Communitycorp 10-Q 2010 Q2 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 June 30, 2010

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  x

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:

233,033 shares of common stock, $5.00 par value, as of July 31, 2010

COMMUNITYCORP

Index

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets - June 30, 2010 and December 31, 2009 (audited)	3
	Condensed Consolidated Statements of Operations - Six and three months ended June 30, 2010 and 2009	4
	Condensed Consolidated Statements of Shareholders’ Equity and Comprehensive Income) - Six months ended June 30, 2010 and 2009	5
	Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 2010 and 2009	6
	Notes to Condensed Consolidated Financial Statements	7-13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14-21
Item 3	Quantitative and Qualitative Disclosure About Market Risk	21
Item 4	Controls and Procedures	21
PART II. - OTHER INFORMATION
Item 1	Legal Proceedings	22
Item 1A	Risk Factors	22
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3	Defaults Under Senior Securities	22
Item 4	Removed and Reserved	22
Item 5	Other Information	22
Item 6	Exhibits	22
Signatures		23

COMMUNITYCORP

PART I. – Financial Information

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

	June 30, 2010			December 31, 2009
	(Unaudited)			(Audited)
Assets:
Cash and cash equivalents:
Cash and due from banks	$	16,671,292		$	14,589,266
Interest-bearing deposits with other banks		4,115,000			1,075,000
Federal funds sold		1,980,000			2,030,000
Total cash and cash equivalents		22,766,292			17,694,266
Time deposits with other banks		1,250,000			1,500,000
Investment securities:
Available-for-sale		21,486,187			24,620,177
Held-to-maturity (estimated market value of $308,774 and $572,115 at June 30, 2010 and December 31, 2009, respectively)		299,866			564,821
Nonmarketable equity securities		302,400			302,300
Total investment securities		22,088,453			25,487,298
Loans receivable		111,873,551			116,458,480
Less allowance for loan losses		(2,156,137	)		(2,053,340	)
Loans, net		109,717,414			114,405,140
Premises, furniture & equipment, net		2,995,862			3,089,929
Accrued interest receivable		964,931			978,500
Other real estate owned		340,000			340,000
Other assets		1,683,810			1,897,922
Total assets	$	161,806,762		$	165,393,055
Liabilities and Shareholders’ Equity:
Liabilities:
Deposits:
Noninterest-bearing	$	14,662,859		$	14,163,321
Interest-bearing		128,618,647			132,524,675
Total deposits		143,281,506			146,687,996
Accrued interest payable		584,190			701,979
Other liabilities		341,653			257,427
Total liabilities		144,207,349			147,647,402
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		1,737,924			1,737,924
Retained earnings		18,291,822			18,440,398
Accumulated other comprehensive income		386,809			286,072
Treasury stock (66,997 shares in 2010 and 65,697 shares in 2009)		(4,317,142	)		(4,218,741	)
Total shareholders’ equity		17,599,413			17,745,653
Total liabilities and shareholders’ equity	$	161,806,762		$	165,393,055

See notes to condensed consolidated financial statements

3

COMMUNITYCORP

Condensed Consolidated Statements of Operations

(Unaudited)

	Six Months Ended June 30,						Three Months Ended June 30,
	2010			2009			2010			2009
Interest income:
Loans, including fees	$	3,521,176		$	3,931,837		$	1,685,719		$	1,945,666
Securities		413,857			526,862			199,274			254,191
Other interest income		36,583			36,829			23,725			20,449
Total		3,971,616			4,495,528			1,908,718			2,220,306
Interest expense:
Deposit accounts		1,165,237			1,800,483			559,978			877,955
Other interest expense		1			7			—			—
Total		1,165,238			1,800,490			559,978			877,955
Net interest income		2,806,378			2,695,038			1,348,740			1,342,351
Provision for loan losses		1,211,000			180,000			846,000			90,000
Net interest income after provision for loan losses		1,595,378			2,515,038			502,740			1,252,351
Noninterest income (Loss):
Service charges		210,473			245,464			111,161			116,461
Impairment losses on securities available-for -sale		—			(250,000	)		—			—
Impairment losses on nonmarketable equity securities		—			(211,935	)		—			—
Other income		70,524			78,856			29,083			35,900
Total		280,997			(137,615	)		140,244			152,361
Noninterest expenses:
Salaries and benefits		1,010,799			997,725			516,696			487,234
Net occupancy and equipment expense		306,238			308,395			149,926			152,062
Other operating expenses		613,163			667,070			310,293			403,302
Total		1,930,200			1,973,190			976,915			1,042,598
Income (loss) before taxes		(53,825	)		404,233			(333,930	)		362,114
Income tax provision (benefit)		(22,250	)		120,638			(97,250	)		59,638
Net income (loss)	$	(31,575	)	$	283,595		$	(236,680	)	$	302,476
Earnings (loss) per share:
Weighted average common shares outstanding		233,504			235,326			233,033			234,487
Net income (loss) per common share	$	(0.14	)	$	1.21		$	(1.02	)	$	1.29

See notes to condensed consolidated financial statements

4

COMMUNITYCORP

Condensed Consolidated Statement of Shareholders’ Equity and Comprehensive Income

for the six months ended June 30, 2010 and 2009

(Unaudited)

	Common stock			Capital		Accumulated Other Comprehensive		Retained			Treasury
	Shares	Amount		Surplus		Income		Earnings			Stock			Total
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 declared ($1.07 per share)									(252,690	)					(252,690	)
Net income for the period									283,595						283,595
Other comprehensive income, net of tax expense of $27,410							52,039								52,039
Comprehensive income															335,634
Sale of treasury stock					159							641			800
Purchase of treasury stock												(201,520	)		(201,520	)
Balance, June 30, 2009	300,000	$	1,500,000	$	1,728,487	$	127,740	$	18,423,519		$	(4,204,104	)	$	17,575,642
Balance, December 31, 2009	300,000	$	1,500,000	$	1,737,924	$	286,072	$	18,440,398		$	(4,218,741	)	$	17,745,653
Cash dividends paid ($ .50 per share)									(117,001	)					(117,001	)
Net income for the period									(31,575	)					(31,575	)
Other comprehensive income, net of tax expense of $53,060							100,737								100,737
Comprehensive income															69,162
Purchase of treasury stock												(98,401	)		(98,401	)
Balance, June 30, 2010	300,000	$	1,500,000	$	1,737,924	$	386,809	$	18,291,822		$	(4,317,142	)	$	17,599,413

See notes to condensed consolidated financial statements

5

COMMUNITYCORP

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
	2010			2009
Cash flows from operating activities:
Net income (loss)	$	(31,575	)	$	283,595
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		118,895			128,710
Provision for possible loan losses		1,211,000			180,000
Net amortization (accretion) on investments		32,825			38,329
Net amortization (accretion) of deferred loan costs and fees		2,509			(7,713	)
Other than temporary impairment of securities available-for-sale		—			250,000
Other than temporary impairment of nonmarketable equity securities		—			211,935
(Increase) decrease in interest receivable		13,569			(50,620	)
Increase (decrease) in interest payable		(117,789	)		18,212
(Increase) decrease in other assets		214,112			(69,685	)
Increase (decrease) in other liabilities		31,167			64,494
Net cash provided by operating activities		1,474,713			1,047,257
Cash flows from investing activities:
Net (increase) decrease in loans to customers		3,474,217			(1,233,623	)
Purchases of securities available-for-sale		(1,599,200	)		(12,089,361	)
Maturities of securities available-for-sale		4,854,116			12,137,154
Proceeds from maturities of securities held-to-maturity		265,000			756,000
Maturity of time deposits with other banks		250,000			—
Purchase of nonmarketable equity securities		(100	)		(5,800	)
Purchases of premises and equipment		(24,828	)		(95,871	)
Net cash provided (used) by investing activities		7,219,205			(531,501	)
Cash flows from financing activities:
Net decrease in demand deposits, interest-bearing transactions accounts and savings accounts		(2,317,817	)		(1,177,891	)
Net decrease in time deposits		(1,088,673	)		(1,137,688	)
Dividends paid		(117,001	)		(252,690	)
Sale of treasury stock		—			800
Purchase of treasury stock		(98,401	)		(201,520	)
Net cash used by financing activities		(3,621,892	)		(2,768,989	)
Net increase (decrease) in cash and cash equivalents		5,072,026			(2,253,233	)
Cash and cash equivalents, beginning of period		17,694,266			16,614,965
Cash and cash equivalents, end of period	$	22,766,292		$	14,361,732
Cash paid during the period for:
Income taxes	$	—		$	556,700
Interest		1,283,027			1,782,278
Supplemental noncash activities
Changes in unrealized gains (losses) on securities available-for-sale	$	100,737		$	52,039

See notes to condensed consolidated financial statements

6

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 June 30, 2010 and for the interim periods ended June 30, 2010 and 2009 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 six months ended June 30, 2010 are not necessarily indicative of the results, which may be expected for the entire calendar year. The financial information as of December 31, 2009 has been derived from the audited financial statements as of that date. For further information, refer to the financial statements and the notes included in Communitycorp’s 2009 Annual Report.

NOTE 2 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

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

Income Tax guidance was amended in April 2010 to reflect an SEC Staff Announcement after the President signed the Health Care and Education Reconciliation Act of 2010 on March 30, 2010, which amended the Patient Protection and Affordable Care Act signed on March 23, 2010. According to the announcement, although the bills were signed on separate dates, regulatory bodies would not object if the two Acts were considered together for accounting purposes. This view is based on the SEC staff’s understanding that the two Acts together represent the current health care reforms as passed by Congress and signed by the President. The amendment had no impact on the financial statements.

In July 2010, the FASB issued Accounting Standard Codification Update No. 2010-20 concerning disclosures about the credit quality of financing receivables and the allowance for credit losses. Update No. 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. Update No. 2010-20 requires companies to (1) provide enhanced disclosures around the nature of credit risk inherent in the entity’s portfolio of financing receivables; (2) explain how that risk is analyzed and assessed in arriving at the allowance for credit losses; and (3) explain the changes and reasons for changes in the allowance for credit losses. The provisions of Update No. 2010-20 concerning disclosures for the end of a period are effective for interim and annual periods ending on or after December 15, 2010, or December 31, 2010 for the Company. The provisions of Update No. 2010-20 concerning disclosures about activity that occurs during a reporting period are applicable to the Company for interim and annual periods beginning on or after December 15, 2010, the interim period ending on March 31, 2011. The adoption of Update No. 2010-20 is expected to provide the reader of the Company’s financial statements with expanded and enhanced disclosure surrounding the allowance for credit losses.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

NOTE 3 - COMPREHENSIVE INCOME

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

	Pre-tax Amount		Tax Expense (Benefits)			Net-of-tax Amount
For the Six Months Ended June 30, 2010:
Unrealized gains on securities available-for-sale	$	153,797	$	(53,060	)	$	100,737
Reclassification adjustment for gains (losses) realized in net income		—		—			—
Other comprehensive income (loss)	$	153,797	$	(53,060	)	$	100,737
For the Six Months Ended June 30, 2009:
Unrealized gains on securities available-for-sale	$	79,449	$	(27,410	)	$	52,039
Reclassification adjustment for gains (losses) realized in net income		—		—			—
Other comprehensive income (loss)	$	79,449	$	(27,410	)	$	52,039

7

COMMUNITYCORP

Notes to Condensed Consolidated Financial statements

NOTE 3 - COMPREHENSIVE INCOME –(continued)

	Pre-tax Amount			Tax Expense (Benefits)			Net-of-tax Amount
For the Three Months Ended June 30, 2010:
Unrealized gains on securities available-for-sale	$	96,016		$	(33,126	)	$	62,890
Reclassification adjustment for gains (losses) realized in net income		—			—			—
Other comprehensive income (loss)	$	96,016		$	(33,126	)	$	62,890
For the Three Months Ended June 30, 2009:
Unrealized losses on securities available-for-sale	$	(67,172	)	$	23,174		$	(43,998	)
Reclassification adjustment for gains (losses) realized in net income		—			—			—
Other comprehensive income (loss)	$	(67,172	)	$	23,174		$	(43,998	)

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

NOTE 4 - RECLASSIFICATIONS

Certain captions and amounts in the financial statements in the Company’s Form 10-Q for the quarter ended June 30, 2009 were reclassified to conform to the June 30, 2010 presentation.

NOTE 5 - INVESTMENT SECURITIES

Securities Available-for-Sale

The amortized cost and estimated fair values of securities available-for-sale were:

	Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
June 30, 2010
Government-sponsored enterprises	$	9,038,462	$	312,377	$	—	$	9,350,839
Obligations of state and local governments		11,657,178		298,586		20,415		11,935,348
Other		200,000		—		—		200,000
Total	$	20,895,640	$	610,963	$	20,415	$	21,486,187
December 31, 2009
Government-sponsored enterprises	$	11,550,964	$	244,051	$	27,959	$	11,767,056
Obligations of state and local governments		12,432,461		247,181		26,521		12,653,121
Other		200,000		—		—		200,000
Total	$	24,183,425	$	491,232	$	54,480	$	24,620,177

The following table shows gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2010 and December 31, 2009.

8

COMMUNITYCORP

Notes to Condensed Consolidated Financial statements

NOTE 5 - INVESTMENT SECURITIES –(continued)

	June 30, 2010				December 31, 2009
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Less Than 12 Months
Government-sponsored enterprises	$	—	$	—	$	1,874,183	$	27,959
Obligations of state and local governments		996,697		14,877		887,972		17,701
		996,697		14,877		2,762,155		45,660
12 Months or More
Obligations of state and local governments		200,000		5,538		191,180		8,820
Total	$	1,196,697	$	20,415	$	2,953,335	$	54,480

A total of five available-for-sale securities were in a loss position at June 30, 2010. Of these securities, only one was in a loss position of twelve months or more, which consisted of an obligation of a state and local government. The Company believes that the deterioration in value is attributable to changes in market interest rates and not in credit quality and considers these losses temporary. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell these securities before recovery of their amortized costs. Management evaluates investment securities in a loss position based on length of impairment, severity of impairment and other factors.

Management determined that impairment related to certain securities were not temporary in nature at June 30, 2009. Other then temporary impairment losses were $461,935 for the six months ended June 30, 2009. There were no other than temporary impairment losses for the six months ended June 30, 2010.

The amortized cost and estimated fair values of securities available-for-sale based on their contractual maturities are summarized below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations without penalty.

	June 30, 2010
	Amortized Cost		Fair Value
Due in one year or less	$	610,339	$	619,035
Due after one year but within five years		1,829,477		1,882,368
Due after five years but within ten years		9,447,327		9,650,906
Due after ten years		3,469,896		3,507,930
		15,357,038		15,658,364
Mortgage-backed securities		5,538,601		5,827,823
Total	$	20,895,640	$	21,486,187

Securities Held-To-Maturity

The amortized cost and estimated fair values of securities held-to-maturity were:

	Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
June 30, 2010 -
Obligations of state and local governments	$	299,866	$	8,908	$	—	$	308,774
December 31, 2009 -
Obligations of state and local governments	$	564,821	$	7,294	$	—	$	572,115

9

COMMUNITYCORP

Notes to Condensed Consolidated Financial statements

NOTE 5 - INVESTMENT SECURITIES –(continued)

The amortized cost and estimated fair values of securities held-to-maturity based on their contractual maturities are summarized below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations without penalty.

	June 30, 2010
	Amortized Cost		Fair Value
Due after one year but within five years	$	99,866	$	101,068
Due after five years but within ten years		200,000		207,706
	$	299,866	$	308,774

NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value Measurements

Fair value is 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. The Company utilizes a fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows:

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.

Assets Measured at Fair Value on a Recurring Basis

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

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 securities traded on an active exchange, such as the New York Stock Exchange, as well as 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.

The table below presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2010, and December 31, 2009, aggregated by the level in the fair value hierarchy within which those measurements fall.

10

COMMUNITYCORP

Notes to Condensed Consolidated Financial statements

NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS –(continued)

	Total		Level 1		Level 2		Level 3
June 30, 2010
Available for Sale Securities
Government-sponsored enterprises	$	9,350,839	$	—	$	9,350,839	$	—
Obligations of state and local governments		11,935,348		—		11,935,348		—
Other		200,000		—		200,000		—
Total	$	21,486,187	$	—	$	21,486,187	$	—
	Total		Level 1		Level 2		Level 3
December 31, 2009
Available for Sale Securities:
Government-sponsored enterprises	$	11,767,056	$	—	$	11,767,056	$	—
Obligations of state and local governments		12,653,121		—		12,653,121		—
Other		200,000		—		200,000		—
Total	$	24,620,177	$	—	$	24,620,177	$	—

There were no liabilities carried at fair value at June 30, 2010 or December 31, 2009.

Assets Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis. These instruments are not measured at fair value on an ongoing basis, but subject to fair value in certain circumstances, such as when there is evidence of impairment that may require write-downs. The write-downs of the Company’s more significant assets or liabilities, which are measured on a nonrecurring basis, are based on the lower of amortized or estimated fair value.

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

Impaired Loans - The Company is predominantly an asset-based lender with real estate serving as collateral on a substantial majority of loans. Loans that are deemed impaired are primarily valued on a nonrecurring basis 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.

Other Real Estate Owned - Other real estate owned consists of assets acquired in settlement of loans and is carried at the lower of carrying value or fair value on a non-recurring basis. The fair value is dependent primarily upon independent appraisals, which the Company considers Level 2 inputs.

The table below presents the Company’s assets measured at fair value on a nonrecurring basis as of June 30, 2010, and December 31, 2009, aggregated by the level in the fair value hierarchy within which those measurements fall.

	Total		Level 1		Level 2		Level 3
June 30, 2010
Impaired loans	$	8,354,565	$	—	$	8,354,565	$	—
Other real estate owned		340,000		—		340,000		—
Total assets at fair value	$	8,694,565	$	—	$	8,694,565	$	—
December 31, 2009
Impaired loans	$	8,758,272	$	—	$	8,758,272	$	—
Other real estate owned		340,000		—		340,000		—
Total assets at fair value	$	9,098,272	$	—	$	9,098,272	$	—

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COMMUNITYCORP

Notes to Condensed Consolidated Financial statements

NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS –(continued)

There were no liabilities carried at fair value at June 30, 2010 or December 31, 2009.

Fair Value Disclosures

The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. Premise and equipment, accrued interest receivable, other assets, accrued interest payable and other liabilities are not considered financial instruments. The following methods and assumptions were used to estimate the fair value of significant financial instruments:

Cash and Due from Banks - The carrying amount is a reasonable estimate of fair value.

Federal Funds Sold - Federal funds sold are typically for a term of one day, and the carrying amount approximates the fair value.

Time Deposits with Other Banks - The carrying value of these instruments is a reasonable estimate of fair value.

Investment Securities - The fair values of marketable securities held-to-maturity are based on quoted market prices or dealer quotes. For securities available-for-sale, fair value equals the carrying amount, which is the quoted market price. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. The carrying amount of nonmarketable securities is a reasonable estimate of fair value since no ready market exists for these securities.

Loans Receivable - For certain categories of loans receivable, such as variable rate loans which are repriced frequently and have no significant change in credit risk and credit card receivables, fair values are based on the carrying amounts. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to the borrowers with similar credit ratings and for the same remaining maturities.

Deposits - The fair value of demand deposits, interest–bearing transaction, savings, and money market accounts is the amount payable on demand at the reporting date. The fair values of time deposits are estimated using a discounted cash flow calculation

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

	June 30, 2010				December 31, 2009
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Cash and due from banks	$	20,786,292	$	20,786,292	$	15,664,266	$	15,664,266
Federal funds sold		1,980,000		1,980,000		2,030,000		2,030,000
Time deposits with other banks		1,250,000		1,250,000		1,500,000		1,500,000
Securities available-for-sale		21,486,187		21,486,187		24,620,177		24,620,177
Securities held-to-maturity		299,867		308,774		564,821		572,115
Nonmarketable equity securities		302,400		302,400		302,300		302,300
Loans receivable, gross		111,873,551		111,709,490		116,458,480		115,567,742
Financial Liabilities:
Demand deposit, interest-bearing transaction, money market, and savings accounts	$	51,841,451	$	51,841,451	$	54,159,268	$	54,159,268
Time deposits		91,440,055		91,702,885		92,528,728		92,710,544
	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
Off-Balance Sheet Financial Instruments:
Commitments	$	6,523,000	$	—	$	7,064,000	$	—
Standby letters of credit		785,000		—		825,000		—

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Notes to Condensed Consolidated Financial statements

NOTE 7 - SUBSEQUENT EVENTS

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Nonrecognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through the date the financial statements were issued and no subsequent events occurred requiring accrual or disclosure.

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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 June 30, 2010 compared to December 31, 2009, and the results of operations for the three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009. These comments should be read in conjunction with the Company’s condensed consolidated 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 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

For the six months ended June 30, 2010 we incurred a net loss of $31,575, or $0.14 per share compared to a net income of $283,595, or $1.21 per share for the six months ended June 30, 2009. For the quarter ended June 30, 2010 we incurred a net loss of $236,680, or $1.02 per share compared to $302,476, or $1.29 per share for the quarter ended June 30, 2009. Our net income declined $315,170 and $539,156 for the six and three months ended June 30, 2010 and 2009, respectively.

The decrease in our net income for both periods is mainly attributable to the increase in the volume of our problem loans. Defaults by our borrowers increased substantially during 2009 and continues into 2010, resulting in the recording of higher provisions for credit losses and higher net charge-offs. For the six and three months ended June 30, 2010, we recorded a provision for loan losses of $1,211,000 and $846,000, respectively compared to $180,000 and $90,000 , respectively for the comparable 2009 periods. Our net charge offs for the six and three months ended June 30, 2010 was $1,108,203 and $759,839 compared to $97,499 and $79,121 for the six and three months ended June 30, 2009, respectively.

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 six months ended June 30, 2010, was $2,806,378 compared to $2,695,038 for the same period last year, an increase of $111,340, or 4.13%. For the quarter ended June 30, 2010, net interest income was $1,348,740 compared to $1,342,351 for the quarter ended June 30, 2009, an increase of $6,389, or 0.48%. The increases in both periods is mainly attributable to the decline in market interest rates, which resulted in the average cost of our interest-bearing liabilities declining 100 and 96 basis points, while our the average yield on our earning assets declined 59 and 66 basis points for the six and three months ended June 30, 2010 and 2009, respectively. The high percentage of fixed rate loans, which we maintain, tends to minimize the effect of falling interest rates.

For the six months ended June 30, 2010, average-earning assets totaled $141,435,485 with an annualized average yield of 5.46%, compared to $149,987,769 and 6.04%, respectively, for the same period last year. Average interest-bearing liabilities totaled $131,894,540 with an annualized average cost of 1.78% for the six months ended June 30, 2010, compared to $130,452,269 and 2.78%, respectively, for the same period last year. For the quarter ended June 30, 2010, average-earning assets totaled $146,323,589 with an annualized average yield of 5.23%, compared to $151,186,286 and 5.89%, respectively, for the same period last year. Average interest-bearing liabilities totaled $132,657,863 with an annualized average cost of 1.69% for the three months ended June 30, 2010, compared to $132,629,235 and 2.66%, respectively, for the same period last year.

Our net interest margin and net interest spread was 3.86% and 3.68%, respectively for the six months ended June 30, 2010, compared to 3.62% and 3.26%, respectively for the six months ended June 30, 2009. For the quarter ended June 30, 2010 our net interest margin and our net interest spread was 3.70% and 3.54%, respectively compared to 3.56% and 3.24%, respectively, for the quarter ended June 30, 2009.

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

Net Interest Income –(continued)

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

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 78.25% and 76.90% of average earning assets for the six months ended June 30, 2010 and 2009, respectively, and 77.49%, and 76.44% for the quarter ended June 30, 2010 and 2009, respectively. Loan interest income for the six months ended June 30, 2010 totaled $3,521,176 compared to $3,931,837 for the same period in 2009. The annualized average yield on loans was 6.18% and 6.87% for the six months ended June 30, 2010 and 2009, respectively. Loan interest income for the quarter ended June 30, 2010 totaled $1,685,719 compared to $1,945,666 for the same period in 2009. For the quarter ended June 30, 2010 and 2009 the annualized average yield on loans was 5.96% and 6.75%, respectively. Average balances of loans decreased to $114,831,290 during the six months ended June 30, 2010, a decrease of $507,343 over the average of $115,338,643 during the comparable period in 2009. For the quarter ended June 30, 2010, the average balances of loans decreased by $2,173,393 from the average balances of loans of $115,562,115 for the quarter ended June 30, 2009, to $113,388,722, for the quarter ended June 30, 2009. The decrease in the annualized yield on loans for both periods is mainly attributable to the decline in market interest rates, the significant increase of in net loans charged off, and the significant increase in our nonaccruing loans. Fixed rate loans averaged approximately 96% and 98% of our loan portfolio during the first six months of 2010 and 2009, respectively.

Investment securities averaged $23,125,422, or 15.76% of average earning assets, for the six months ended June 30, 2010, compared to $27,455,540, or 18.31% of average earning assets, for the same period in 2009. For the quarter ended June 30, 2010, investment securities averaged $22,333,022, or 15.26%, of average earning assets compared to $27,061,512, or 17.90%, of average earnings assets, for the same period in 2009. Interest earned on investment securities amounted to $413,857 for the six months ended June 30, 2010, compared to $526,862 for the same period last year. For the quarter ended June 30, 2010, interest earned on investment securities amounted to $199,274 compared to $254,191 for the same period last year. Investment securities yielded 3.61 % and 3.87% for the six months ended June 30, 2010 and 2009, respectively. For the quarter ended June 30, 2010 and 2009 the yields on investment securities was 3.58% and 3.77%, respectively.

The largest component of interest expense is interest on deposit accounts. Interest expense for deposit accounts was $1,165,237 and $1,800,483, for the six months ended June 30, 2010 and 2009, respectively. For the quarter ended June 30, 2010 and 2009, interest expense was $559,978 and $877,955, respectively. The average balance of interest bearing deposits increased to $131,894,247 during the six months ended June 30, 2010 from $130,450,330 during the same period last year. During the quarter ended June 30, 2010, the average balances of interest bearing deposits increased to $132,657,863 from $132,629,235 for the same period last year. The annualized average cost of deposits was 1.78% for the six months ended June 30, 2010, compared to 2.78% for the same period in 2009. For the quarter ended June 30, 2010 and 2009, the annualized average cost of deposits was 1.69% and 2.66%, respectively. The decline in the annualized cost of our deposits is due to our decision to lower the rates we paid for deposit accounts. Previously, we were paying the highest rates in our market area.

For the six months ended June 30, 2010 and 2009, interest expense on other interest-bearing liabilities was insignificant. We did not have any interest expense related to other borrowings for the three months ended June 30, 2010 or 2009.

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

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.

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 1.93% and 1.80% of total loans at June 30, 2010 and 2009 respectively. The allowance for loan losses at June 30, 2010 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 June 30, 2010 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 the six months ended June 30, 2010, the provision charged to expense was $1,211,000 as compared to $180,000 for the same period in 2009. For the three months ended June 30, 2010 and 2009, the provision charged to expense was $846,000 and $90,000 respectively.

Noninterest Income

Noninterest income for the six months ended June 30, 2010 was $280,997 compared to a net loss of $137,615 for the comparable 2009 period. The increase is mostly attributable to the write down of our investment securities for being other than temporarily impaired during the six months ended June 30, 2009. Excluding the write downs, our noninterest income for the Six and three months ended June 30, 2010 was $280,997 and $140,244, respectively compared to $324,320 and $152,361, for the same 2009 periods, respectively. The decline in the adjusted noninterest income for both periods is attributable to the decline in services charges earned on deposit accounts due to the closing of problematic accounts.

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

Noninterest Expense

Total noninterest expense for the six months ended June 30, 2010 and 2009 was $1,930,200 and $1,973,190, respectively. This represented a decrease of $42,990, or 2.18%. Salaries and employee benefits increased $13,074, or 1.31%, from $997,725 for the six months ended June 30, 2009 to $1,010,799 for the comparable period in 2010. For the six months ended June 30, 2009, other operating expense was $613,163 or $53,907, lower than the six months ended June 30, 2009. Net occupancy and equipment expense decreased from $308,395 for the six ended June 30, 2009, to $306,238 for the comparable period in 2010.

Noninterest expense was $976,915 and $1,042,598 for the quarter ended June 30, 2010 and 2009, respectively. This represents a decrease of $65,683, or 6.30%. The increase is mainly due to the $80,000 special FDIC assessment for deposit insurance. Compared to the quarter ended June 30, 2009, salaries and benefits increased $29,462, or 6.05% to $516,696, net occupancy and equipment expense decreased $2,136, or 1.46% to $149,926 and other operating expenses decreased $93,009, or 23.06% to $310,293.

Income Taxes

The income tax provision for the six and three months ended June 30, 2010 reflect s an income tax benefit of $22,250 and $97,250, respectively compared to a income tax expense of $120,638 and $59,638, respectively for the comparable 2009 periods. The changes in the tax provisions relates to the changes in pre-tax income and by the relationship of the amount of non deductible items for income tax purposes that were included in net income (loss before taxes.

Assets and Liabilities

During the first six months of 2010, total assets decreased $3,586,293, or 2.17%, when compared to December 31, 2009. The decrease in total assets was mainly attributable to investments and investment securities, which decreased $3,398,845.

For the six months ended June 30, 2010 total liabilities decreased $3,440,053, or 2.33% from December 31, 2009 and deposits decreased $3,406,490, or 2.32%.

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 demands.

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

Loans

At June 30, 2010, our total loans were $111,873,551 compared to $116,458,480 at December 31, 2009, a decrease of $4,584,929, or 3.94%. At June 30, 2010 and 2009, approximately 96% and 98%, respectively, of our loan portfolio consisted of fixed rate loans. Balances within the major loans receivable categories as of June 30, 2010 and December 31, 2009 are as follows

	June 30, 2010		December  31, 2009
Real estate – construction	$	2,425,335	$	3,256,857
Real estate – mortgage		28,852,813		31,601,663
Commercial and industrial		73,410,705		71,750,588
Consumer and other		8,184,698		9,849,372
	$	111,873,551	$	116,458,480
The loan portfolio consisted of loans having:
Variable rates loans	$	4,107,408	$	3,802,991
Fixed rates		107,766,143		112,655,489
Total gross loans	$	111,873,551	$	116,458,480

Risk Elements in the Loan Portfolio

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

	June 30,
	2010			2009
Nonaccrual loans	$	5,458,220		$	2,488,307
Total loans impaired not in nonaccrual		3,175,003			3,261,070
Total impaired loans		8,633,223			5,749,377
Loans 90 days or more past due and still accruing interest		2,973			3,072
Total impaired and nonperforming loans		8,636,196			5,752,449
Other real estate owned		340,000			75,000
Total impaired and nonperforming assets	$	8,976,196		$	5,827,449
Total impaired and nonperforming loans to total loans		7.72	%		5.07	%
Allowance for loan losses as a percentage of impaired and nonperforming loans		24.97	%		35.88	%
Total nonperforming assets to total assets		5.55	%		3.59	%

The following tables summarize information on impaired loans at and for the years ended June 30, 2010 and 2009.

	2010		2009
Impaired loans with specific allowance	$	1,067,605	$	1,322,150
Impaired loans with no specific allowance		7,565,618		4,427,227
Total impaired loans	$	8,633,223	$	5,749,377
Related specific allowance	$	278,658	$	437,834
Average recorded investment in impaired loans	$	8,707,205	$	5,228,528

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

At June 30, 2010 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:

	June 30,
	2010			2009
Balance, January 1,	$	2,053,340		$	1,981,637
Provision for loan losses for the period		1,211,000			180,000
Net loans (charged-off) recovered for the period		(1,108,203	)		(97,499	)
Balance, end of period	$	2,156,137		$	2,064,138
Gross loans outstanding, end of period	$	111,983,351		$	114,848,357
Allowance for loan losses to loans outstanding		1.93	%		1.80	%

Deposits

Total deposits decreased $3,406,490, or 2.32% from December 31, 2009. Interest-bearing deposits decreased $3,906,028 to $128,618,647 at June 30, 2010. Noninterest-bearing deposits increased $499,538 to $14,662,859 at June 30, 2010. Expressed in percentages, interest-bearing deposits decreased 2.95% and noninterest-bearing deposits increased 3.53%.

Balances within the major deposit categories are as follows:

	June 30, 2010		December  31, 2009
Noninterest-bearing demand deposits	$	14,662,859	$	14,163,321
Interest-bearing demand deposits		20,349,745		26,584,806
Savings deposits		16,828,847		13,411,141
Certificates of deposits		91,440,055		92,528,728
	$	143,281,506	$	146,687,996

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 78.08% at June 30, 2010 and 79.39% at December 31, 2009.

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.

At June 30, 2010 the Bank had available an unused short-term line of credit to purchase up to $10,000,000 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 June 30, 2010, the available credit totaled approximately $24,700,000 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.

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

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 Six Months and Three Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009 – Net Interest Income,” our net interest margin and net interest spread increased during both periods. If net interest margin were to decline, net income will likely decline.

Capital Resources

Total shareholders’ equity decreased from $17,745,653 at December 31, 2009 to $17,599,413 at June 30, 2010. The net decrease of $146,240 is attributable to the net loss for the period of $31,575, the payment of a cash dividend of $117,001 and the purchase of treasury stock of $98,401. These decreases were offset by the net increase of $100,737 in the fair value of securities available-for-sale, net of income taxes.

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%.

The following table summarizes the Bank’s risk-based capital at June 30, 2010:

Shareholders’ equity	$	17,187,246
Less: intangibles		—
Tier 1 capital		17,187,246
Plus: allowance for loan losses (1)		1,526,988
Total capital	$	18,714,234
Net risk-weighted assets	$	122,159,000
Risk-based capital ratios
Tier 1 capital (to risk-weighted assets)		14.07	%
Total capital (to risk-weighted assets)		15.32	%
Tier 1 capital (to quarterly average assets)		10.34	%

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

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

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 June 30, 2010, we had issued commitments to extend credit of approximately $875,000 and standby letters of credit of approximately $6,523,000 through various types of commercial lending arrangements. We evaluate each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate.

Critical Accounting Policies

We have adopted various accounting policies, 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, 2009 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.

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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COMMUNITYCORP

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 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, 2009.

Item 3 Default Upon Senior Securities

Not applicable

Item 4 Removed and Reserved

Not applicable

Item 5 Other Information

On April 28,2010, the Company held its Annual Meeting of Shareholders for the purpose of electing three directors for three-year terms.

The nominees for director received the number of affirmative votes of shareholders required for such nominee’s election in accordance with the Bylaws of the Company with 148,109 shares voting for cast for the nominees out of an approximately 234,003 outstanding shares. During the election, there were no abstention votes and, no votes against any of the nominees

Item 6. Exhibits

(a) Exhibits – The following exhibits are filed with this report.

31.1	Rule 15d-14(a) Certifications
31.2	Rule 15d-14(a) Certifications
32	Section 1350 Certifications

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COMMUNITYCORP

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: August 12, 2010 By:	/s/ W. ROGER CROOK
		W. Roger Crook
		President & Chief Executive Officer
Date: August 12, 2010 By:	/s/ GWEN P. BUNTON
		Gwen P. Bunton
		Chief Financial Officer

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