  We believe that by being associated with ashared network of ATMs, we will be better able to serve our customers and willbe able to attract customers who are accustomed to the convenience of using ATMs. We also offer a debit card and credit card services through a correspondentbank as an agent for the bank.

 

**Competition**

 

The banking business is highly competitive.  We compete as a financial intermediary withother commercial banks, savings banks, credit unions, finance companies, andmoney market mutual funds operating in Anderson, Greenville, Pickens andSpartanburg Counties.  The competitionamong the various financial institutions is based upon a variety of factors,including interest rates offered on deposit accounts, interest rates charged onloans, credit and service charges, the quality of services rendered, theconvenience of banking facilities and, in the case of loans to large commercialborrowers, relative lending limits.  Inaddition to banks and savings associations, we compete with other financialinstitutions including securities firms, insurance companies, credit unions,leasing companies and finance companies. Size gives larger banks certain advantages in competing for businessfrom large corporations.  Theseadvantages include higher lending limits and the ability to offers services inother areas of South Carolina.  As aresult, we do not generally attempt to compete for the banking relationships oflarge corporations, but concentrate our efforts on small- to medium-sizedbusinesses and individuals.  We believewe have competed effectively in this market by offering quality and personalservice.

 

**Employees**

 

As of December 31,2008, we had 80 full-time employees and 10 part-time employees.

 

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**SUPERVISION AND REGULATION**

 

BothCommunitySouth Financial Corporation, and CommunitySouth Bank and Trust aresubject to extensive state and federal banking regulations that imposerestrictions on and provide for general regulatory oversight of theiroperations.  These laws generally areintended to protect depositors and not shareholders.  The following summary is qualified byreference to the statutory and regulatory provisions discussed.  Changes in applicable laws or regulations mayhave a material effect on our business and prospects.  Our operations may be affected by legislativechanges and the policies of various regulatory authorities.  We cannot predict the effect that fiscal ormonetary policies, economic control, or new federal or state legislation mayhave on our business and earnings in the future.

 

The following discussionis not intended to be a complete list of all the activities regulated by thebanking laws or of the impact of such laws and regulations on ouroperations.  It is intended only tobriefly summarize some material provisions.

 

**CommunitySouth FinancialCorporation**

 

Weown 100% of the outstanding capital stock of the bank, and therefore we are consideredto be a bank holding company under the federal Bank Holding Company Act of 1956(the “Bank Holding Company Act”).  As a result,we are primarily subject to the supervision, examination and reporting requirementsof the Board of Governors of the Federal Reserve (the “Federal Reserve”) under theBank Holding Company Act and its regulations promulgated thereunder.  As a bank holding company located in South Carolina,the South Carolina Board of Financial Institutions also regulates and monitors allsignificant aspects of our operations.

 

***Permitted Activities.***Under the BankHolding Company Act, a bank holding company is generally permitted to engagein, or acquire direct or indirect control of more than 5% of the voting sharesof any company engaged in, the following activities:

 

·                  banking or managing or controlling banks;

·                  furnishing services to or performing services for oursubsidiaries; and

·                  any activity that the Federal Reserve determines to beso closely related to banking as to be a proper incident to the business ofbanking.

 

Activitiesthat the Federal Reserve has found to be so closely related to banking as to bea proper incident to the business of banking include:

 

·                  factoring accounts receivable;

·                  making, acquiring, brokering or servicing loans andusual related activities;

·                  leasing personal or real property;

·                  operating a non-bank depository institution, such as asavings association;

·                  trust company functions;

·                  financial and investment advisory activities;

·                  conducting discount securities brokerage activities;

·                  underwriting and dealing in government obligations andmoney market instruments;

·                  providing specified management consulting andcounseling activities;

·                  performing selected data processing services andsupport services;

·                  acting as agent or broker in selling credit lifeinsurance and other types of insurance in connection with credit transactions;and

·                  performing selected insurance underwriting activities.

 

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As a bank holding company we also can elect to be treated as a “financialholding company,” which would allow us engage in a broader array ofactivities.  In sum, a financial holdingcompany can engage in activities that are financial in nature or incidental orcomplementary to financial activities, including insurance underwriting, salesand brokerage activities, providing financial and investment advisory services,underwriting services and limited merchant banking activities.  We have not sought financial holding companystatus, but may elect such status in the future as our business matures.  If we were to elect in writing for financialholding company status, each insured depository institution we control wouldhave to be well capitalized, well managed and have at least a satisfactoryrating under the CRA (discussed below).

 

The Federal Reserve has theauthority to order a bank holding company or its subsidiaries to terminate any ofthese activities or to terminate its ownership or control of any subsidiary whenit has reasonable cause to believe that the bank holding company’s continued ownership,activity or control constitutes a serious risk to the financial safety, soundnessor stability of it or any of its bank subsidiaries.

 

***Changein Control.***  In addition, and subject to certainexceptions, the Bank Holding Company Act and the Change in Bank Control Act,together with regulations promulgated there under, require Federal Reserveapproval prior to any person or company acquiring “control” of a bank holdingcompany.  Control is conclusivelypresumed to exist if an individual or company acquires 25% or more of any classof voting securities of a bank holding company. Following the relaxing of these restrictions by the Federal Reserve in September 2008,control will be rebuttably presumed to exist if a person acquires more than 33%of the total equity of a bank or bank holding company, of which it may own,control or have the power to vote not more than 15% of any class of votingsecurities.

 

***Sourceof Strength****.*  In accordance with Federal Reserve Boardpolicy, we are expected to act as a source of financial strength to the bankand to commit resources to support the bank in circumstances in which we mightnot otherwise do so.  Under the bankHolding Company Act, the Federal Reserve Board may require a bank holdingcompany to terminate any activity or relinquish control of a nonbanksubsidiary, other than a nonbank subsidiary of a bank, upon the Federal ReserveBoard’s determination that such activity or control constitutes a serious riskto the financial soundness or stability of any depository institutionsubsidiary of the bank holding company. Further, federal bank regulatory authorities have additional discretionto require a bank holding company to divest itself of any bank or nonbanksubsidiaries if the agency determines that divestiture may aid the depositoryinstitution’s financial condition.

 

***CapitalRequirements.***  The Federal Reserve Board imposes certaincapital requirements on the bank holding company under the Bank Holding CompanyAct, including a minimum leverage ratio and a minimum ratio of “qualifying”capital to risk-weighted assets.  Theserequirements are described below under “CommunitySouth Bank and Trust - CapitalRegulations.”  Subject to our capitalrequirements and certain other restrictions, we are able to borrow money tomake a capital contribution to the bank, and these loans may be repaid fromdividends paid from the bank to the company. Our ability to pay dividends is subject to regulatory restrictions asdescribed below in “CommunitySouth Bank and Trust– Dividends.”  We are also able to raise capital forcontribution to the bank by issuing securities without having to receiveregulatory approval, subject to compliance with federal and state securitieslaws.

 

***SouthCarolina State Regulation.***  As a SouthCarolina bank holding company under the South Carolina Banking and BranchingEfficiency Act, we are subject to limitations on sale or merger and toregulation by the South Carolina Board of Financial Institutions.  We are not required to obtain the approval ofthe South Carolina Board prior to acquiring the capital stock of a nationalbank, but we must notify them at least 15 days prior to doing so.  We must receive the Board’s approval prior toengaging in the acquisition of a South Carolina state chartered bank or anotherSouth Carolina bank holding company.

 

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**CommunitySouth Bank and Trust**

 

The bank operates as astate bank incorporated under the laws of the State of South Carolina and issubject to examination by the South Carolina Board of FinancialInstitutions.  Deposits in the bank areinsured by the Federal Deposit Insurance Corporation (“FDIC”) up to a maximumamount, which is currently $100,000 for each non-retirement depositor and$250,000 for certain retirement-account depositors.  However, the FDIC has increased the coverageup to $250,000 for each non-retirement depositor through December 31,2009, and the bank is participating in the FDIC’s Temporary Liquidity GuaranteeProgram (discussed below in greater detail) which, in part, fully insuresnon-interest bearing transaction accounts.

 

The South Carolina Boardof Financial Institutions and the FDIC regulate or monitor virtually all areasof the bank’s operations, including:

 

·                  security devices and procedures;

·                  adequacy of capitalization and loss reserves;

·                  loans;

·                  investments;

·                  borrowings;

·                  deposits;

·                  mergers;

·                  issuances of securities;

·                  payment of dividends;

·                  interest rates payable on deposits;

·                  interest rates or fees chargeable on loans;

·                  establishment of branches;

·                  corporate reorganizations;

·                  maintenance of books and records; and

·                  adequacy of staff training to carry on safe lendingand deposit gathering practices.

 

The South Carolina Boardof Financial Institutions requires the bank to maintain specified capitalratios and imposes limitations on the bank’s aggregate investment in realestate, bank premises, and furniture and fixtures.  The South Carolina Board of FinancialInstitutions also requires the bank to prepare quarterly reports on the bank’sfinancial condition in compliance with its minimum standards and procedures.

 

All insured institutionsmust undergo regular on site examinations by their appropriate bankingagency.  The cost of examinations ofinsured depository institutions and any affiliates may be assessed by theappropriate agency against each institution or affiliate as it deems necessaryor appropriate.  Insured institutions arerequired to submit annual reports to the FDIC, their federal regulatory agency,and their state supervisor when applicable. The FDIC has developed a method for insured depository institutions toprovide supplemental disclosure of the estimated fair market value of assetsand liabilities, to the extent feasible and practicable, in any balance sheet,financial statement, report of condition or any other report of any insureddepository institution.  The FDICImprovement Act (the “FDICIA”) also requires the federal banking regulatoryagencies to prescribe, by regulation, standards for all insured depositoryinstitutions and depository institution holding companies relating, among otherthings, to the following:

 

·                  internal controls;

·                  information systems and audit systems;

·                  loan documentation;

·                  credit underwriting;

·                  interest rate risk exposure; and

·                  asset quality.

 

***Prompt Corrective Action. ***As an insured depository institution, the bank isrequired to comply with the capital requirements promulgated under the FederalDeposit Insurance Act and the regulations thereunder, which set forth****five capital categories, each with specific regulatoryconsequences.  Under these regulations,the categories are:

 

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·                  WellCapitalized – The institution exceeds the required minimum level for eachrelevant capital measure.  A wellcapitalized institution is one (i) having a total capital ratio of 10% orgreater, (ii) having a tier 1 capital ratio of 6% or greater, (iii) havinga leverage capital ratio of 5% or greater and (iv) that is not subject toany order or written directive to meet and maintain a specific capital levelfor any capital measure.

 

·                  AdequatelyCapitalized – The institution meets the required minimum level for eachrelevant capital measure.  No capitaldistribution may be made that would result in the institution becomingundercapitalized.  An adequatelycapitalized institution is one (i) having a total capital ratio of 8% orgreater, (ii) having a tier 1 capital ratio of 4% or greater and (iii) havinga leverage capital ratio of 4% or greater or a leverage capital ratio of 3% orgreater if the institution is rated composite 1 under the CAMELS (Capital,Assets, Management, Earnings, Liquidity and Sensitivity to market risk) ratingsystem.

 

·                  Undercapitalized– The institution fails to meet the required minimum level for any relevantcapital measure.  An undercapitalizedinstitution is one (i) having a total capital ratio of less than 8% or (ii) havinga tier 1 capital ratio of less than 4% or (iii) having a leverage capitalratio of less than 4%, or if the institution is rated a composite 1 under theCAMELS rating system, a leverage capital ratio of less than 3%.

 

·                  SignificantlyUndercapitalized – The institution is significantly below the required minimumlevel for any relevant capital measure. A significantly undercapitalized institution is one (i) having atotal capital ratio of less than 6% or (ii) having a tier 1 capital ratioof less than 3% or (iii) having a leverage capital ratio of less than 3%.

 

·                  CriticallyUndercapitalized – The institution fails to meet a critical capital level setby the appropriate federal banking agency. A critically undercapitalized institution is one having a ratio of tangibleequity to total assets that is equal to or less than 2%.

 

If the FDIC determines, after notice and an opportunity for hearing,that the bank is in an unsafe or unsound condition, the regulator is authorizedto reclassify the bank to the next lower capital category (other thancritically undercapitalized) and require the submission of a plan to correctthe unsafe or unsound condition.

 

If the bank is not well capitalized, it cannot accept brokered depositswithout prior FDIC approval and, if approval is granted, cannot offer aneffective yield in excess of 75 basis points on interests paid on deposits ofcomparable size and maturity in such institution’s normal market area fordeposits accepted from within its normal market area, or national rate paid ondeposits of comparable size and maturity for deposits accepted outside the bank’snormal market area.  Moreover, if thebank becomes less than adequately capitalized, it must adopt a capitalrestoration plan acceptable to the FDIC. The bank also would become subject to increased regulatory oversight,and is increasingly restricted in the scope of its permissible activities.  Each company having control over anundercapitalized institution also must provide a limited guarantee that theinstitution will comply with its capital restoration plan.  Except under limited circumstances consistentwith an accepted capital restoration plan, an undercapitalized institution maynot grow.  An undercapitalizedinstitution may not acquire another institution, establish additional branchoffices or engage in any new line of business unless determined by theappropriate Federal banking agency to be consistent with an accepted capitalrestoration plan, or unless the FDIC determines that the proposed action willfurther the purpose of prompt corrective action.  The appropriate federal banking agency maytake any action authorized for a significantly undercapitalized institution ifan undercapitalized institution fails to submit an acceptable capitalrestoration plan or fails in any material respect to implement a plan acceptedby the agency.  A criticallyundercapitalized institution is subject to having a receiver or conservatorappointed to manage its affairs and for loss of its charter to conduct bankingactivities.

 

An insured depository institution may not pay a management fee to abank holding company controlling that institution or any other person havingcontrol of the institution if, after making the payment, the institution, wouldbe undercapitalized.  In addition, aninstitution cannot make a capital distribution, such as a dividend or otherdistribution that is in substance a distribution of capital to the owners ofthe institution if following such a distribution the institution would beundercapitalized.  Thus, if payment ofsuch a management fee or the making of such would cause the bank to becomeundercapitalized, it could not pay a management fee or dividend to us.

 

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Asof December 31, 2008, the bank was deemed to be “well capitalized.”

 

***Transactions with Affiliates and Insiders.***  The companyis a legal entity separate and distinct from the bank and its other subsidiaries.Various legal limitations restrict the bank from lending or otherwise supplyingfunds to the company or its non-bank subsidiaries. The company and the bank aresubject to Section 23A and 23B of the Federal Reserve Act and Federal Reserve RegulationW. Section 23A of the Federal Reserve Act places limits on the amount of loans orextensions of credit to, or investments in, or certain other transactions with,affiliates and on the amount of advances to third parties collateralized by thesecurities or obligations of affiliates. The aggregate of all covered transactionsis limited in amount, as to any one affiliate, to 10% of the bank’s capital andsurplus and, as to all affiliates combined, to 20% of the bank’s capital and surplus.Furthermore, within the foregoing limitations as to amount, each covered transactionmust meet specified collateral requirements. The bank is forbidden to purchase lowquality assets from an affiliate.

 

Section23B of the Federal Reserve Act, among other things, prohibits an institution fromengaging in certain transactions with certain affiliates unless the transactionsare on terms substantially the same, or at least as favorable to such institutionor its subsidiaries, as those prevailing at the time for comparable transactionswith nonaffiliated companies.

 

RegulationW generally excludes all non-bank and non-savings association subsidiaries of banksfrom treatment as affiliates, except to the extent that the Federal Reserve Boarddecides to treat these subsidiaries as affiliates. The regulation also limits theamount of loans that can be purchased by a bank from an affiliate to not more than100% of the bank’s capital and surplus.

 

Thebank is also subject to certain restrictions on extensions of credit to executiveofficers, directors, certain principal shareholders, and their related interests.Such extensions of credit (i) must be made on substantially the same terms, includinginterest rates and collateral, as those prevailing at the time for comparable transactionswith third parties and (ii) must not involve more than the normal risk of repaymentor present other unfavorable features.

 

***Branching****.*  Undercurrent South Carolina law, we may open branch offices throughout South Carolinawith the prior approval of the South Carolina Board of Financial Institutions.   In addition, with prior regulatory approval,the bank will be able to acquire existing banking operations in South Carolina.  Furthermore, federal legislation has been passedthat permits interstate branching by banks if allowed by state law, and interstatemerging by banks.  However, South Carolinalaw, with limited exceptions, currently permits branching across state lines onlythrough interstate mergers.

 

***Anti-Tying Restrictions***. Under amendments to the Bank Holding CompanyAct and Federal Reserve regulations, a bank is prohibited from engaging in certaintying or reciprocity arrangements with its customers. In general, a bank may notextend credit, lease, sell property, or furnish any services or fix or vary theconsideration for these on the condition that (i) the customer obtain or providesome additional credit, property, or services from or to the bank, the bank holdingcompany or subsidiaries thereof or (ii) the customer may not obtain some other credit,property, or services from a competitor, except to the extent reasonable conditionsare imposed to assure the soundness of the credit extended. Certain arrangementsare permissible: a bank may offer combined-balance products and may otherwise offermore favorable terms if a customer obtains two or more traditional bank products;and certain foreign transactions are exempt from the general rule. A bank holdingcompany or any bank affiliate also is subject to anti-tying requirements in connectionwith electronic benefit transfer services.

 

***Community Reinvestment Act****.*  The CommunityReinvestment Act requires that, in connection with examinations of financial institutionswithin their respective jurisdictions, a financial institution’s primary regulator,which is the FDIC for the bank, shall evaluate the record of each financial institutionin meeting the credit needs of its local community, including low and moderate incomeneighborhoods.  These factors are also consideredin evaluating mergers, acquisitions, and applications to open a branch or facility.  Failure to adequately meet these criteria couldimpose additional requirements and limitations on our bank.  Additionally, we must publicly disclose the termsof various Community Reinvestment Act-related agreements.

 

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***Finance Subsidiaries.***  Underthe Gramm-Leach-Bliley Act (the “GLBA”), subject to certain conditions imposed bytheir respective banking regulators, national and state-chartered banks are permittedto form “financial subsidiaries” that may conduct financial or incidental activities,thereby permitting bank subsidiaries to engage in certain activities that previouslywere impermissible.  The GLBA imposes severalsafeguards and restrictions on financial subsidiaries, including that the parentbank’s equity investment in the financial subsidiary be deducted from the bank’sassets and tangible equity for purposes of calculating the bank’s capital adequacy.  In addition, the GLBA imposes new restrictionson transactions between a bank and its financial subsidiaries similar to restrictionsapplicable to transactions between banks and non-bank affiliates.

 

***Consumer Protection Regulations.***Activities of the bank are subject to a varietyof statutes and regulations designed to protect consumers. Interest and other chargescollected or contracted for by the bank are subject to state usury laws and federallaws concerning interest rates. The bank’s loan operations are also subject to federallaws applicable to credit transactions, such as the:

 

·                  The federal Truth-In-Lending Act, governing disclosuresof credit terms to consumer borrowers;

·                  The Home Mortgage Disclosure Act of 1975, requiringfinancial institutions to provide information to enable the public and public officialsto determine whether a financial institution is fulfilling its obligation to helpmeet the housing needs of the community it serves;

·                  The Equal Credit Opportunity Act, prohibitingdiscrimination on the basis of race, creed or other prohibited factors in extendingcredit;

·                  The Fair Credit Reporting Act of 1978, as amendedby the Fair and Accurate Credit Transactions Act, governing the use and provisionof information to credit reporting agencies, certain identity theft protectionsand certain credit and other disclosures;

·                  The Fair Debt Collection Act, governing the mannerin which consumer debts may be collected by collection agencies; and

·                  The Rules and regulations of the various federalagencies charged with the responsibility of implementing these federal laws.

 

Thedeposit operations of the bank also are subject to:

 

·                  the Right to Financial Privacy Act, which imposesa duty to maintain confidentiality of consumer financial records and prescribesprocedures for complying with administrative subpoenas of financial records; and

·                  the Electronic Funds Transfer Act and RegulationE issued by the Federal Reserve Board to implement that Act, which governs automaticdeposits to and withdrawals from deposit accounts and customers’ rights and liabilitiesarising from the use of automated teller machines and other electronic banking services.

 

***Enforcement Powers.***The bank and its “institution-affiliated parties,”including its management, employees, agents, independent contractors, and consultantssuch as attorneys and accountants and others who participate in the conduct of thefinancial institution’s affairs, are subject to potential civil and criminal penaltiesfor violations of law, regulations or written orders of a government agency. Thesepractices can include the failure of an institution to timely file required reportsor the filing of false or misleading information or the submission of inaccuratereports. Civil penalties may be as high as $1,000,000 a day for such violations.Criminal penalties for some financial institution crimes have been increased totwenty years. In addition, regulators are provided with greater flexibility to commenceenforcement actions against institutions and institution-affiliated parties. Possibleenforcement actions include the termination of deposit insurance. Furthermore, bankingagencies’ power to issue cease-and-desist orders were expanded. Such orders may,among other things, require affirmative action to correct any harm resulting froma violation or practice, including restitution, reimbursement, indemnificationsor guarantees against loss. A financial institution may also be ordered to restrictits growth, dispose of certain assets, rescind agreements or contracts, or takeother actions as determined by the ordering agency to be appropriate.

 

***Anti-Money Laundering.***Financial institutions must maintain anti-moneylaundering programs that include established internal policies, procedures, andcontrols; a designated compliance officer; an ongoing employee training program;and testing of the program by an independent audit function. The company and thebank are also prohibited from entering into specified financial transactions andaccount relationships and must meet 

 

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enhancedstandards for due diligence and “knowing your customer” in their dealings with foreignfinancial institutions and foreign customers. Financial institutions must take reasonablesteps to conduct enhanced scrutiny of account relationships to guard against moneylaundering and to report any suspicious transactions, and recent laws provide lawenforcement authorities with increased access to financial information maintainedby banks. Anti-money laundering obligations have been substantially strengthenedas a result of the USA Patriot Act, enacted in 2001 and renewed in 2006. Bank regulatorsroutinely examine institutions for compliance with these obligations and are requiredto consider compliance in connection with the regulatory review of applications.The regulatory authorities have been active in imposing “cease and desist” ordersand money penalty sanctions against institutions found to be violating these obligations.

 

***USA PATRIOT Act.******* **The USA PATRIOT Act became effectiveon October 26, 2001, amended, in part, the Bank Secrecy Act, and provides, in part,for the facilitation of information sharing among governmental entities and financialinstitutions for the purpose of combating terrorism and money laundering by enhancinganti-money laundering and financial transparency laws, as well as enhanced informationcollection tools and enforcement mechanics for the U.S. government, including: (i)requiring standards for verifying customer identification at account opening; (ii)rules to promote cooperation among financial institutions, regulators, and law enforcemententities in identifying parties that may be involved in terrorism or money laundering;(iii) reports by nonfinancial trades and businesses filed with the Treasury Department’sFinancial Crimes Enforcement Network for transactions exceeding $10,000; and (iv)filing suspicious activities reports by brokers and dealers if they believe a customermay be violating U.S. laws and regulations and requires enhanced due diligence requirementsfor financial institutions that administer, maintain, or manage private bank accountsor correspondent accounts for non-U.S. persons.

 

Underthe USA PATRIOT Act, the Federal Bureau of Investigation (“FBI”) can send our bankingregulatory agencies lists of the names of persons suspected of involvement in terroristactivities.  The bank can be requested, tosearch its records for any relationships or transactions with persons on those lists.  If the bank finds any relationships or transactions,it must file a suspicious activity report and contact the FBI.

 

TheOffice of Foreign Assets Control (“OFAC”), which is a division of the U.S. Departmentof the Treasury, is responsible for helping to insure that United States entitiesdo not engage in transactions with “enemies” of the United States, as defined byvarious Executive Orders and Acts of Congress. OFAC has sent, and will send, our banking regulatory agencies lists of namesof persons and organizations suspected of aiding, harboring or engaging in terroristacts.  If the bank finds a name on any transaction,account or wire transfer that is on an OFAC list, it must freeze such account, filea suspicious activity report and notify the FBI.  The bank has appointed an OFAC compliance officerto oversee the inspection of its accounts and the filing of any notifications.  The bank actively checks high-risk OFAC areassuch as new accounts, wire transfers and customer files.  The bank performs these checks utilizing software,which is updated each time a modification is made to the lists provided by OFACand other agencies of Specially Designated Nationals and Blocked Persons.

 

***Privacy and Credit Reporting*****. **Financial institutions are required to disclose their policies for collectingand protecting confidential information. Customers generally may prevent financial institutions from sharing nonpublicpersonal financial information with nonaffiliated third parties except under narrowcircumstances, such as the processing of transactions requested by the consumeror when the financial institution is jointly sponsoring a product or service witha nonaffiliated third party.  Additionally,financial institutions generally may not disclose consumer account numbers to anynonaffiliated third party for use in telemarketing, direct mail marketing or othermarketing to consumers.  It is the bank’spolicy not to disclose any personal information unless required by law.

 

Likeother lending institutions, the bank utilizes credit bureau data in its underwritingactivities.  Use of such data is regulatedunder the Federal Credit Reporting Act on a uniform, nationwide basis, includingcredit reporting, prescreening, sharing of information between affiliates, and theuse of credit data.  The Fair and AccurateCredit Transactions Act of 2003 (the “FACT Act”) authorizes states to enact identitytheft laws that are not inconsistent with the conduct required by the provisionsof the FACT Act.

 

***Payment of Dividends.*** A South Carolina state bank may not pay dividendsfrom its capital.  All dividends must be paidout of undivided profits then on hand, after deducting expenses, including reservesfor losses and bad debts.  The bank is authorizedto pay cash dividends up to 100% of net income in any calendar year without obtainingthe prior approval of the South Carolina Board of Financial Institutions, providedthat the bank received a composite rating of one or two at the last federal or stateregulatory examination.  The bank must obtainapproval 

 

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fromthe South Carolina Board of Financial Institutions prior to the payment of any othercash dividends.  In addition, under the FDICIA,the bank may not pay a dividend if, after paying the dividend, the bank would beundercapitalized.

 

***Check 21.***  The CheckClearing for the 21st Century Act gives “substitute checks,” such as a digital imageof a check and copies made from that image, the same legal standing as the originalpaper check.  Some of the major provisionsinclude:

 

·                  allowing check truncation without making it mandatory;

·                  demanding that every financial institution communicateto accountholders in writing a description of its substitute check processing programand their rights under the law;

·                  legalizing substitutions for and replacementsof paper checks without agreement from consumers;

·                  retaining in place the previously mandated electroniccollection and return of checks between financial institutions only when individualagreements are in place;

·                  requiring that when accountholders request verification,financial institutions produce the original check (or a copy that accurately representsthe original) and demonstrate that the account debit was accurate and valid; and

·                  requiring the re-crediting of funds to an individual’saccount on the next business day after a consumer proves that the financial institutionhas erred.

 

***Effect of Governmental Monetary Policies*****.**  Our earningsare affected by domestic economic conditions and the monetary and fiscal policiesof the United States government and its agencies.  The Federal Reserve bank’s monetary policies havehad, and are likely to continue to have, an important impact on the operating resultsof commercial banks through its power to implement national monetary policy in order,among other things, to curb inflation or combat a recession.  The monetary policies of the Federal Reserve Boardhave major effects upon the levels of bank loans, investments and deposits throughits open market operations in United States government securities and through itsregulation of the discount rate on borrowings of member banks and the reserve requirementsagainst member bank deposits.  It is not possibleto predict the nature or impact of future changes in monetary and fiscal policies.

 

***Insurance of Accounts and Regulationby the FDIC.*****  Our deposits are insured up to applicable limitsby the Deposit Insurance Fund of the FDIC. The Deposit Insurance Fund is the successor to the Bank Insurance Fund andthe Savings Association Insurance Fund, which were merged effective March 31, 2006.  As insurer, the FDIC imposes deposit insurancepremiums and is authorized to conduct examinations of and to require reporting byFDIC insured institutions.  It also may prohibitany FDIC insured institution from engaging in any activity the FDIC determines byregulation or order to pose a serious risk to the insurance fund.  The FDIC also has the authority to initiate enforcementactions against savings institutions, after giving the Office of Thrift Supervisionan opportunity to take such action, and may terminate the deposit insurance if itdetermines that the institution has engaged in unsafe or unsound practices or isin an unsafe or unsound condition.

 

Underregulations effective January 1, 2007, the FDIC adopted a new risk-based premiumsystem that provides for quarterly assessments based on an insured institution’sranking in one of four risk categories based upon supervisory and capital evaluations.   For deposits held as of March 31, 2009, institutionsare assessed at annual rates ranging from 12 to 50 basis points, depending on eachinstitution’s risk of default as measured by regulatory capital ratios and othersupervisory measures.   Effective April 1,2009, assessments will take into account each institution’s reliance on securedliabilities and brokered deposits.   Thiswill result in assessments ranging from 7 to 77.5 basis points.  We anticipate our future insurance costs to behigher than in previous periods.

 

FDICinsured institutions are required to pay a Financing Corporation assessment, inorder to fund the interest on bonds issued to resolve thrift failures in the 1980s.  For the first quarter of 2009, the Financing Corporationassessment equaled 1.14 basis points for domestic deposits.  These assessments, which may be revised basedupon the level of deposits, will continue until the bonds mature in the years 2017through 2019.

 

TheFDIC may terminate the deposit insurance of any insured depository institution,including the bank, if it determines after a hearing that the institution has engagedin unsafe or unsound practices, is in an unsafe or unsound condition to continueoperations or has violated any applicable law, regulation, rule, order or conditionimposed by the FDIC or the OCC.  It also maysuspend deposit insurance temporarily during the hearing process for 

 

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thepermanent termination of insurance, if the institution has no tangible capital.  If insurance of accounts is terminated, the accountsat the institution at the time of the termination, less subsequent withdrawals,shall continue to be insured for a period of six months to two years, as determinedby the FDIC.  Management of the bank is notaware of any practice, condition or violation that might lead to termination ofthe bank’s deposit insurance.

 

***Proposed Legislation and Regulatory Action*****.**  New regulationsand statutes are regularly proposed that contain wide-ranging proposals for alteringthe structures, regulations, and competitive relationships of the nation’s financialinstitutions.  We cannot predict whether orin what form any proposed regulation or statute will be adopted or the extent towhich our business may be affected by any new regulation or statute.

 

***Recent Legislative and Regulatory Initiativesto Address Financial and Economic Crises. ***The Congress,Treasury Department and the federal banking regulators, including the FDIC, havetaken broad action since early September 2008 to address volatility in the U.S.banking system.

 

InOctober 2008, the Emergency Economic Stabilization Act of 2008 (“EESA”) was enacted.The EESA authorizes the Treasury Department to purchase from financial institutionsand their holding companies up to $700 billion in mortgage loans, mortgage-relatedsecurities and certain other financial instruments, including debt and equity securitiesissued by financial institutions and their holding companies in a troubled assetrelief program (“TARP”).  The purpose of TARPis to restore confidence and stability to the U.S. banking system and to encouragefinancial institutions to increase their lending to customers and to each other.  The Treasury Department has allocated $250 billiontowards the TARP Capital Purchase Program (“CPP”).  Under the CPP, Treasury will purchase debt orequity securities from participating institutions.  The TARP also will include direct purchases orguarantees of troubled assets of financial institutions. Participants in the CPPare subject to executive compensation limits and are encouraged to expand theirlending and mortgage loan modifications.

 

EESAalso increased FDIC deposit insurance on most accounts from $100,000 to $250,000.  This increase is in place until the end of 2009and is not covered by deposit insurance premiums paid by the banking industry.

 

Followinga systemic risk determination, the FDIC established the Temporary Liquidity GuaranteeProgram (“TLGP”) on October 14, 2008.  TheTLGP includes the Transaction Account Guarantee Program (“TAGP”), which providesunlimited deposit insurance coverage through December 31, 2009 for noninterest-bearingtransaction accounts (typically business checking accounts) and certain funds sweptinto noninterest-bearing savings accounts. Institutions participating in the TLGP pay a 10 basis points fee (annualized)on the balance of each covered account in excess of $250,000, while the extra depositinsurance is in place.  The TLGP also includesthe Debt Guarantee Program (“DGP”), under which the FDIC guarantees certain seniorunsecured debt of FDIC-insured institutions and their holding companies.  The unsecured debt must be issued on or afterOctober 14, 2008 and not later than June 30, 2009, and the guarantee is effectivethrough the earlier of the maturity date or June 30, 2012.  On March 17, 2009, the FDIC adopted an interimrule that extends the DGP and imposes surcharges on existing rates for certain debtissuances.  This extension allows institutionsthat have issued guaranteed debt before April 1, 2009 to issue guaranteed debt duringthe extended issuance period that ends on October 31, 2009. For such institutions,the guarantee on debt issued on or after April 1, 2009, will expire no later thanDecember 31, 2012.*** ***The DGP coverage limit is generally125% of the eligible entity’s eligible debt outstanding on September 30, 2008 andscheduled to mature on or before June 30, 2009 or, for certain insured institutions,2% of their liabilities as of September 30, 2008.  Depending on the term of the debt maturity, thenonrefundable DGP fee ranges from 60 to 110 basis points (annualized) for covereddebt outstanding until the earlier of maturity or June 30, 2012 and 75 to 125 basispoints (annualized) for covered debt outstanding until after June 30, 2012.  The TAGP and DGP are in effect for all eligibleentities, unless the entity opted out on or before December 5, 2008.  We will participate in the TAGP and the DGP.

 

OnFebruary 17, 2009 President Obama signed into law The American Recovery and ReinvestmentAct of 2009 (the “Recovery Act”), more commonly known as the economic stimulus oreconomic recovery package.  The Recovery Actincludes a wide variety of programs intended to stimulate the economy and providefor extensive infrastructure, energy, health, and education needs. In addition,the Recovery Act imposes certain new executive compensation and corporate expenditurelimits on all current and future TARP recipients that are in addition to those previouslyannounced by the Treasury Department, until the TARP recipient has repaid the TreasuryDepartment, 

 

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whichis now permitted under the Recovery Act without penalty and without the need toraise new capital, subject to the Treasury Department’s consultation with the recipient’sappropriate regulatory agency.

 

Furtherregulatory actions may arise as the Federal government continues to attempt to addressthe economic situation.

 

**Item 1A.     RiskFactors.**

 

Ourbusiness, financial condition, and results of operations could be harmed by anyof the following risks, or other risks that have not been identified or which webelieve are immaterial or unlikely.  Shareholdersshould carefully consider the risks described below in conjunction with the otherinformation in this Form 10-K and the information incorporated by reference in thisForm 10-K, including our consolidated financial statements and related notes.

 

***Recent negative developments in the financialindustry and the domestic and international credit markets may adversely affectour operations and results.***

 

Negativedevelopments in the latter half of 2007 and during 2008 in the global credit andsecuritization markets have resulted in uncertainty in the financial markets ingeneral with the expectation of the general economic downturn continuing into 2009.  As a result of this “credit crunch,” commercialas well as consumer loan portfolio performances have deteriorated at many institutionsand the competition for deposits and quality loans has increased significantly.  In addition, the values of real estate collateralsupporting many commercial loans and home mortgages have declined and may continueto decline.  Global securities markets, andbank holding company stock prices in particular, have been negatively affected,as has the ability of banks and bank holding companies to raise capital or borrowin the debt markets.  As a result, significantnew federal laws and regulations relating to financial institutions, including,without limitation, the EESA and the Treasury Department’s CPP, have been adopted.  Furthermore, the potential exists for additionalfederal or state laws and regulations regarding, among other matters, lending andfunding practices and liquidity standards, and bank regulatory agencies are expectedto be active in responding to concerns and trends identified in examinations, includingthe expected issuance of many formal enforcement orders.  Negative developments in the financial industryand the domestic and international credit markets, and the impact of new legislationin response to those developments, may negatively impact our operations by restrictingour business operations, including our ability to originate or sell loans, and adverselyimpact our financial performance.  We canprovide no assurance regarding the manner in which any new laws and regulationswill affect us.

 

***There can be no assurance that recently enactedlegislation will help stabilize the U.S. financial system.***

 

TheEESA was signed into law on October 3, 2008 in response to the financial crisesaffecting the banking system and financial markets and going concern threats toinvestment banks and other financial institutions.  Pursuant to EESA, the Treasury Department hasthe authority to, among other things, purchase up to $700 billion of mortgages,mortgage-backed securities and certain other financial instruments from financialinstitutions for the purpose of stabilizing and providing liquidity to the U.S.financial markets.  The Treasury announcedthe CPP under EESA pursuant to which it has purchased and may continue to purchasesenior preferred stock in participating financial institutions.

 

Inaddition, the FDIC created the Temporary Liquidity Guarantee Program (“TLGP”) aspart of a larger government effort to strengthen confidence and encourage liquidityin the nation’s banking system.  The TLGPhas two components. First, the TLGP includes the Transaction Account Guarantee Program(“TAGP”), which provides unlimited deposit insurance coverage through December 31,2009 for noninterest-bearing transaction accounts (typically business checking accounts)and certain funds swept into noninterest-bearing savings accounts.  Institutions participating in the TLGP pay a 10basis points fee (annualized) on the balance of each covered account in excess of$250,000, while the extra deposit insurance is in place.  Second, the TLGP includes the Debt Guarantee Program(“DGP”), under which the FDIC guarantees certain senior unsecured debt of FDIC-insuredinstitutions and their holding companies. The unsecured debt must be issued on or after October 14, 2008 and not laterthan June 30, 2009, and the guarantee is effective through the earlier of the maturitydate or June 30, 2012.  On March 17, 2009,the FDIC adopted an interim rule that extends the DGP and imposes surcharges onexisting rates for certain

 

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debtissuances.  This extension allows institutionsthat have issued guaranteed debt before April 1, 2009 to issue guaranteed debt duringthe extended issuance period that ends on October 31, 2009. For such institutions,the guarantee on debt issued on or after April 1, 2009, will expire no later thanDecember 31, 2012.  The DGP coverage limitis generally 125% of the eligible entity’s eligible debt outstanding on September30, 2008 and scheduled to mature on or before June 30, 2009 or, for certain insuredinstitutions, 2% of their liabilities as of September 30, 2008.  Depending on the term of the debt maturity, thenonrefundable DGP fee ranges from 60 to 110 basis points (annualized) for covereddebt outstanding until the earlier of maturity or June 30, 2012 and 75 to 125 basispoints (annualized) for covered debt outstanding until after June 30, 2012.  The TAGP and DGP are in effect for all eligibleentities, unless the entity opted out on or before December 5, 2008.  We will participate in the TAGP and the DGP.

 

OnFebruary 17, 2009, the Recovery Act was signed into law in an effort to, among otherthings, 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 certainbenefits payable under the Medicaid, unemployment compensation, and nutrition assistanceprograms.  The Recovery Act also reduces individualand corporate income tax collections and makes a variety of other changes to taxlaws.  The Recovery Act also imposes certainlimitations on compensation paid by participants in the Treasury Department’s TARP,which includes programs under TARP such as the CPP.

 

Therecan be no assurance that these government actions will achieve their purpose.  The failure of the financial markets to stabilize,or a continuation or worsening of the current financial market conditions, couldhave a material adverse affect on our business, our financial condition, the financialcondition of our customers, our common stock trading price, as well as our abilityto access credit.  It could also result indeclines in our investment portfolio which could be “other-than-temporary impairments.”

 

***Continuation of the economic downturn couldreduce our customer base, our level of deposits, and demand for financial productssuch as loans.***

 

Oursuccess significantly depends upon the growth in population, income levels, deposits,and housing starts in our markets.  The currenteconomic downturn has negatively affected the markets in which we operate and, inturn, the quality of our loan portfolio. If the communities in which we operate do not grow or if prevailing economicconditions locally or nationally remain unfavorable, our business may not succeed.  A continuation of the economic downturn or prolongedrecession would likely result in the continued deterioration of the quality of ourloan portfolio and reduce our level of deposits, which in turn would hurt our business.  Interest received on loans represented approximately89.0% of our interest income for the year ended December 31, 2008.  If the economic downturn continues or a prolongedeconomic recession occurs in the economy as a whole, borrowers will be less likelyto repay their loans as scheduled.  Moreover,in many cases the value of real estate or other collateral that secures our loanshas been adversely affected by the economic conditions and could continue to benegatively affected.  Unlike many larger institutions,we are not able to spread the risks of unfavorable local economic conditions acrossa large number of diversified economies. A continued economic downturn could, therefore, result in losses that materiallyand adversely affect our business.

 

***Our small- to medium-sized business target marketsmay have fewer financial resources to weather a downturn in the economy.***

 

Wetarget the banking and financial services needs of small- and medium-sized businesses.  These businesses generally have fewer financialresources in terms of capital borrowing capacity than larger entities.  If general economic conditions continue to negativelyimpact these businesses in the markets in which we operate, our business, financialcondition, and results of operation may be adversely affected.

 

***We are exposed to changes in the regulationof financial services companies.***

 

Proposalsfor further regulation of the financial services industry are continually beingintroduced in the Congress of the United States of America and the General Assemblyof the State of South Carolina.  The agenciesregulating the financial services industry also periodically adopt changes to theirregulations.  On September 7, 2008, the TreasuryDepartment announced that Fannie Mae (along with Freddie Mac) has been placed intoconservatorship under the control of the newly created Federal Housing Finance Agency.  On October 3, 2008, 

 

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EESAwas signed into law, on October 14, 2008 the Treasury Department announced the CPPunder EESA, and on February 17, 2009 the Recovery Act was signed into law.  It is possible that additional legislative proposalsmay be adopted or regulatory changes may be made that would have an adverse effecton our business.  See “*Risk Factors – We are subject to extensive regulationthat could restrict our activities”*above.

 

***The FDIC Deposit Insurance assessments thatwe are required to pay may materially increase in the future, which would have anadverse effect on our earnings and our ability to pay our liabilities as they comedue.***

 

Asa member institution of the FDIC, we are required to pay semi-annual deposit insurancepremium assessments to the FDIC.  During theyear ended December 31, 2008, we paid $230,675 in deposit insurance assessments.  Due to the recent failure of several unaffiliatedFDIC insurance depository institutions, and the FDIC’s new TLGP, the deposit insurancepremium assessments paid by all banks will likely increase.  In addition, new FDIC requirements shift a greatershare of any increase in such assessments onto institutions with higher risk profiles,including banks with heavy reliance on brokered deposits, such as our bank.

 

***We may need to raise additional capital in thefuture, but that capital may not be available when it is needed.***

 

Weare required by regulatory authorities to maintain adequate levels of capital tosupport our operations.  Our ability to raiseadditional capital, if needed, will depend in part on conditions in the capitalmarkets at that time, which are outside our control.  Accordingly, we cannot assure you of our abilityto raise additional capital, if needed, on terms acceptable to us.  If we cannot raise additional capital when needed,our ability to maintain our operations could be materially impaired.  In addition, if we decide to raise additionalequity capital, your interest could be diluted.

 

***We depend heavily on out of market depositsas a source of funding.***

 

Asof December 31, 2008, 62.8% of our deposits were obtained from out of market sources.  To continue to have access to this source of funding,we are required to be classified as a “well capitalized” bank by the FDIC; whereas,if we only “meet” the capital requirement, we must obtain permission from the FDICin order to continue utilizing this source of funding.

 

***We are exposed to the possibility of technologyfailure.***

 

                We rely on our computer systems andthe technology of outside service providers. Our daily operations depend on theoperational effectiveness of their technology. We rely on our systems to accuratelytrack and record our assets and liabilities. If our computer systems or outsidetechnology sources become unreliable, fail, or experience a breach of security,our ability to maintain accurate financial records may be impaired, which couldmaterially affect our business operations and financial condition.

 

***We are dependent on key individuals and theloss of one or more of these key individuals could adversely affect our operations.***

 

AllanDucker, our chief executive officer, and David Miller, our president, have extensiveand long-standing ties within our market area and substantial experience with ouroperations.  If we lose the services of Mr.Ducker and/or Mr. Miller, they would be difficult to replace and our business anddevelopment could be materially and adversely affected.  We maintain key man life insurance policies inthe amount of $500,000, each on Mr. Ducker and Mr. Miller.

 

Oursuccess also depends, in part, on our continued ability to attract and retain experiencedloan originators, as well as other management personnel.  Competition for personnel is intense, and we maynot be successful in attracting or retaining qualified personnel.  Our failure to compete for these personnel, orthe loss of the services of several of such key personnel, could adversely affectour business, results of operations, and financial condition.

 

18

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***The success of our maintaining our upstate franchisedepends on our ability to identify and retain individuals with experience and relationshipsin the markets in which we intend to operate.***

 

Tomaintain our upstate franchise successfully, we must identify and retain experiencedkey management members with local expertise and relationships in these markets.  Competition for qualified management in the marketsin which we operate is intense and there are a limited number of qualified personswith knowledge of and experience in the community banking industry in these markets.  In addition, the process of identifying and recruitingindividuals with the combination of skills and attributes required to carry outour strategy requires both management and financial resources and is often lengthy.  Our inability to identify, recruit, and retaintalented personnel to manage offices effectively could materially adversely affectour business, financial condition, and results of operations.

 

***Our decisions regarding credit risk and allowancesfor loan losses may materially and adversely affect our business.***

 

Makingloans and other extensions of credit is an essential element of our business.  Although we seek to mitigate risks inherent inlending by adhering to specific underwriting practices, our loans and other extensionsof credit may not be repaid.  The risk ofnonpayment is affected by a number of factors, including:

 

·                  the duration of the credit;

·                  credit risks of a particular customer;

·                  changes in economic and industry conditions; and

·                  in the case of a collateralized loan, risks resultingfrom uncertainties about the future value of the collateral.

 

Weattempt to maintain an appropriate allowance for loan losses to provide for potentiallosses in our loan portfolio.  We periodicallydetermine the amount of the allowance based on consideration of several factors,including:

 

·                  an ongoing review of the quality, mix, and sizeof our overall loan portfolio;

·                  our historical loan loss experience;

·                  evaluation of economic conditions;

·                  regular reviews of loan delinquencies and loanportfolio quality; and

·                  the amount and quality of collateral, includingguarantees, securing the loans.

 

Thereis no precise method of predicting credit losses.  Therefore, we face the risk that charge-offs infuture periods will exceed our allowance for loan losses and that additional increasesin the allowance for loan losses will be required.  Additions to the allowance for loan losses wouldresult in a decrease of our net income, and possibly our capital.

 

Whilewe generally underwrite the loans in our portfolio in accordance with our own internalunderwriting guidelines and regulatory supervisory guidelines, in certain circumstanceswe have made loans which exceed either our internal underwriting guidelines, supervisoryguidelines, or both.  As of December 31, 2008,approximately $22.9 million of our loans, or 65% of our company’s capital, had loan-to-valueratios that exceeded regulatory supervisory guidelines, of which 18 loans totalingapproximately $6.8 million had loan-to-value ratios of 100% or more. At December31, 2007, $24.1 million of our loans, or 76.7% of our company’s capital, exceededthe supervisory loan to value ratio.  Thenumber of loans in our portfolio with loan-to-value ratios in excess of supervisoryguidelines, our internal guidelines, or both could increase the risk of delinquenciesand defaults in our portfolio.

 

***A significant portion of our loan portfoliois secured by real estate, and events that negatively impact the real estate marketcould hurt our business.***

 

Asignificant portion of our loan portfolio is secured by real estate.  As of December 31, 2008, approximately 89% ofour loans had real estate as a primary or secondary component of collateral.  The real estate collateral in each case providesan alternate source of repayment in the event of default by the borrower and maydeteriorate in value during the time the credit is extended.  A weakening of the real estate market in our primarymarket area could result in an increase in the number of borrowers who default ontheir loans and a reduction in the value of the collateral securing their loans,which in turn could have an adverse effect on our profitability and asset quality.  If we are required to liquidate the collateralsecuring a loan to satisfy the debt during a period of reduced

 

19

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realestate values, our earnings and capital could be adversely affected.  Acts of nature, including hurricanes, tornados,earthquakes, fires and floods, which may cause uninsured damage and other loss ofvalue to real estate that secures these loans, may also negatively impact our financialcondition.

 

***We may have higher loan losses than we haveallowed for in our allowance for loan losses.***

 

Ourloan losses could exceed our allowance for loan losses. Approximately 85% of ourloan portfolio is composed of construction, commercial mortgage and commercial loans.Repayment of such loans is generally considered more subject to market risk thanresidential mortgage loans. Industry experience shows that a portion of loans willbecome delinquent and a portion of loans will require partial or entire charge-off.Regardless of the underwriting criteria utilized, losses may be experienced as aresult of various factors beyond our control, including among other things, changesin market conditions affecting the value of loan collateral and problems affectingthe credit of our borrowers.

 

***Lack of seasoning of our loan portfolio mayincrease the risk of credit defaults in the future.***

 

Dueto our short operating history, all of the loans in our loan portfolio and our lendingrelationships are of relatively recent origin. In general, loans do not begin to show signs of credit deterioration or defaultuntil they have been outstanding for some period of time, a process we refer toas “seasoning.”  As a result, a portfolioof older loans will usually behave more predictably than a newer portfolio.  Because our loan portfolio is relatively new,the current level of delinquencies and defaults may not be representative of thelevel that will prevail when the portfolio becomes more seasoned, which may be higherthan current levels.  If delinquencies anddefaults increase, we may be required to increase our provision for loan losses,which would adversely affect our results of operations and financial condition.

 

***Changes in prevailing interest rates may reduceour profitability.***

 

Ourresults of operations depend in large part upon the level of our net interest income,which is the difference between interest income from interest-earning assets, suchas loans and mortgage-backed securities, and interest expense on interest-bearingliabilities, such as deposits and other borrowings.  Depending on the terms and maturities of our assetsand liabilities, a significant change in interest rates could have a material adverseeffect on our profitability.  Many factorscause changes in interest rates, including governmental monetary policies and domesticand international economic and political conditions.  While we intend to manage the effects of changesin interest rates by adjusting the terms, maturities, and pricing of our assetsand liabilities, our efforts may not be effective and our financial condition andresults of operations could suffer.

 

***We are subject to extensive regulation thatcould limit or restrict our activities.***

 

Weoperate in a highly regulated industry and are subject to examination, supervision,and comprehensive regulation by various regulatory agencies.  Our compliance with these regulations is costlyand restricts certain of our activities, including payment of dividends, mergersand acquisitions, investments, loans and interest rates charged, interest ratespaid on deposits, and locations of offices. We are also subject to capitalization guidelines established by our regulators,which require us to maintain adequate capital to support our growth.

 

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

 

TheSarbanes-Oxley Act of 2002, and the related rules and regulations promulgated bythe Securities and Exchange Commission that are now applicable to us, have increasedthe scope, complexity, and cost of corporate governance, reporting, and disclosurepractices.

 

***We face strong competition for customers,which could prevent us from obtaining customers and may cause us to pay higher interestrates to attract customers****.*

 

Thebanking business is highly competitive, and we experience competition in our marketfrom many other financial institutions.  Wecompete with commercial banks, credit unions, savings and loan associations, mortgage

 

20

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banking firms, consumer financecompanies, securities brokerage firms, insurance companies, money market funds,and other mutual funds, as well as other super-regional, national, andinternational financial institutions that operate offices in our primary marketareas and elsewhere.  We compete withthese institutions both in attracting deposits and in making loans.  In addition, we have to attract our clientbase from other existing financial institutions and from new residents.  Many of our competitors are well-established,larger financial institutions.  Theseinstitutions offer some services, such as extensive and established branchnetworks, that we do not currently provide. There is a risk that we will not be able to compete successfully withother financial institutions in our market, and that we may have to pay higherinterest rates to attract deposits, resulting in reduced profitability.  In addition, competitors that are notdepository institutions are generally not subject to the extensive regulationsthat apply to us.

 

***We will face risks with respect to future expansion and acquisitions ormergers.***

 

Although we do not have anycurrent plans to do so, we may seek to acquire other financial institutions orparts of those institutions.  We may alsoexpand into new markets or lines of business or offer new products orservices.  These activities would involvea number of risks, including:

 

·                  takingadditional time and creating expense associated with identifying and evaluatingpotential acquisitions and merger partners;

·                  usinginaccurate estimates and judgments to evaluate credit, operations, management,and market risks with respect to the target institution or assets;

·                  dilutingour existing shareholders in an acquisition;

·                  takingadditional time and creating expense associated with evaluating new markets forexpansion, hiring experienced local management, and opening new offices, asthere may be a substantial time lag between these activities before we generatesufficient assets and deposits to support the costs of the expansion;

·                  takinga significant amount of time negotiating a transaction or working on expansionplans, resulting in management’s attention being diverted from the operation ofour existing business;

·                  takingtime and creating expense integrating the operations and personnel of thecombined businesses;

·                  creatingan adverse short-term effect on our results of operations; and

·                  losingkey employees and customers as a result of an acquisition that is poorlyreceived.

 

We have never acquiredanother institution before, so we lack experience in handling any of theserisks.  There is also a risk that anyexpansion effort will not be successful.

 

***Thecosts of being an SEC registered company are proportionately higher for smallercompanies such as CommunitySouth Financial Corporation because of therequirements imposed by the Sarbanes-Oxley Act.***

 

TheSarbanes-Oxley Act of 2002 and the related rules and regulationspromulgated by the SEC have increased the scope, complexity, and cost ofcorporate governance, reporting, and disclosure practices. These regulationsare applicable to our company. We have experienced, and expect to continue toexperience, increasing compliance costs, including costs related to internalcontrols, as a result of the Sarbanes-Oxley Act. These necessary costs areproportionately higher for a company of our size and will affect ourprofitability more than that of some of our larger competitors.

 

21

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**Item 2.  Properties.**

 

Ourmain office is located at 6602 Calhoun Memorial Highway, Easley, South Carolina29640. Our site is approximately 1.2 acres in size, and the building isapproximately 10,000 square feet. We own our main office and lease all others.We have five full service branch sites in addition to the main office. Thebranch sites are in the towns of Anderson, Greenville, Greer, Mauldin andSpartanburg, South Carolina. Our full service branches service the entireupstate of South Carolina, but primarily the counties of Anderson, Greenville,Pickens and Spartanburg.

 

Wehave a ten year lease that began in November 2005 for our Spartanburgoffice.   The office is located at 531East Main Street, Spartanburg, S.C. 29302.

 

Wehave a ten year lease that began in November 2005 for our Mauldin office.The office is located at 787 East Butler Road, Mauldin, S.C. 29662.

 

Wehave a ten year lease that began in June 2006 for our Andersonoffice.  The office is located at 1510North Main Street, Anderson, S.C. 29621.

 

Wehave a ten year lease that began in November 2006 for our Greeroffice.  The office is located at 530West Wade Hampton Blvd., Greer, S.C. 29650.

 

Wehave a three year lease that began in May 2007 for our Loan Operationscenter.  The operations center is locatedat 6606 Calhoun Memorial Highway, Easley, S.C. 29640.

 

Wehave a ten year lease that began in October 2007 for our Greenvilleoffice.  The office is located at 2415Laurens Road, Greenville, S.C. 29607.

 

Wehave a ten year lease that begins upon occupancy of our West Spartanburgoffice.  The office will be located at1600 John B. White, Sr. Boulevard, Spartanburg, S.C.  It is currently under construction.

 

Webelieve that all of our properties are adequately covered by insurance.

 

**Item 3.  Legal Proceedings.**

 

In the ordinary course of operations, we may be aparty to various legal proceedings from time to time.  We do not believe that there is any pendingor threatened proceeding against us, which, if determined adversely, would havea material effect on our business, results of operations, or financialcondition.

 

**Item 4.  Submission of Matters to a Vote of SecurityHolders.**

 

Nomatter was submitted to a vote of security holders during the fourth quarter ofthe fiscal year covered by this report.

 

22

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**Part II**

 

**Item 5.  Market for Common Equity and RelatedStockholder Matters****.**

 

On January 16, 2007, the company effected a 5-for-4 stock split in theform of a stock dividend for shareholders of record as of December 15,2006.   All per share data has beenadjusted for all periods prior to the splits.

 

Since March 15, 2006, our common stock has beenquoted on the OTC Bulletin Board under the symbol “CBSO.” Quotations on the OTC Bulletin Board reflectinter-dealer prices, without retail mark-up, mark-down, or commissions, and maynot represent actual transactions. Transactions of our common stock did not begin to occur on the OTCBulletin Board until March 16, 2006.

 

The followingis a summary of the high and low bid prices for our common stock reported bythe OTC Bulletin Board for the periods indicated (the bids prices have beenadjusted for all stock splits):

 
| **2008**       | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------|------------|----------|------------|---------|------------|
| First Quarter  |       | $        | 10.00      |    | $          | 7.30 |   |
| Second Quarter |       | 9.00     |       | 5.50    |       |
| Third Quarter  |       | 7.00     |       | 2.53    |       |
| Fourth Quarter |       | 5.50     |       | 1.75    |       |
|                |            |          |            |         |            |  |  |

 
| **2007**       | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------|------------|----------|------------|---------|------------|
| First Quarter  |       | $        | 18.00      |    | $          | 13.68 |   |
| Second Quarter |       | 15.90    |       | 12.75   |       |
| Third Quarter  |       | 13.50    |       | 11.00   |       |
| Fourth Quarter |       | 11.40    |       | 8.55    |       |
|                |            |          |            |         |            |  |  |

 

Our articlesof incorporation authorize us to issue up to 10,000,000 shares of common stock,of which 4,698,697 shares were outstanding as of December 31, 2008. We hadapproximately 908 shareholders of record as of March 23, 2009.

 

Wehave not declared or paid any cash dividends on our common stock since ourinception.  For the foreseeable future wedo not intend to declare cash dividends. We intend to retain earnings to grow our business and strengthen our capitalbase.  Our ability to pay dividendsdepends on the ability of our subsidiary, CommunitySouth Bank & Trust,to pay dividends to us.  As a SouthCarolina state bank, the bank may only pay dividends out of its net profits,after deducting expenses, including losses and bad debts.  In addition, the bank is prohibited fromdeclaring a dividend on its shares of common stock unless its surplus equals orexceeds its stated capital. At December 31, 2008, the bank had a deficitof $872,916.

 

The following table sets forth the equitycompensation plan information at December 31, 2008.  All option and warrant information has beenadjusted to reflect all prior stock splits and dividends.

 

**Equity Compensation Plan Information**

 
| **Plan Category**                                      | ** ** | **(A)  Number of securities  to be issued  upon exercise of  outstanding options,  warrants and rights** | ** ** | **(B)  Weighted-average  exercise price of  outstanding options,  warrants and rights** | ** ** | **(C)  Number of securities  remaining available for  future issuance under  equity compensation  plans  (excluding securities  reflected in column(a))** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                        |       |                                                                                                                                                  |       |                                                                                                             |       |                                                                                                                                                                                                        |       |
| Equity compensation plans approved by  security holders     |       | 764,113                                                                                                                                               |       | $                                                                                                                | 7.08       |                                                                                                                                                                                                        | 222,613    |   |
|                                                        |       |                                                                                                                                                  |       |                                                                                                             |       |                                                                                                                                                                                                        |       |
| Equity compensation plans not approved by  security holders |       | 171,404                                                                                                                                               |       | $                                                                                                                | 6.40       |                                                                                                                                                                                                        | 0          |   |
|                                                        |       |                                                                                                                                                  |       |                                                                                                             |       |                                                                                                                                                                                                        |       |
| Total                                                       |       | 935,517                                                                                                                                               |       | $                                                                                                                | 6.96       |                                                                                                                                                                                                        | 222,613    |   |

 

23

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(1)          The shares availablefor issuance is currently set at 21% of our outstanding shares. On January 16,2006 the company adopted a resolution that terminated the “evergreen” provisionof the company’s 2005 Stock Incentive Plan. As a result, the number of sharesof common stock issuable under the plan shall not be further increased inconnection with any future share issuances by the company.

 

(2)          Each of ourorganizers received, for no additional consideration, a warrant to purchase oneshare of common stock for $10.00 per share for every two shares they purchasedin the offering, up to a maximum of 10,000 shares per organizer.  The warrants are represented by separatewarrant agreements.  The warrants vestedon May 18, 2005, 120 days after the date of the opening of the bank, andthey are exercisable in whole or in part during the 10 year period followingthat date.  If the South Carolina Boardof Financial Institutions or the FDIC issues a capital directive or other orderrequiring the bank to obtain additional capital, the warrants will beforfeited, if not immediately exercised.

 

**Item 6.  Selected Financial Data.**

 

**The information required by Item 6 is hereby incorporatedby reference from our annual report to shareholders for the year ended December 31,2008.**

** **

**Item 7.  Management’s Discussionand Analysis of Financial Condition and Results of Operation.**

 

**The information required by Item 7 is hereby incorporatedby reference from our annual report to shareholders for the year ended December 31,2008.**

** **

**Item 8.  Financial Statements and Supplementary Data.**

 

**The information required by Item 8 is hereby incorporatedby reference from our annual report to shareholders for the year ended December 31,2008.**

** **

**Item 9.  Changes in andDisagreements with Accountants on Accounting and Financial Disclosure.**

 

None

 

**Item 9A(T).  Controls andProcedures.**

 

As of the end of the period covered by this report, wecarried out an evaluation, under the supervision and with the participation ofour management, including our Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of our disclosure controls and procedures asdefined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer and ChiefFinancial Officer have concluded that our current disclosure controls andprocedures are effective as of December 31, 2008.   There have been no significant changes inour internal controls over financial reporting during the fourth fiscal quarterended December 31, 2008 that have materially affected, or are reasonablylikely to materially affect, our internal controls over financial reporting.

 

The designof any system of controls and procedures is based in part upon certainassumptions about the likelihood of future events.  There can be no assurance that any designwill succeed in achieving its stated goals under all potential futureconditions, regardless of how remote.

 

**Management’sReport on Internal Controls Over Financial Reporting**

 

Management isresponsible for establishing and maintaining adequate internal control overfinancial reporting, as such term is defined in the Exchange Act Rules13a-15(f). A system of internal control over financial reporting is a processdesigned to provide reasonable assurance regarding the reliability of financialreporting and 

 

24

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thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles.

 

Under thesupervision and with the participation of management, including the principalexecutive officer and the principal financial officer, the Company’s managementhas evaluated the effectiveness of its internal control over financialreporting as of December 31, 2008 based on the criteria established in a reportentitled “Internal Control - Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission” and the interpretiveguidance issued by the Commission in Release No. 34-55929. Based on thisevaluation, the Company’s management has evaluated and concluded that theCompany’s internal control over financial reporting was effective as ofDecember 31, 2008.

 

The Company iscontinuously seeking to improve the efficiency and effectiveness of itsoperations and of its internal controls. This results in modifications to itsprocesses throughout the Company. However, there has been no change in itsinternal control over financial reporting that occurred during the Company’smost recent fiscal quarter that has materially affected, or is reasonablylikely to materially affect, the Company’s internal control over financialreporting.

 

This annualreport does not include an attestation report of the Company’s independentregistered public accounting firm regarding internal control over financialreporting. The Company’s registered public accounting firm was not required toissue an attestation on its internal controls over financial reporting pursuantto temporary rules of the Securities and Exchange Commission.

 

**Part III**

 

**Item 10.  Directors, ExecutiveOfficers and Corporate Governance.**

 

The information required byItem 10 is hereby incorporated by reference from our proxy statement for our2009 annual meeting of shareholders to be held on May 19, 2009.

 

**Item 11.  Executive Compensation.**

 

The information required byItem 11 is hereby incorporated by reference from our proxy statement for our2009 annual meeting of shareholders to be held on May 19, 2009.

 

**Item 12.  Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters.**

 

The information required byItem 12 is hereby incorporated by reference from our proxy statement for our2008 annual meeting of shareholders to be held on May 19, 2009.

 

**Item 13.  Certain Relationshipsand Related Transactions, and Director Independence.**

 

The information required byItem 13 is hereby incorporated by reference from our proxy statement for our2008 annual meeting of shareholders to be held on May 19, 2009.

 

**Item 14.  Principal Accountant Fees and Services.**

 

The information required byItem 14 is hereby incorporated by reference from our proxy statement for our2009 annual meeting of shareholders to be held on May 19, 2009.

 

**Item 15.  Exhibits.**

 
| 3.1.   |   | Articles of Incorporation (incorporated by reference  to Exhibit 3.1 of the Company’s Form SB-2, File  No. 333-117053). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                        |
| 3.2.   |   | Bylaws (incorporated by reference to Exhibit 3.2  of the Company’s Form SB-2, File No. 333-117053).                     |

 

25

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| 4.1.   |   | See Exhibits 3.1 and 3.2 for provisions in CommunitySouth Bancshares,  Inc.’s Articles of Incorporation and Bylaws defining the rights of holders of  the common stock (incorporated by reference to Exhibit 4.1 of the Company’s  Form SB-2, File No. 333-117053).                  |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                           |
| 4.2.   |   | Form of  certificate of common stock (incorporated by reference to Exhibit 4.2 of the  Company’s Form SB-2, File No. 333-117053).                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.1   |   | Form of  Stock Warrant Agreement (incorporated by reference to Exhibit 10.1 of the  Company’s Form 10-QSB filed on August 15, 2005).*                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.2   |   | Master Loan  Purchase Agreement between Bank of Tennessee and CommunitySouth Bank and  Trust (incorporated by reference to Exhibit 10.6 of the Company’s Form SB-2,  File No. 333-117053).                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.3   |   | Commercial  Loan Agreement between Nexity Bank and Community Bancshares, Inc. dated July  26, 2004 (incorporated by reference to Exhibit 10.9 of the Company’s Form  SB-2, File No. 333-117053).                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.4   |   | Option and  Agreement of Sale dated August 18, 2004 by and between CommunitySouth  Bancshares, Inc. and Daniel E. Youngblood (incorporated by reference to  Exhibit 10.10 of the Company’s Form SB-2 as, File No. 333-117053).                                                            |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.5   |   | Ground Lease  Agreement dated August 18, 2004 by and between CommunitySouth Bancshares,  Inc. and Daniel E. Youngblood (incorporated by reference to Exhibit 10.11 of  the Company’s Form SB-2, File No. 333-117053).                                                                     |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.6   |   | CommunitySouth  Bancshares, Inc. 2005 Stock Incentive Plan and Form of Option  Agreement (incorporated by reference to Exhibit 10.9 of the Company’s  Form 10-KSB for the year ended December 31, 2004).*                                                        |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.7   |   | Standard  Form of Design-Build Agreement and General Conditions between  CommunitySouth Bancshares, Inc. and Trehel Corporation dated August 3,  2005 (incorporated by reference to Exhibit 10.1 of the Company’s  Form 10-QSB filed on November 14, 2005). |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.8   |   | Employment Agreement by and between C. Allan Ducker  III and CommunitySouth Financial Corporation dated December 31, 2008  (incorporated by reference to Exhibit 10.1 of the Company’s  Form 8-K filed January 5, 2009).*                                             |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.9   |   | Employment Agreement by and between David A. Miller  and CommunitySouth Financial Corporation dated December 31, 2008  (incorporated by reference to Exhibit 10.2 of the Company’s  Form 8-K filed January 5, 2009).*                                                 |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.10  |   | Employment Agreement by and between John W. Hobbs  and CommunitySouth Financial Corporation dated December 31, 2008  (incorporated by reference to Exhibit 10.3 of the Company’s  Form 8-K filed January 5, 2009).*                                                   |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.11  |   | Amendment No. 1 to the CommunitySouth  Bancshares, Inc. 2005 Stock Incentive Plan and Form of Option  Agreement, adopted November 18, 2008.*                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.12  |   | Subordinated Note Purchase Agreement, dated  August 22, 2008 (incorporated by reference as Exhibit 10.1 to the  Company’s Form 8-K filed August 28, 2008).*                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.13  |   | Form of CommunitySouth Financial Corporation  11.5% Subordinated Note Due 2018 (incorporated by reference as  Exhibit 10.2 to the Company’s Form 8-K filed August 28, 2008).*                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                           |
| 13     |   | Annual  Report of the Company for the year ended 2008.                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                           |
| 21.1   |   | Subsidiaries  of the Company.                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                           |
| 23.1   |   | Consent  of Elliott Davis, LLC                                                                                                                                                                                                                                                                 |

 

26

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| 24.1.  |   | Power  of Attorney (filed as part of the signature page herewith). |
|--------|--------|-------------------------------------------------------------------------|
|   |   |                                                                    |
| 31.1   |   | Rule 13a-14(a) Certification  of the Chief Executive Officer. |
|   |   |                                                                    |
| 31.2   |   | Rule 13a-14(a) Certification  of the Chief Financial Officer. |
|   |   |                                                                    |
| 32     |   | Section 1350  Certifications.                                      |

 

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| * |   | Management  contract of compensatory plan or arrangement required to be filed as an  Exhibit to this Annual Report on Form 10-K. |
|---|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

 

If you wish to receive a paper copy of any exhibit toour reports filed with or furnished to the SEC, the exhibit may be obtained,upon payment of reasonable expenses, by writing to: CommunitySouth FinancialCorporation, Attn: John W. Hobbs, Chief Financial Officer, 6602 CalhounMemorial Highway, Easley, South Carolina 29640.

 

27

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**SIGNATURES**

 

In accordance with Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
|   |                |                       |   | **   COMMUNITYSOUTH FINANCIAL  CORPORATION** |
|--------|---------------------|----------------------------|--------|-------------------------------------------------------------|
|   |                |                       |   | ** **                                                  |
| Date:  | March 27, 2009 |                       | By:    | /s/ C. Allan Ducker, III                               |
|   |                | C.  Allan Ducker, III |   |
|   |                | Chief  Executive Officer   |   |

 

KNOW ALL MEN BY THESE PRESENTS, that eachperson whose signature appears below constitutes and appoints C. Allan Ducker, III,his true and lawful attorney-in-fact and agent, with full power of substitutionand resubstitution, for him and in his name, place and stead, in any and allcapacities, to sign any and all amendments to this Annual Report on Form 10-K,and to file the same, with all exhibits thereto, and other documents inconnection therewith, with the Securities and Exchange Commission, grantingunto attorney-in-fact and agent full power and authority to do and perform eachand every act and thing requisite or necessary to be done in and about thepremises, as fully to all intents and purposes as he might or could do inperson, hereby ratifying and confirming all that attorney-in-fact and agent, orhis substitute or substitutes, may lawfully do or cause to be done by virtuehereof.

 

In accordance with the Exchange Act, thisreport has been signed below by the following persons on behalf of theregistrant in the capacities and on the dates indicated.

 
| **Signature**                 | ** ** | **Title**                          | ** ** | **Date**             |
|-------------------------------|------------|------------------------------------|------------|----------------------|
|                          |       |                               |       |                 |
| /s/  David Larry Brotherton   |       | Director                           |       | March 27,  2009 |
| David  Larry Brotherton       |       |                               |       |                 |
|                          |       |                               |       |                 |
| /s/  G. Dial Dubose           |       | Director                           |       | March 27,  2009 |
| G.  Dial DuBose               |       |                               |       |                 |
|                          |       |                               |       |                 |
| /s/ C. Allan Ducker, III |       | Chief  Executive Officer, Director |       | March 27,  2009 |
| C. Allan Ducker, III     |       |                               |       |                 |
|                          |       |                               |       |                 |
| /s/  David W. Edwards         |       | Director                           |       | March 27,  2009 |
| David  W. Edwards             |       |                               |       |                 |
|                          |       |                               |       |                 |
| /s/  R. Wesley Hammond        |       | Director                           |       | March 27,  2009 |
| R.  Wesley Hammond            |       |                               |       |                 |
|                          |       |                               |       |                 |
| /s/ David A. Miller           |       | President,  Director               |       | March 27,  2009 |
| David A. Miller               |       |                               |       |                 |
|                          |       |                               |       |                 |
| /s/  John W. Hobbs            |       | Chief  Financial Officer and       |       | March 27,  2009 |
| John  W. Hobbs                |       | Principal  Accounting Officer,     |       |                 |
|                          |       | Director                           |       |                 |
|                          |       |                               |       |                 |
| /s/  Arnold J. Ramsey*        |       | Director                           |       | March 27,  2009 |
| Arnold  J. Ramsey             |       |                               |       |                 |
|                          |       |                               |       |                 |
| /s/  W. Michael Riddle        |       | Director                           |       | March 27,  2009 |
| W.  Michael Riddle            |       |                               |       |                 |
|                          |       |                               |       |                 |
| /s/ Joanne M. Rogers          |       | Director                           |       | March 27, 2009  |
| Joanne M. Rogers              |       |                               |       |                 |

 

28

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| /s/  B. Lynn Spencer           |   | Director |   | March 27,  2009 |
|--------------------------------|--------|----------|--------|----------------------|
| B.  Lynn Spencer               |   |     |   |                 |
|                           |   |     |   |                 |
| /s/  J. Neal Workman, Jr. |   | Director |   | March 27,  2009 |
| J.  Neal Workman, Jr.     |   |     |   |                 |
|                           |   |     |   |                 |
| /s/  Daniel E. Youngblood      |   | Director |   | March 27,  2009 |
| Daniel  E. Youngblood          |   |     |   |                 |

 

29

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**Exhibit Index**

 
| 3.1.   |   | Articles of Incorporation (incorporated by reference to  Exhibit 3.1 of the Company’s Form SB-2, File No. 333-117053).                                                                                                                                                        |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                              |
| 3.2.   |   | Bylaws (incorporated by reference to Exhibit 3.2 of the  Company’s Form SB-2, File No. 333-117053).                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                              |
| 4.1.   |   | See Exhibits 3.1 and 3.2 for provisions in CommunitySouth  Bancshares, Inc.’s Articles of Incorporation and Bylaws defining the  rights of holders of the common stock (incorporated by reference to  Exhibit 4.1 of the Company’s Form SB-2, File No. 333-117053). |
|   |   |                                                                                                                                                                                                                                                                                              |
| 4.2.   |   | Form of certificate of common stock (incorporated by reference to  Exhibit 4.2 of the Company’s Form SB-2, File No. 333-117053).                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                              |
| 10.1   |   | Form of  Stock Warrant Agreement (incorporated by reference to Exhibit 10.1 of the  Company’s Form 10-QSB filed on August 15, 2005).*                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                              |
| 10.2   |   | Master Loan  Purchase Agreement between Bank of Tennessee and CommunitySouth Bank and  Trust (incorporated by reference to Exhibit 10.6 of the Company’s Form SB-2,  File No. 333-117053).                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                              |
| 10.3   |   | Commercial Loan Agreement between Nexity Bank and Community  Bancshares, Inc. dated July 26, 2004 (incorporated by reference to  Exhibit 10.9 of the Company’s Form SB-2, File No. 333-117053).                                                                     |
|   |   |                                                                                                                                                                                                                                                                                              |
| 10.4   |   | Option and Agreement of Sale dated August 18, 2004 by and  between CommunitySouth Bancshares, Inc. and Daniel E. Youngblood  (incorporated by reference to Exhibit 10.10 of the Company’s  Form SB-2 as, File No. 333-117053).                                      |
|   |   |                                                                                                                                                                                                                                                                                              |
| 10.5   |   | Ground Lease Agreement dated August 18, 2004 by and between  CommunitySouth Bancshares, Inc. and Daniel E. Youngblood (incorporated  by reference to Exhibit 10.11 of the Company’s Form SB-2, File  No. 333-117053).                                               |
|   |   |                                                                                                                                                                                                                                                                                              |
| 10.6   |   | CommunitySouth  Bancshares, Inc. 2005 Stock Incentive Plan and Form of Option  Agreement (incorporated by reference to Exhibit 10.9 of the Company’s  Form 10-KSB for the year ended December 31, 2004).*                                                           |
|   |   |                                                                                                                                                                                                                                                                                              |
| 10.7   |   | Standard  Form of Design-Build Agreement and General Conditions between  CommunitySouth Bancshares, Inc. and Trehel Corporation dated  August 3, 2005 (incorporated  by reference to Exhibit 10.1 of the Company’s Form 10-QSB filed on  November 14, 2005).   |
|   |   |                                                                                                                                                                                                                                                                                              |
| 10.8   |   | Employment  Agreement by and between C. Allan Ducker III and CommunitySouth Financial  Corporation dated December 31, 2008 (incorporated by reference to  Exhibit 10.1 of the Company’s Form 8-K filed January 5,  2009).*                                               |
|   |   |                                                                                                                                                                                                                                                                                              |
| 10.9   |   | Employment  Agreement by and between David A. Miller and CommunitySouth Financial  Corporation dated December 31, 2008 (incorporated by reference to  Exhibit 10.2 of the Company’s Form 8-K filed January 5,  2009).*                                                   |
|   |   |                                                                                                                                                                                                                                                                                              |
| 10.10  |   | Employment  Agreement by and between John W. Hobbs and CommunitySouth Financial  Corporation dated December 31, 2008 (incorporated by reference to  Exhibit 10.3 of the Company’s Form 8-K filed January 5,  2009).*                                                     |
|   |   |                                                                                                                                                                                                                                                                                              |
| 10.11  |   | Amendment  No. 1 to the CommunitySouth Bancshares, Inc. 2005 Stock Incentive  Plan and Form of Option Agreement, adopted November 18, 2008.*                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                              |
| 10.12  |   | Subordinated  Note Purchase Agreement, dated August 22, 2008 (incorporated by  reference as Exhibit 10.1 to the Company’s Form 8-K filed  August 28, 2008).*                                                                                                             |

 

----

 
| 10.13  |   | Form of CommunitySouth Financial Corporation  11.5% Subordinated Note Due 2018 (incorporated by reference as  Exhibit 10.2 to the Company’s Form 8-K filed August 28,  2008).* |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                    |
| 13     |   | Annual  Report of the Company for the year ended 2008.                                                                                                                                                  |
|   |   |                                                                                                                                                                                                    |
| 21.1   |   | Subsidiaries  of the Company.                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                    |
| 23.1   |   | Consent  of Elliott Davis, LLC                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                    |
| 24.1.  |   | Power  of Attorney (filed as part of the signature page herewith).                                                                                                                                 |
|   |   |                                                                                                                                                                                                    |
| 31.1   |   | Rule 13a-14(a) Certification  of the Chief Executive Officer.                                                                                                                                 |
|   |   |                                                                                                                                                                                                    |
| 31.2   |   | Rule 13a-14(a) Certification  of the Chief Financial Officer.                                                                                                                                 |
|   |   |                                                                                                                                                                                                    |
| 32     |   | Section 1350  Certifications.                                                                                                                                                                      |

 

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