Communitycorp 10-Q 2009 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, 2009

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

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

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

234,358 shares of common stock, $5.00 par value, as of April 13, 2009

COMMUNITYCORP

Index

		Page No.
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets - March 31, 2009 and December 31, 2008	3
	Condensed Consolidated Statements of Income - Three months ended March 31, 2009 and 2008	4
	Condensed Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income - Three months March 31, 2009 and 2008	5
	Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2009 and 2008	6
	Notes to Condensed Consolidated Financial Statements	7 - 9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10 - 17
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	17
Item 4.	Controls and Procedures	17
PART II. - OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Defaults Under Senior Securities	18
Item 4.	Submission of Matters to a Vote of Security Holders	18
Item 5.	Other Information	18
Item 6.	Exhibits	18
Signatures		19

COMMUNITYCORP

PART I. – Financial Information

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

	March 31, 2009			December 31, 2008
	(Unaudited)			(Audited)
Assets:
Cash and cash equivalents:
Cash and due from banks	$	14,539,285		$	3,468,965
Federal funds sold		3,400,000			13,146,000
Total cash and cash equivalents		17,939,285			16,614,965
Time deposits with other banks		1,500,000			1,500,000
Investment securities:
Available-for-sale		23,855,159			27,815,275
Held-to-maturity (estimated market value of $1,226,519 and $1,335,226 at March 31, 2009 and December 31, 2008, respectively)		1,219,647			1,319,596
Nonmarketable equity securities		302,400			508,435
Total investment securities		25,377,206			29,643,306
Loans receivable		116,534,721			113,704,520
Less allowance for loan losses		(2,053,259	)		(1,981,637	)
Loans, net		114,481,462			111,722,883
Premises, furniture & equipment, net		3,007,637			3,028,604
Accrued interest receivable		1,072,149			1,125,714
Other real estate owned		75,000			75,000
Other assets		685,241			874,815
Total assets	$	164,137,980		$	164,585,287
Liabilities and Shareholders’ Equity:
Liabilities:
Deposits:
Noninterest-bearing	$	14,810,128		$	15,652,393
Interest-bearing		130,880,892			130,061,592
Total deposits		145,691,020			145,713,985
Accrued interest payable		895,027			953,278
Other liabilities		163,568			224,606
Total liabilities		146,749,615			146,891,869
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		1,728,328			1,728,328
Retained earnings		18,121,044			18,392,614
Accumulated other comprehensive income		171,738			75,701
Treasury stock (64,742 shares in 2009 and 63,123 shares in 2008)		(4,132,745	)		(4,003,225	)
Total shareholders’ equity		17,388,365			17,693,418
Total liabilities and shareholders’ equity	$	164,137,980		$	164,585,287

See notes to condensed consolidated financial statements.

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COMMUNITYCORP

Condensed Consolidated Statements of Income

(Unaudited)

	Three Months Ended March 31,
	2009			2008
Interest income:
Loans, including fees	$	1,986,170		$	2,147,120
Securities		272,672			400,623
Other interest income		16,380			53,624
Total		2,275,222			2,601,367
Interest expense:
Deposit accounts		922,528			1,194,133
Other interest expense		7			4,774
		922,535			1,198,907
Net interest income		1,352,687			1,402,460
Provision for loan losses		90,000			75,000
Net interest income after provision for loan losses		1,262,687			1,327,460
Noninterest income:
Service charges		129,002			124,544
Other income		42,957			44,372
Total		171,959			168,916
Noninterest expenses:
Salaries and benefits		510,491			496,081
Net occupancy expense		66,496			58,698
Equipment expense		89,838			77,643
Other operating expenses		725,702			291,524
Total		1,392,527			923,946
Income before taxes		42,119			572,430
Income tax provision		61,000			177,300
Net income (loss)	$	(18,881	)	$	395,130
Earnings per share:
Weighted average common shares outstanding		236,175			240,454
Net income (loss) per common share	$	(.08	)	$	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, 2009 and 2008

(Unaudited)

	Common stock			Capital Surplus		Accumulated Other Comprehensive Income (Loss)		Retained Earnings			Treasury Stock			Total
	Shares	Amount
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
Balance, December 31, 2008	300,000	$	1,500,000	$	1,728,328	$	75,701	$	18,392,614		$	(4,003,225	)	$	17,693,418
Cash dividends paid ($1.07 per share)									(252,689	)					(252,689	)
Net income (loss) for the period									(18,881	)					(18,881	)
Other comprehensive income, net of tax expense of $50,584							96,037								96,037
Comprehensive income															77,156
Purchase of treasury stock												(129,520	)		(129,520	)
Balance, March 31, 2009	300,000	$	1,500,000	$	1,728,328	$	171,738	$	18,121,044		$	(4,132,745	)	$	17,388,365

See notes to condensed consolidated financial statements.

5

COMMUNITYCORP

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
	2009			2008
Cash flows from operating activities:
Net income (loss)	$	(18,881	)	$	395,130
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Provision for loan losses		90,000			75,000
Depreciation expense		67,219			53,685
Net premium amortization (accretion) of investment securities		16,407			(13,111	)
Net amortization (accretion) of loan fees and costs		(5,506	)		3,728
Write down of securities available for sale		250,000			—
Write down of nonmarketable equity securities		211,935			—
Decrease in accrued interest receivable		53,565			135,236
Decrease in accrued interest payable		(58,251	)		(30,610	)
(Increase) decrease in other assets		189,574			(9,969	)
Decrease in other liabilities		(111,622	)		(5,905	)
Net cash provided by operating activities		684,440			603,184
Cash flows from investing activities:
Proceeds from maturities of securities available-for-sale		8,463,771			10,935,013
Purchases of securities available-for-sale		(4,624,492	)		(7,803,710	)
Proceeds from maturities of securities held-to-maturity		101,000			500,000
Purchases of nonmarketable equity securities		(5,900	)		(161,178	)
Net (increase) decrease in loans to customers		(2,843,073	)		1,985,192
Purchases of premises and equipment		(46,252	)		(19,612	)
Net cash provided by investing activities		1,045,054			5,435,705
Cash flows from financing activities:
Net increase in demand deposits, interest-bearing transaction accounts and savings accounts		1,488,981			5,602,892
Net increase (decrease) in time deposits		(1,511,946	)		3,239,577
Net decrease in short-term borrowings		—			(2,838,000	)
Cash dividends paid		(252,689	)		(252,537	)
Purchase of treasury stock		(129,520	)		(16,000	)
Sale of treasury stock		—			12,000
Net cash provided (used) by financing activities		(405,174	)		5,747,932
Net increase in cash and cash equivalents		1,324,320			11,786,821
Cash and cash equivalents, beginning of period		16,614,965			6,920,768
Cash and cash equivalents, end of period	$	17,939,285		$	18,707,589
Cash paid during the period for:
Income taxes	$	87,700		$	227,000
Interest	$	980,786		$	1,229,517

See notes to condensed consolidated financial statements.

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COMMUNITYCORP

Notes to Condensed 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, 2009 and for the interim periods ended March 31, 2009 and 2008 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, 2009 are not necessarily indicative of the results which may be expected for the entire calendar year. The financial information as of December 31, 2008 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 2008 Annual Report.

NOTE 2 – COMPREHENSIVE INCOME

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

	Pre-tax Amount			Tax Expense (Benefit)			Net-of-tax Amount
For the Three Months Ended March 31, 2009:
Unrealized gains on securities available-for-sale	$	396,621		$	136,834		$	259,787
Reclassification adjustment for gains (losses) realized in net income		(250,000	)		(86,250	)		(163,750	)
Other comprehensive income—net unrealized gains on securities	$	146,621		$	50,584		$	96,037
For the Three Months Ended March 31, 2008:
Unrealized losses 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 losses on securities	$	188,661		$	67,224		$	121,437

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 – ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

On January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157,Fair Value Measurements(“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

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COMMUNITYCORP

Notes to Condensed Consolidated Financial Statements

NOTE 3 – ASSETS AND LIABILITIES MEASURED AT FAIR VALUE—(Continued)

Level 1	Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2	Valuation is based upon quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.
Level 3	Valuation is generated from model-based techniques that use at least one significant assumption based on unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Securities Available for Sale—Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Loans—The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS 114,Accounting by Creditors for Impairment of a Loan, (SFAS 114). The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2009, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with SFAS 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, The Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, The Company records the impaired loan as nonrecurring Level 3.

Other Real Estate Owned—Other real estate owned (“OREO”) is adjusted to fair value upon transfer of the loans to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the OREO as nonrecurring Level 3.

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COMMUNITYCORP

Notes to Condensed Consolidated Financial Statements

NOTE 3 – ASSETS AND LIABILITIES MEASURED AT FAIR VALUE—(Continued)

Assets Measured at Fair Value on a Recurring Basis

The table below presents the Company’s assets measured at fair value on a recurring basis as of March 31, 2009, and December 31, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall.

	Total		Level 1		Level 2		Level 3
March 31, 2009
Available for sale securities	$	23,855,159	$	—	$	23,855,159	$	—
December 31, 2008
Available for sale securities	$	27,815,275	$	—	$	27,815,275	$	—

There were no liabilities carried at fair value at March 31, 2009 or December 31, 2008.

Assets Measured at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. as of March 31, 2009, and December 31, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall.

	Total		Level 1		Level 2		Level 3
March 31, 2009
Loans	$	1,303,645	$	—	$	—	$	1,303,645
Other real estate owned		75,000						75,000
Total assets at fair value	$	1,378,645	$	—	$	—	$	1,378,645
December 31, 2008
Loans	$	696,243	$	—	$	—	$	696,243
Other real estate owned		75,000						75,000
Total assets at fair value	$	771,243	$	—	$	—	$	771,243

There were no liabilities carried at fair value at March 31, 2009 or December 31, 2008.

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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, 2009 compared to December 31, 2008, and the results of operations for the three months ended March 31, 2009 compared to the three months ended March 31, 2008. 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, 2009, was $1,352,687, compared to $1,402,460 for the same period last year, a decrease of $49,773, or 3.55%. The decrease was mainly attributable to the decrease in the average volume of our earnings assets, which decreased 3.42%, while our interest-bearing liabilities increased 0.58%.

For the quarter ended March 31, 2009, average-earning assets totaled $148,775,931 with an annualized average yield of 6.20%. Average earning assets and annualized average yield were $154,045,312 and 6.79%, respectively, for the quarter ended March 31, 2008. For the quarter ended March 31, 2009, average interest-bearing liabilities totaled $128,251,115 with an annualized average cost of 2.92%. Average interest-bearing liabilities and annualized average cost were $127,514,453 and 3.78%, respectively, for the quarter ended March 31, 2008.

Our annualized yield on average earning assets and our annualized average cost of our interest-bearing liabilities decreased 59 and 86 basis points respectively during the first quarter of 2009 compared to the first quarter of 2008.

Our net interest margin and net interest spread were 3.69% and 3.28% for the quarter ended March 31, 2009 compared to 3.66% and 3.01%, respectively for the quarter ended March 31, 2008. The increases were primarily attributable to the increase in the average volume of our loans, which generally are our highest yielding assets. For the quarter ended March 31, 2008 and 2007, the average volume of our loans was 77.37% and 73.99% of our total average earnings assets, respectively.

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 77.37% and 73.99% of average earning assets for the quarter ended March 31, 2009 and 2008, respectively. Loan interest income was $1,986,170 and $2,147,120 for quarter ended March 31, 2009 and 2008, respectively. The annualized average yield on loans was 7.00% and 7.58% for the quarter ended March 31, 2009 and 2008, respectively. Average balances of loans increased to $115,112,686 during the quarter ended March 31, 2009, an increase of $1,142,013 over the average of $113,970,673 during the quarter ended March 31, 2008. The decrease in our annualized average yield on loans is attributable to the decline in the prime interest rate. At March 31, 2008, the prime rate was 5.25% and gradually declined to 3.25% as of March 31, 2009.

Investment securities averaged $27,853,945 or 18.72% of average earning assets, for first quarter of 2009 compared to $32,808,276 or 21.30% of average earning assets, for the same period in 2008. Interest earned on investment securities amounted to $272,672 for the quarter ended March 31, 2009, compared to $400,623 for the comparable period last year. Investment securities yielded 3.97% and 4.95% for the quarter ended March 31, 2009 and 2008, respectively.

Total interest expense for the quarter ended March 31, 2009 and 2008 was $922,535 and $1,198,907 respectively. The largest component of interest expense is interest on deposit accounts. Interest expense on deposit accounts was $922,528 and $1,194,133, for the quarter ended March 31, 2009 and 2008, respectively. The average balance of interest bearing deposits increased to $128,247,215 during the quarter ended March 31, 2009 from $127,021,804 for the quarter ended March 31, 2008. The annualized average cost of deposits was 2.92% for the quarter ended March 31, 2009 compared to 3.81% for the same period in 2008.

For the quarter ended March 31, 2009 and 2008, the total annualized average cost of funds was 2.92% and 3.78%, 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, 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% of total loans at March 31, 2009 and 2008. We believe the allowance for loan losses at March 31, 2009 is reflective of the results of our allowance model methodology and accordingly, we believe the allowance as of March 31, 2009 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, 2009 and 2008, the provision charged to expense was and $90,000 and $75,000, respectively.

Noninterest Income

Noninterest income increased $3,043 or 1.80%, to $171,959 for the three months ended March 31, 2009 from the comparable period in 2008. Service charges on deposit accounts increased 3.58% to $129,002 for the three months ended March 31, 2009, while other income decreased $1,415 from March 31, 2008 to $42,957 for the same period in 2009.

Noninterest Expense

Total noninterest expense for the three months ended March 31, 2009 and 2008 was $1,392,527 and $923,946, respectively. This represented an increase in noninterest expense of $468,581, or 50.72%. This increase is mainly attributable to the write down of investments totaling $461,935 that we had in a financial institution that was seized by the Federal Deposit Insurance Corporation during April of 2009. Salaries and employee benefits increased $14,410, or 2.90%, from $496,081 for the three months ended March 31, 2008 to $510,591 for the comparable period in 2009. This increase is mainly attributable to the increase in cost of providing employee benefits. For the three months ended March 31, 2009, other operating expense was $725,702, or 434,178, higher than the three months ended March 31, 2008. This increase includes the write down of the investments mentioned above. Net occupancy and equipment expense increased from $136,341 for the quarter ended March 31, 2008 to $156,334 for the comparable period in 2009.

Income Taxes

The income tax provision for the three months ended March 31, 2009 was $61,000 compared to $177,300 for the same period in 2008. The decrease in the provision resulted primarily from the decrease in net income before taxes. The tax provision was also impacted by the relationship of the amount of non deductible items for income tax purposes that were included in net income before taxes.

Net Income

The combination of the above factors resulted in net loss for the three months ended March 31, 2009 of $18,881 as compared to a net income of $395,130 for the same period in 2008. This represents a decrease of $414,011, or 104.78%, less than the same period in 2008.

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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 2009, total assets decreased $447,307 or 0.27%, when compared to December 31, 2008. Federal funds sold decreased $9,746,000 from December 31, 2008 to $3,400,000 at March 31, 2009. At March 31, 2009, we were in the process of changing financial institutions, to which we sell our federal funds. Total investment securities decreased $4,266,100 from December 31, 2008 to $25,377,206 at March 31, 2009. Gross loans increased $2,830,201, or 2.49%, to $116,534,271 at March 31, 2009.

For the three months ended March 31, 2009, total liabilities decreased $142,253 or 0.10% and deposits decreased $22,965 or 0.02% from December 31, 2008.

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, 2009, our total loans were $116,534,721 compared to $113,704,520 at December 31, 2008, an increase of $2,830,201 or 2.49%. At March 31, 2009 and 2008, approximately 98% of our loan portfolio consisted of fixed rate loans. Balances within the major loans receivable categories as of March 31, 2009 and December 31, 2008 are as follows:

	March 31, 2009		December 31, 2008
Real estate – construction	$	4,253,586	$	4,564,879
Real estate – mortgage		38,091,783		31,204,675
Commercial and industrial		65,268,123		68,540,891
Consumer and other		8,921,229		9,394,075
Total gross loans	$	116,534,721	$	113,704,520

Risk Elements in the Loan Portfolio

The following table sets forth the Company’s nonperforming assets at the dates indicated:

	March 31,
	2009			2008
Nonaccrual loans	$	2,562,012		$	1,123,244
Total loans impaired not in nonaccrual		2,662,156			—
Loans 90 days or more past due and still accruing interest		2,958			3,780
Total impaired and nonperforming loans		5,227,126			1,127,024
Other real estate owned		75,000			—
Total impaired and nonperforming assets	$	5,302,126		$	1,127,024
Nonperforming assets to year end loans		4.55	%		1.00	%

At March 31, 2009 and 2008, total impaired and nonperforming assets totaled $5,302,126 and $1,123,244, respectively. Nonaccrual loans of $2,562,012 and $1,123,244 were included in impaired loans at March 31, 2009 and 2008, respectively. The impaired loans had specific valuation allowances of $322,620 and $168,487 at March 31, 2009 and 2008, respectively. The average balances of impaired loans during the quarter ended March 31, 2009 and 2008 were $5,007,082 and $968,776, respectively.

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COMMUNITYCORP

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

During the fourth quarter 2008, we employed a more robust process for reviewing and categorizing loans, which caused part of the increase of the levels in impaired loans.

At March 31, 2009 real estate or other collateral secured practically all of the loans that were considered impaired. 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.

The results our internal review process and applying the allowance model methodology are the primary determining factors 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,
	2009			2008
Balance, January 1,	$	1,981,637		$	1,929,319
Provision for loan losses for the period		90,000			75,000
Net loans charged-off for the period		(18,378	)		(17,988	)
Balance, end of period	$	2,053,259		$	1,986,331
Gross loans outstanding, end of period	$	116,534,721		$	112,590,470
Allowance for loan losses to loans outstanding		1.76	%		1.76	%

Deposits

Total deposits decreased by 0.02%, or $22,965, from December 31, 2008 to $145,691,020 at March 31, 2009. Noninterest-bearing deposits decreased $842,265 or 5.38% to $14,810,128 at March 31, 2009, while interest-bearing deposits increased $819,300 or 0.63% to $130,880,892 at March 31, 2009.

Balances within the major deposit categories as of March 31, 2009 and December 31, 2008 are as follows:

	March 31, 2009		December 31, 2008
Noninterest-bearing demand deposits	$	14,810,128	$	15,652,393
Interest-bearing demand deposits		26,219,683		21,065,476
Savings deposits		13,619,442		16,442,403
Certificates of deposit		91,041,767		92,553,713
	$	145,691,020	$	145,713,985

We did not have any brokers’ deposits at March 31, 2009 or December 31, 2008

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 79.99% at March 31, 2009 and 78.03% at December 31, 2008.

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)

At March 31, 2009 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, 2009, the available credit totaled approximately $24,677,000 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, 2009 Compared to the Three Months Ended March 31, 2008 – 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 decreased $305,053 from $17,693,418 at December 31, 2008 to $17,388,365 at March 31, 2009. The net decrease is attributable to the net loss for the period of $18,881, by the payment of $252,689 in cash dividends, and the purchase of treasury stock for $129,520. These decreases were reduced by the net increase for the period of $96,037 in the fair value of securities available-for-sale.

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, 2009:

Shareholders’ equity	$	17,099,076
Less: intangibles		—
Tier 1 capital		17,099,076
Plus: allowance for loan losses (1)		1,572,738
Total capital	$	18,671,814
Risk-weighted assets	$	125,819,000
Risk-based capital ratios
Tier 1 capital (to risk-weighted assets)		13.59	%
Total capital (to risk-weighted assets)		14.84	%
Tier 1 capital (to total average assets)		10.57	%

(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, 2009, we had issued commitments to extend credit of $9,891,000 and standby letters of credit of $780,132 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, 2008 as filed in our annual report on Form 10-K. 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 1A Risk Factors

There has been no change in the risk factors, which were reported on Form 10-K for the year ended December 31, 2008.

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 13, 2009	By:	/s/ W. ROGER CROOK
		W. Roger Crook
		President & Chief Executive Officer
Date:  May 13, 2009	By:	/s/ GWEN P. BUNTON
		Gwen P. Bunton
		Chief Financial Officer

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