Communitycorp 10-Q 2008 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2008

or

¨ Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from            to            

Commission File Number 33-76644

COMMUNITYCORP

(Exact name of registrant as specified in its charter)

South Carolina	57-1019001
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

1100 N. Jefferies Boulevard

Walterboro, SC 29488

(Address of principal executive offices, including zip code)

(843) 549-2265

(Issurer’s telephone number, including area code)

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

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

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

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

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

240,213 shares of common stock, $5.00 par value, as of May 7, 2008

COMMUNITYCORP

Index

		Page No.
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets – March 31, 2008 and December 31, 2007	3
	Condensed Consolidated Statements of Income - Three months ended March 31, 2008 and 2007	4
	Condensed Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income (Loss) - Three months ended March 31, 2008 and 2007	5
	Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2008 and 2007	6
	Notes to Condensed Consolidated Financial Statements	7 -8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9-16
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	16
Item 4.	Controls and Procedures	16
PART II. - OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Under Senior Securities	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
Item 5.	Other Information	17
Item 6.	Exhibits	17
Signatures		18

COMMUNITYCORP

PART I. –Financial Information

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

	March 31, 2008			December 31, 2007
	(Unaudited)			(Audited)
Assets:
Cash and cash equivalents:
Cash and due from banks	$	7,109,589		$	4,929,768
Federal funds sold		11,598,000			1,991,000
Total cash and cash equivalents		18,707,589			6,920,768
Investment securities:
Available-for-sale		31,655,490			34,585,073
Held-to-maturity (estimated market value of $1,340,314 and $1,836,967 at March 31, 2008 and December 31, 2007, respectively)		1,319,533			1,819,481
Nonmarketable equity securities		508,435			347,257
Total investment securities		33,483,458			36,751,811
Loans receivable		112,590,470			114,597,378
Less allowance for loan losses		(1,986,331	)		(1,929,319	)
Loans, net		110,604,139			112,668,059
Premises, furniture & equipment, net		2,955,046			2,989,119
Accrued interest receivable		1,162,710			1,297,946
Other assets		736,103			691,984
Total assets	$	167,649,045		$	161,319,687
Liabilities and Shareholders’ Equity:
Liabilities:
Deposits:
Noninterest-bearing	$	17,217,525		$	16,461,238
Interest-bearing		131,219,256			123,133,074
Total deposits		148,436,781			139,594,312
Short-term borrowings		230,000			3,068,000
Accrued interest payable		1,737,060			1,767,670
Other liabilities		248,773			153,304
Total liabilities		150,652,614			144,583,286
Shareholders’ Equity:
Preferred stock, $5 par value, 3,000,000 shares authorized and unissued		—			—
Common stock, $5 par value, 3,000,000 shares authorized, 300,000 shares issued and outstanding		1,500,000			1,500,000
Capital surplus		1,725,841			1,723,196
Retained earnings		17,296,083			17,153,490
Accumulated other comprehensive loss		192,365			70,928
Treasury stock (59,587 shares in 2008 and 59,537 shares in 2007)		(3,717,858	)		(3,711,213	)
Total shareholders’ equity		16,996,431			16,736,401
Total liabilities and shareholders’ equity	$	167,649,045		$	161,319,687

See notes to condensed consolidated financial statements.

3

COMMUNITYCORP

Condensed Consolidated Statements of Income

(Unaudited)

	Three Months Ended March 31,
	2008		2007
Interest income:
Loans, including fees	$	2,147,120	$	1,970,398
Securities		400,623		364,280
Other interest income		53,624		121,182
Total		2,601,367		2,455,860
Interest expense:
Deposit accounts		1,194,133		1,121,900
Other interest expense		4,774		2,396
		1,198,907		1,124,296
Net interest income		1,402,460		1,331,564
Provision for loan losses		75,000		75,000
Net interest income after provision for loan losses		1,327,460		1,256,564
Noninterest income:
Service charges		124,544		113,503
Other income		44,372		57,982
Total		168,916		171,485
Noninterest expenses:
Salaries and benefits		496,081		474,857
Net occupancy expense		58,698		65,288
Equipment expense		77,643		91,450
Other operating expenses		291,524		227,249
Total		923,946		858,844
Income before taxes		572,430		569,205
Income tax provision		177,300		174,000
Net income	$	395,130	$	395,205
Earnings per share:
Weighted average common shares outstanding		240,454		241,214
Net income per common share	$	1.64	$	1.64

See notes to condensed consolidated financial statements.

4

COMMUNITYCORP

Condensed Consolidated Statement of Shareholders’ Equity and Comprehensive Income (Loss)

for the three months ended March 31, 2008 and 2007

(Unaudited)

	Common stock			Capital Surplus		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total
	Shares	Amount
Balance, December 31, 2006	300,000	$	1,500,000	$	1,720,382	$	(95,015	)	$	15,632,119		$	(3,620,051	)	$	15,137,435
Cash dividends paid ($1.00 per share)										(240,543	)					(240,543	)
Net income for the period										395,205						395,205
Other comprehensive income, net of tax expense of $18,923							35,927									35,927
Comprehensive income																431,132
Sale of treasury stock					2,700								27,492			30,192
Purchase of treasury stock													(112,200	)		(112,200	)
Balance, March 31, 2007	300,000	$	1,500,000	$	1,723,082	$	(59,088	)	$	15,786,781		$	(3,704,759	)	$	15,246,016
Balance,December 31, 2007	300,000	$	1,500,000	$	1,723,196	$	70,928		$	17,153,490		$	(3,711,213	)	$	16,736,401
Cash dividends paid ($1.05 per share)										(252,537	)					(252,537	)
Net income for the period										395,130						395,130
Other comprehensive income, net of tax expense of $67,224							121,437									121,437
Comprehensive income																516,567
Sale of treasury stock					2,645								9,355			12,000
Purchase of treasury stock													(16,000	)		(16,000	)
Balance, March 31, 2008	300,000	$	1,500,000	$	1,725,841	$	192,365		$	17,296,083		$	(3,717,858	)	$	16,996,431

See notes to condensed consolidated financial statements.

5

COMMUNITYCORP

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
	2008			2007
Cash flows from operating activities:
Net income	$	395,130		$	395,205
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		75,000			75,000
Depreciation expense		53,685			45,000
Net premium amortization (accretion) of investment securities		(13,111	)		5,023
Net amortization (accretion) of loan fees and costs		3,728			(1,472	)
Decrease in accrued interest receivable		135,236			64,086
Increase (decrease) in accrued interest payable		(30,610	)		7,275
(Increase) decrease in other assets		(9,969	)		232,777
Decrease in other liabilities		(5,905	)		(112,087	)
Net cash provided by operating activities		603,184			710,807
Cash flows from investing activities:
Proceeds from maturities of securities available-for-sale		10,935,013			3,469,819
Purchases of securities available-for-sale		(7,803,710	)		(4,329,673	)
Proceeds from maturities of securities held-to-maturity		500,000			55,000
Purchases of securities held-to-maturity		—			(300,000	)
Purchases of nonmarketable equity securities		(161,178	)		—
Net (increase) decrease in loans to customers		1,985,192			(2,448,922	)
Purchases of premises and equipment		(19,612	)		(7,782	)
Net cash provided by (used for) investing activities		5,435,705			(3,561,558	)
Cash flows from financing activities:
Net increase (decrease) in demand deposits, interest-bearing transaction accounts and savings accounts		5,602,892			(1,305,798	)
Net increase in time deposits		3,239,577			7,772,938
Net increase (decrease) in short-term borrowings		(2,838,000	)		40,000
Cash dividends paid		(252,537	)		(240,543	)
Purchase of treasury stock		(16,000	)		(112,200	)
Sale of treasury stock		12,000			30,192
Net cash provided by financing activities		5,747,932			6,184,589
Net increase in cash and cash equivalents		11,786,821			3,333,838
Cash and cash equivalents, beginning of period		6,920,768			14,404,317
Cash and cash equivalents, end of period	$	18,707,589		$	17,738,155
Cash paid during the period for:
Income taxes	$	227,000		$	44,964
Interest	$	1,229,517		$	1,117,021

See notes to condensed consolidated financial statements.

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COMMUNITYCORP

Notes to Consolidated Financial Statements

NOTE 1 - BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in accordance with the requirements for interim financial statements and, accordingly, they are condensed and omit disclosures, which would substantially duplicate those contained in the most recent annual report to shareholders. The financial statements as of March 31, 2008 and for the interim periods ended March 31, 2008 and 2007 are unaudited and, in our opinion, include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the results which may be expected for the entire calendar year. The financial information as of December 31, 2007 has been derived from the audited financial statements as of that date. For further information, refer to the financial statements and the notes included in Communitycorp’s 2007 Annual Report.

NOTE 2 - COMPREHENSIVE INCOME

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

	Pre-tax Amount		Tax Expense		Net-of-tax Amount
For the Three Months Ended March 31, 2008:
Unrealized gains on securities available-for-sale	$	188,661	$	67,224	$	121,437
Reclassification adjustment for gains (losses) realized in net income		—		—		—
Other comprehensive income—net unrealized gains on securities	$	188,661	$	67,224	$	121,437
For the Three Months Ended March 31, 2007:
Unrealized losses on securities available-for-sale	$	54,850	$	18,923	$	35,927
Reclassification adjustment for gains (losses) realized in net income		—		—		—
Other comprehensive income—net unrealized losses on securities	$	54,850	$	18,923	$	35,927

Accumulated other comprehensive income consists of the net unrealized gains and (losses) on securities available for sale, net of the deferred tax effects.

NOTE 3 - FAIR VALUE MEASUREMENTS

Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. SFAS 157 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available-for-sale investment securities) or on a nonrecurring basis (for example, impaired loans).

SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

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COMMUNITYCORP

Notes to Consolidated Financial Statements

NOTE 3 - FAIR VALUE MEASUREMENTS -(Continued)

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

Available-for-sale investment securities ($31,655,490 at March 31, 2008) are the only assets whose fair values are measured on a recurring basis using Level 1 inputs (active market quotes). The Company has no liabilities carried at fair value or measured at fair value on a nonrecurring basis.

The Company is predominantly an asset based lender with real estate serving as collateral on a substantial majority of loans. Loans which are deemed to be impaired are primarily valued at the fair values of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be level 2 inputs. The aggregate carrying amount of impaired loans at March 31, 2008 was $1,123,244.

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COMMUNITYCORP

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

The following is a discussion of the Company’s financial condition as of March 31, 2008 compared to December 31, 2007, and the results of operations for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. These comments should be read in conjunction with the Company’s condensed financial statements and accompanying footnotes appearing in this report. This report contains “forward-looking statements” relating to, without limitation, future economic performance, plans and objectives of management for future operations, and projections of revenues and other financial items that are based on the beliefs of the Company’s management, as well as assumptions made by and information currently available to the Company’s management. The words “expect,” “estimate,” “anticipate,” and “believe,” as well as similar expressions, are intended to identify forward-looking statements. The Company’s actual results may differ materially from the results discussed in the forward-looking statements, and the Company’s operating performance each quarter is subject to various risks and uncertainties that are discussed in detail in the Company’s filings with the Securities and Exchange Commission.

Results of Operations

Net Interest Income

The largest component of total income is net interest income, the difference between the income earned on assets and the interest accrued or paid on deposits and borrowings used to support such assets. The volume and mix of assets and liabilities and their sensitivity to interest rate movement determine changes in net interest income. Net interest margin is determined by dividing annualized net interest income by average earning assets. Net interest spread is derived from determining the weighted-average rate of interest paid on deposits and borrowings and subtracting them from the weighted-average yield on earning assets.

Net interest income for the quarter ended March 31, 2008, was $1,402,460, compared to $1,331,564 for the same period last year, an increase of $70,896, or 5.32%. The increase was mainly attributable to the increase in the yields on our loans.

For the quarter ended March 31, 2008, average-earning assets totaled $154,045,312 with an annualized average yield of 6.79%. Average earning assets and annualized average yield were $150,600,382 and 6.61%, respectively, for the quarter ended March 31, 2007. For the quarter ended March 31, 2008, average interest-bearing liabilities totaled $127,514,453 with an annualized average cost of 3.78%. Average interest-bearing liabilities and annualized average cost were $125,488,480 and 3.63%, respectively, for the quarter ended March 31, 2007.

Our annualized yield on average earning assets and our annualized average cost of our interest-bearing liabilities increased 18 and 15 basis points respectively during the first quarter of 2008 compared to the first quarter of 2007.

Our net interest margin and net interest spread were 3.66% and 3.01% for the quarter ended March 31, 2008 compared to 3.59% and 2.98%, respectively for the quarter ended March 31, 2007. The increases were primarily attributable to the volume of fixed rate loans included in our loan portfolio.

Details of the components of earning assets and interest-bearing liabilities are discussed in the following paragraphs.

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COMMUNITYCORP

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations -(continued)

Net Interest Income-(continued)

Because loans often provide a higher yield than other types of earning assets, one of our goals is to maintain our loan portfolio as the largest component of total earning assets. Loans comprised approximately 73.99% and 70.87% of average earning assets for the quarter ended March 31, 2008 and 2007, respectively. Loan interest income was $2,147,120 and $1,970,398 for the quarter ended March 31, 2008 and 2007, respectively. The annualized average yield on loans was 7.58% and 7.49% for the quarter ended March 31, 2008 and 2007, respectively. Average balances of loans increased to $113,970,673 during the quarter ended March 31, 2008, an increase of $7,245,478 over the average of $106,725,195 during the quarter ended March 31, 2007. The increase in our annualized average yield on loans is attributable to the volume of fixed rates loans in our loan portfolio that were made during the past several years when market interest rates were higher than the current prevailing rates. Fixed rate loans averaged approximately 98% and 95% of our loan portfolio during the quarter ending March 31, 2008 and 2007, respectively.

Investment securities averaged $32,808,276 or 21.30% of average earning assets, for the first quarter of 2008 compared to $34,423,943 or 22.86% of average earning assets, for the same period in 2007. Interest earned on investment securities amounted to $400,623 for the quarter ended March 31, 2008, compared to $364,280 for the comparable period last year. Investment securities yielded 4.95% and 4.29% for the quarter ended March 31, 2008 and 2007, respectively.

Total interest expense for the quarter ended March 31, 2008 and 2007 was $1,198,907 and $1,124,296 respectively. The largest component of interest expense is interest on deposit accounts. Interest expense on deposit accounts was $1,194,133 and $1,121,900, for the quarter ended March 31, 2008 and 2007, respectively. The average balance of interest bearing deposits increased to $127,021,804 during the quarter ended March 31, 2008 from $125,270,036 for the quarter ended March 31, 2007. The annualized average cost of deposits was 3.81% for the quarter ended March 31, 2008 compared to 3.63% for the same period in 2007.

For the quarter ended March 31, 2008 and 2007, the total annualized average cost of funds was 3.78% and 3.63%, respectively.

Provision and Allowance for Loan Losses

We provide for loan losses using the allowance method. Increases to the allowance result from recording a provision for loan losses. Loan losses and recoveries are charged to the allowance. Charge-offs to the allowance are made when all or a portion of the loan is confirmed as a loss based on our review of the loan, through possession of the underlying security, or through a troubled debt restructuring transaction. Likewise, recoveries offset these increases through credits to the allowance.

The allowance is maintained at a level that we believe is sufficient to cover losses in the loan portfolio at a specific point in time. Assessing the adequacy of the allowance requires considerable judgment. The adequacy of the allowance is analyzed on a monthly basis using an internal analysis model. For purposes of this analysis, adequacy is defined as a level sufficient to absorb probable losses in the portfolio. This methodology relies upon our judgment. Our judgments are based on our assessment of various issues, including, but not limited to, the pace of loan growth, emerging portfolio concentrations, the risk management system relating to lending activities, entry into new markets, new product offerings, loan portfolio quality trends, and uncertainty in current economic and business conditions. An allowance model is used that takes into account factors including the composition of the loan portfolio such as risk grade classifications, historical asset quality trends including, but not limited to, previous loss experience ratios, our assessment of current economic conditions, and reviews of specific high risk sectors of the portfolio. Loans are graded at inception and are reviewed on a periodic basis to ensure that assigned risk grades are proper based on the definition of such classification. The value of underlying collateral is also considered during such analysis. The resulting monthly model and the related conclusions are reviewed and approved by Senior Management. Our analysis of allowance adequacy includes consideration for loan impairment. While we use the best information available to make evaluations, future adjustments to the allowance may be necessary if results differ substantially from the assumptions used in making the evaluations.

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COMMUNITYCORP

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations -(continued)

Provision and Allowance for Loan Losses- (continued)

The methodology for assessing the adequacy of the allowance establishes both an allocated and unallocated component of the allowance. The allocated component is based principally on current loan grades and historical loss rates. The unallocated component is the result of the portion of the assessment that estimates probable losses in the portfolio that are not fully captured in the allocated allowance. This analysis includes, but is not necessarily limited to, industry concentrations, future market expansions, model imprecision, and the estimated impact of current economic conditions on historical loss rates. On a continual basis, we monitor trends within the portfolio, both quantitative and qualitative, and assess the reasonableness of the unallocated component.

The allowance is subject to examination and adequacy testing by regulatory agencies. In addition, such regulatory agencies could require allowance adjustments based on information available to them at the time of their examination.

The allowance for loan losses was 1.76% and 1.73% of total loans at March 31, 2008 and 2007, respectively. We believe the allowance for loan losses at March 31, 2008 is reflective of the results of our allowance model methodology. We monitor and evaluate the adequacy of the allowance and loss exposure in the loan portfolio by considering the borrowers’ financial conditions and other factors in the unallocated component of the allowance. Accordingly, we believe the allowance as of March 31, 2008 is adequate, based on our assessment of probable losses, and available facts and circumstances then prevailing.

The provision for loan losses is the charge to operating earnings that management feels is necessary to maintain the allowance for possible loan losses at an adequate level. For both the three months ended March 31, 2008 and 2007, the provision charged to expense was $75,000.

Noninterest Income

Noninterest income decreased $2,569, or 1.50%, to $168,916 for the three months ended March 31, 2008 from the comparable period in 2007. Service charges on deposit accounts increased 9.73% to $124,544 for the three months ended March 31, 2008, while other income decreased $13,610 from March 31, 2007 to $44,372 for the same period in 2008.

Noninterest Expense

Total noninterest expense for the three months ended March 31, 2008 was $923,946, or 7.58%, greater than the three months ended March 31, 2007. Salaries and employee benefits increased $21,224, or 4.47%, from $474,857 for the three months ended March 31, 2007 to $496,081 for the comparable period in 2008. This increase is primarily attributable to normal salary increases. For the three months ended March 31, 2008, other operating expense was $64,275, or 28.28%, higher than the three months ended March 31, 2007. Net occupancy and equipment expense decreased from $156,738 for the quarter ended March 31, 2007 to $136,341 for the comparable period in 2008.

Income Taxes

The income tax provision for the three months ended March 31, 2008 was $177,300 compared to $174,000 for the same period in 2007. The increase was primarily a result of the increase in income before taxes. The effective tax rates were 30.97% and 30.57% for the three months ended March 31, 2008 and 2007, respectively.

Net Income

The combination of the above factors resulted in net income for the three months ended March 31, 2008 of $395,130 as compared to $395,205 for the same period in 2007. This represents a decrease of $75, or 0.02 %, less than the same period in 2007.

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COMMUNITYCORP

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations -(continued)

Assets and Liabilities

During the first three months of 2008, total assets increased $6,329,358, or 3.92%, when compared to December 31, 2007. Federal funds sold increased $9,607,000 from December 31, 2007 to $11,598,000 at March 31, 2008. Total investment securities decreased $3,268,353 from December 31, 2007 to $33,483,458 at March 31, 2008. Gross loans decreased $2,006,908, or 1.75%, to $ 112,590,470 at March 31, 2008.

For the three months ended March 31, 2008 total liabilities increased $6,069,328 or 4.20% from December 31, 2007. Deposits increased $8,842,469 or 6.33%, short-term borrowings decreased $2,838,000 or 92.50%.

For more analysis of the components of the changes in asset and liabilities, see the following discussion of major balance sheet categories and the Consolidated Statements of Cash Flows included in “Item 1. Financial Statements.”

We closely monitor and seek to maintain appropriate levels of interest earning-assets and interest-bearing liabilities so that maturities of assets are such that adequate funds are provided to meet customer withdrawals and loan demand.

Loans

At March 31, 2008, our total loans were $112,590,470 compared to $114,597,378 at December 31, 2007, a decrease of $2,006,908 or 1.75%. Balances within the major loans receivable categories as of March 31, 2008 and December 31, 2007 are as follows:

	March 31, 2008		December 31, 2007
Real estate – construction	$	4,892,976	$	4,791,125
Real estate – mortgage		32,442,516		32,249,064
Commercial and industrial		64,960,638		65,995,943
Consumer and other		10,294,340		11,561,246
Total gross loans	$	112,590,470	$	114,597,378

Risk Elements in the Loan Portfolio

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

	March 31,
	2008		2007
Loans: Nonaccrual loans	$	1,123,244	$	940,284
Accruing loans more than 90 days past due		3,780		2,208
Loans identified by the internal review process:
Criticized	$	621,469	$	709,879
Classified		1,897,540		2,452,858

Criticized loans have potential weaknesses that deserve close attention and could, if uncorrected, result in deterioration of the prospects for repayment or the Bank’s credit position at a future date. Classified loans are inadequately protected by the sound worth and paying capacity of the borrower or any collateral and there is a distinct possibility or probability that the Bank will sustain a loss if the deficiencies are not corrected.

At March 31, 2008 real estate or other collateral secured practically all of the loans that were criticized and classified. In the event of foreclosure on these loans, there can be no assurance that in liquidation the collateral can be sold for its estimated fair market value or even for an amount at least equal to or greater than the loan amount.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations -(continued)

Risk Elements in the Loan Portfolio- continued

The results of this internal review process are the primary determining factor in management’s assessment of the adequacy of the allowance for loan losses.

Activity in the Allowance for Loan Losses is as follows:

	Three Months Ended March 31,
	2008			2007
Balance, January 1,	$	1,929,319		$	1,856,888
Provision for loan losses for the period		75,000			75,000
Net loans charged-off for the period		(17,988	)		(63,931	)
Balance, end of period	$	1,986,331		$	1,867,957
Gross loans outstanding, end of period	$	112,590,470		$	108,226,823
Allowance for loan losses to loans outstanding		1.76	%		1.73	%

Deposits

Total deposits increased by 6.33%, or $8,842,469, from December 31, 2007 to $148,436,781 at March 31, 2008. Noninterest-bearing deposits increased $756,287 or 4.59% to $17,217,525 at March 31, 2008, while interest-bearing deposits increased $8,086,182, or 6.57% to $131,219,256 at March 31, 2008.

Balances within the major deposit categories as of March 31, 2008 and December 31, 2007 are as follows:

	March 31, 2008		December 31, 2007
Noninterest-bearing demand deposits	$	17,217,525	$	16,461,238
Interest-bearing demand deposits		25,396,157		20,840,913
Savings deposits		14,562,287		14,270,926
Certificates of deposit		91,260,812		88,021,235
	$	148,436,781	$	139,594,312

Included in our deposits at March 31, 2008, was $3,305,000 of deposits that were obtained through brokers. We did not have any broker’s deposits at December 31, 2007

Liquidity

Liquidity needs are met by us through scheduled maturities of loans and investments on the asset side and through pricing policies on the liability side for demand deposit accounts and short-term borrowings. The level of liquidity is measured by the loan-to-total funds ratio (total deposits plus short-term borrowings), which was 75.73% at March 31, 2008 and 80.33% at December 31, 2007.

Asset liquidity is provided from several sources, including amounts due from banks and federal funds sold. Available for sale securities, particularly those maturing within one year, provide a secondary source of liquidity. In addition, funds from maturing loans are a source of liquidity

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations -(continued)

Liquidity- continued

At March 31, 2008 the Bank had available an unused short-term line of credit to purchase up to $4,300,000 of federal funds from unrelated correspondent institutions. The Bank also has a credit availability agreement with the Federal Home Loan Bank totaling 15 percent of the Bank’s assets as of any quarter end. As of March 31, 2008, the available credit totaled approximately $25,146,000 and there were no borrowings outstanding. Any borrowings from the Federal Home Loan Bank will be secured by a blanket lien on all of the Bank’s 1-4 family residential first lien mortgage loans and or investment securities.

Interest Rate Sensitivity

Interest rate sensitivity is defined as the exposure to variability in net interest income resulting from changes in market-based interest rates. Asset/liability management is the process by which we monitor and control the mix, maturities, and interest sensitivity of our assets and liabilities. Asset/liability management seeks to ensure adequate liquidity and to maintain an appropriate balance between interest-sensitive assets and liabilities to minimize potentially adverse impacts on earnings from changes in market interest rates. Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available-for-sale, replacing an asset or liability at maturity, or adjusting the interest rate during the life of an asset or liability. We believe that interest rate risk management becomes increasingly important in an interest rate environment and economy such as the one that we are currently experiencing.

We monitor interest rate sensitivity by measuring our interest sensitivity through a “gap” analysis, which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given time period. Currently we are liability-sensitive over periods with maturity dates of less than twelve months. However, since interest rates and yields on various interest sensitive assets and liabilities do not all adjust in the same degree when there is a change in prevailing interest rates (such as prime rate), the traditional gap analysis is only a general indicator of rate sensitivity and net interest income volatility. As stated in “Results of Operations for the Three Months Ended March 31, 2008 Compared to the Three Months Ended March 31, 2007 – Net Interest Income,” our net interest margin increased during the current period. If net interest margin were to decline, net income will likely decline also.

Capital Resources

Total shareholders’ equity increased $260,030 from $16,736,401 at December 31, 2007 to $16,996,431 at March 31, 2008. The net increase is attributable to earnings for the period of $395,130 plus the net increase for the period of $121,437 in the fair value of securities available-for-sale. Theses increases were reduced by the payment of $252,537 in cash dividends and the net decrease of $4,000 from the sales and purchases of treasury stock.

Bank holding companies, such as ours, and their banking subsidiaries are required by banking regulators to meet certain minimum levels of capital adequacy, which are expressed in the form of certain ratios. Capital is separated into Tier 1 capital (essentially common shareholders’ equity less intangible assets) and Tier 2 capital (essentially the allowance for loan losses limited to 1.25% of risk-weighted assets). The first two ratios, which are based on the degree of credit risk in our assets, provide the weighting of assets based on assigned risk factors and include off-balance sheet items such as loan commitments and stand-by letters of credit. The ratio of Tier 1 capital to risk-weighted assets must be at least 4.0% and the ratio of total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets must be at least 8.0%. The capital leverage ratio supplements the risk-based capital guidelines. Banks and bank holding companies are required to maintain a minimum ratio of Tier 1 capital to adjusted quarterly average total assets of 3.0%.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations -(continued)

Capital Resources- continued

The following table summarizes the Bank’s risk-based capital at March 31, 2008:

Shareholders’ equity	$	16,642,357
Less: intangibles		—
Tier 1 capital		16,642,357
Plus: allowance for loan losses (1)		1,550,163
Total capital	$	18,192,520
Risk-weighted assets	$	124,013,000
Risk-based capital ratios
Tier 1 capital (to risk-weighted assets)		13.42	%
Total capital (to risk-weighted assets)		14.67	%
Tier 1 capital (to total average assets)		10.27	%

(1) limited to 1.25% of risk-weighted assets

The Federal Reserve Board has similar requirements for bank holding companies. The Company is currently not subject to these requirements because the Federal Reserve guidelines contain an exemption for bank holding companies of less than $500,000,000 in consolidated assets.

Regulatory Matters

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

Off-Balance Sheet Risk

Through the operations of our Bank, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. At March 31, 2008, we had issued commitments to extend credit of $6,058,000 and standby letters of credit of $1,160,000 through various types of commercial lending arrangements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate.

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COMMUNITYCORP

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations -(continued)

Critical Accounting Policies

We have adopted various accounting policies, which govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements. Our significant accounting policies are described in the notes to the consolidated financial statements at December 31, 2007 as filed in our annual report on Form 10-KSB. Certain accounting policies involve significant judgments and assumptions by us, which have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates which could have a material impact on our carrying values of assets and liabilities and our results of operations.

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

Recently Issued Accounting Standards

Accounting standards which have been issued or proposed by the Financial Accounting Standards Board that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Not applicable since we are a smaller reporting company.

Item 4. Controls and Procedures.

Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

In addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation.

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Part II –Other Information

Item 1 Legal Proceedings

There are no material pending legal proceedings to which we are a party or of which any of our properties are the subject.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

Item 3 Default Upon Senior Securities

Not applicable

Item 4 Submission of Matters to a Vote of Security Holders

Not applicable

Item 5 Other Information

Not applicable

Item 6 Exhibits

31.1 Rule 13a-14(a) Certification of the Principal Executive Officer.

31.2 Rule 13a-14(a) Certification of the Principal Financial Officer.

32 Section 1350 Certifications.

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SIGNATURES

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

COMMUNITYCORP

Date: May 12, 2008	By:	/s/ W. ROGER CROOK
		W. Roger Crook
		President & Chief Executive Officer
Date: May 12, 2008	By:	/s/ GWEN P. BUNTON
		Gwen P. Bunton
		Chief Financial Officer

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