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Table of Contents
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
 
(Mark One)
 
x
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended September 30, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
 
For the Transition Period from             to            
 
Commission File Number 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
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  YES  x  NO  ¨
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the date of this filing.
 
274,529 shares of common stock, $5 par value, as of October 31, 2002
 
PAGE 1 OF 15
EXHIBIT INDEX ON PAGE 2
 

Table of Contents
 
COMMUNITYCORP
 
Index
 
        
Page No.
PART I.    FINANCIAL INFORMATION
     
Item 1.
  
Financial Statements (Unaudited)
     
      
3  
      
4  
      
5  
      
6  
      
7-8  
Item 2.
     
9-13
Item 4.
     
14
PART II.    OTHER INFORMATION
     
Item 6.
     
15
   
(a)     Exhibits
   
15
      
15
  
16
  
17-18

Table of Contents
 
COMMUNITYCORP
 
Condensed Consolidated Balance Sheets
 
    
September 30,
2002
     
December 31, 2001
  
    
(Unaudited)
         
Assets:
                  
Cash and cash equivalents:
                  
Cash and due from banks
   
$
4,503,419
 
   
$
3,841,132
 
Federal funds sold and securities purchased under agreements to resell
   
 
15,396,000
 
   
 
18,062,000
 
    
  
Total cash and cash equivalents
   
 
19,899,419
 
   
 
21,903,132
 
    
  
Time deposits with other banks
   
 
299,000
 
   
 
299,000
 
Investment securities:
                  
Securities available-for-sale
   
 
14,463,074
 
   
 
11,343,473
 
Nonmarketable equity securities
   
 
332,375
 
   
 
330,375
 
Securities held-to-maturity (estimated market value of $3,182,751 and $3,530,683 at September 30, 2002 and December 31, 2001, respectively)
   
 
3,055,902
 
   
 
3,499,225
 
    
  
Total investment securities
   
 
17,851,351
 
   
 
15,173,073
 
    
  
Loans receivable
   
 
76,113,112
 
   
 
71,358,930
 
Less allowance for loan losses
   
 
(1,298,751
)
   
 
(1,231,051
)
    
  
Loans, net
   
 
74,814,361
 
   
 
70,127,879
 
Accrued interest receivable
   
 
870,287
 
   
 
911,811
 
Premises, furniture & equipment, net
   
 
2,097,994
 
   
 
2,013,147
 
Other assets
   
 
433,809
 
   
 
422,126
 
    
  
Total assets
   
$
116,266,221
 
   
$
110,850,168
 
    
  
Liabilities and Shareholders’ Equity:
                  
Liabilities:
                  
Deposits:
                  
Noninterest-bearing
   
$
12,655,881
 
   
$
9,230,016
 
Interest-bearing
   
 
90,814,830
 
   
 
89,190,295
 
    
  
    
 
103,470,711
 
   
 
98,420,311
 
Short-term borrowings
   
 
310,000
 
   
 
560,000
 
Accrued interest payable
   
 
471,481
 
   
 
717,570
 
Other liabilities
   
 
129,758
 
   
 
150,176
 
    
  
Total liabilities
   
 
104,381,950
 
   
 
99,848,057
 
    
  
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
   
 
1,731,708
 
   
 
1,731,708
 
Accumulated other comprehensive income
   
 
149,106
 
   
 
51,132
 
Retained earnings
   
 
9,610,128
 
   
 
8,648,977
 
Treasury stock (25,471 shares in 2002 and 21,594 shares in 2001)
   
 
(1,106,671
)
   
 
(929,706
)
    
  
Total shareholders’ equity
   
 
11,884,271
 
   
 
11,002,111
 
    
  
Total liabilities and shareholders’ equity
   
$
116,266,221
 
   
$
110,850,168
 
    
  
 
See notes to condensed consolidated financial statements

3

Table of Contents
 
COMMUNITYCORP
 
Condensed Consolidated Statements of Income
(Unaudited)
 
    
Nine Months Ended
September 30,
   
Three Months Ended
September 30,
    
2002
   
2001
   
2002
   
2001
Interest income:
                            
Loans, including fees
   
$
4,437,450
   
$
4,813,491
   
$
1,502,681
   
$
1,607,171
Securities
   
 
538,676
   
 
619,965
   
 
175,244
   
 
163,520
Other interest income
   
 
250,416
   
 
649,616
   
 
84,912
   
 
170,404
    
  
  
  
Total
   
 
5,226,542
   
 
6,083,072
   
 
1,762,837
   
 
1,941,095
    
  
  
  
Interest expense:
                            
Deposit accounts
   
 
2,041,371
   
 
3,168,829
   
 
630,153
   
 
981,175
Other interest expense
   
 
3,274
   
 
16,374
   
 
995
   
 
3,899
    
  
  
  
    
 
2,044,645
   
 
3,185,203
   
 
631,148
   
 
985,074
    
  
  
  
Net interest income
   
 
3,181,897
   
 
2,897,869
   
 
1,131,689
   
 
956,021
Provision for loan losses
   
 
240,000
   
 
192,000
   
 
90,000
   
 
50,000
    
  
  
  
Net interest income after provision for loan losses
   
 
2,941,897
   
 
2,705,869
   
 
1,041,689
   
 
906,021
    
  
  
  
Other operating income:
                            
Service charges
   
 
270,712
   
 
255,768
   
 
95,586
   
 
100,704
Other income
   
 
87,276
   
 
96,782
   
 
29,227
   
 
29,582
    
  
  
  
Total
   
 
357,988
   
 
352,550
   
 
124,813
   
 
130,286
    
  
  
  
Other operating expenses:
                            
Salaries and benefits
   
 
852,751
   
 
809,093
   
 
291,105
   
 
270,114
Net occupancy expense
   
 
118,861
   
 
117,364
   
 
43,277
   
 
43,248
Equipment expense
   
 
194,726
   
 
192,979
   
 
64,308
   
 
65,049
Other operating expenses
   
 
477,450
   
 
530,806
   
 
163,499
   
 
158,737
    
  
  
  
Total
   
 
1,643,788
   
 
1,650,242
   
 
562,189
   
 
537,148
    
  
  
  
Income before taxes
   
 
1,656,097
   
 
1,408,177
   
 
604,313
   
 
499,159
Income tax provision
   
 
531,099
   
 
445,900
   
 
197,000
   
 
163,999
    
  
  
  
Net income
   
$
1,124,998
   
$
962,277
   
$
407,313
   
$
335,160
    
  
  
  
Earnings per share:
                            
Weighted average common shares outstanding
   
 
277,134
   
 
280,710
   
 
275,567
   
 
279,721
    
  
  
  
Net income per common share
   
$
4.06
   
$
3.43
   
$
1.48
   
$
1.20
    
  
  
  
 
See notes to condensed consolidated financial statements
 

4

Table of Contents
 
COMMUNITYCORP
 
Condensed Consolidated Statement of Shareholders’ Equity and Comprehensive Income
for the nine months ended September 30, 2002 and 2001
(Unaudited)
 
    
Common Stock
   
Capital
Surplus
     
Accumulated
Other
Comprehensive
Income
     
Retained
Earning
     
Treasury
Stock
     
Total
  
    
Shares
   
Amount
                 
Balance, December 31, 2000
   
300,000
   
$
1,500,000
   
$
1,731,708
     
$
(71,480
)
   
$
7,500,834
 
   
$
(781,206
)
   
$
9,879,856
 
Cash dividends declared—$.55 per share
                                 
 
(154,938
)
            
 
(154,938
)
Net income for the period
                                 
 
962,277
 
            
 
962,277
 
Other comprehensive income, net of taxes
                        
 
172,377
 
                     
 
172,377
 
                                                    
Comprehensive Income
                                                   
 
1,134,654
 
                                                    
Purchase of treasury Stock
                                          
 
(90,000
)
   
 
(90,000
)
    
  
  
    
  
  
  
Balance, September 30, 2001
   
300,000
   
$
1,500,000
   
$
1,731,708
     
$
100,897
 
   
$
8,308,173
 
   
$
(871,206
)
   
$
10,769,572
 
    
  
  
    
  
  
  
Balance, December 31, 2001
   
300,000
   
$
1,500,000
   
$
1,731,708
     
$
51,132
 
   
$
8,648,977
 
   
$
(929,706
)
   
$
11,002,111
 
Cash dividends declared—$.59 per share
                                 
 
(163,847
)
            
 
(163,847
)
Net income for the period
                                 
 
1,124,998
 
            
 
1,124,998
 
Other comprehensive income, net of taxes
                        
 
97,974
 
                     
 
97,974
 
                                                    
Comprehensive Income
                                                   
 
1,222,972
 
                                                    
Purchase of treasury stock
                                          
 
(176,965
)
   
 
(176,965
)
    
  
  
    
  
  
  
Balance, September 30, 2002
   
300,000
   
$
1,500,000
   
$
1,731,108
     
$
149,106
 
   
$
9,610,128
 
   
$
(1,106,671
)
   
$
11,884,271
 
    
  
  
    
  
  
  
 
See notes to condensed consolidated financial statements

5

Table of Contents
 
COMMUNITYCORP
 
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
    
Nine Months Ended
September 30,
  
    
2002
     
2001
  
Cash flows from operating activities:
                  
Net income
   
$
1,124,998
 
   
$
962,277
 
Adjustments to reconcile net income to net cash provided by operating activities:
                  
Depreciation
   
 
144,091
 
   
 
140,961
 
Provision for possible loan losses
   
 
240,000
 
   
 
192,000
 
Amortization less accretion on investments
   
 
27,690
 
   
 
11,308
 
Amortization of deferred loan costs
   
 
49,951
 
   
 
58,971
 
Gain on sale of premises and equipment
   
 
(13,268
)
   
 
—  
 
(Increase) decrease in interest receivable
   
 
41,524
 
   
 
182,938
 
Increase (decrease) in interest payable
   
 
(246,090
)
   
 
36,238
 
(Increase) decrease in other assets
   
 
(65,285
)
   
 
42,400
 
Increase (decrease) in other liabilities
   
 
(20,418
)
   
 
43,698
 
    
  
Net cash provided by operating activities
   
 
1,283,193
 
   
 
1,670,791
 
    
  
Cash flows from investing activities:
                  
Net increase in loans to customers
   
 
(4,976,433
)
   
 
(1,696,184
)
Purchases of securities available-for-sale
   
 
(15,707,734
)
   
 
(11,323,613
)
Maturities of securities available-for-sale
   
 
12,712,092
 
   
 
19,208,759
 
Maturities of securities held-to-maturity
   
 
441,251
 
   
 
958,505
 
Proceeds from disposal of premises and equipment
   
 
15,702
 
   
 
—  
 
Purchases of premises and equipment
   
 
(231,372
)
   
 
(11,697
)
    
  
Net cash provided (used) by investing activities
   
 
(7,746,494
)
   
 
7,135,770
 
    
  
Cash flows from financing activities:
                  
Net increase in demand accounts
   
 
5,050,400
 
   
 
4,652,982
 
(Decrease) increase in short-term borrowings
   
 
(250,000
)
   
 
(150,000
)
Dividends paid
   
 
(163,847
)
   
 
(154,938
)
Purchase of treasury stock
   
 
(176,965
)
   
 
(90,000
)
    
  
Net cash provided by financing activities
   
 
4,459,588
 
   
 
4,258,044
 
    
  
Net increase in cash and cash equivalents
   
 
(2,003,713
)
   
 
13,064,605
 
Cash and cash equivalents, beginning of period
   
 
21,903,132
 
   
 
8,825,660
 
    
  
Cash and cash equivalents, end of period
   
$
19,899,419
 
   
$
21,890,265
 
    
  
Cash paid during the period for:
                  
Income taxes
   
$
755,787
 
   
$
494,588
 
Interest
   
$
2,290,734
 
   
$
3,148,965
 
 
See notes to condensed consolidated financial statements

6

Table of Contents
 
COMMUNITYCORP
 
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
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 September 30, 2002 and for the interim periods ended September 30, 2002 and 2001 are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. The financial information as of December 31, 2001 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 2001 Annual Report.
 
NOTE 2—COMPREHENSIVE INCOME
 
The components of other comprehensive income and related tax effects are as follows:
 
    
Pre-tax Amount
   
(Expense)
Benefit
     
Net-of-tax
Amount
For the Nine Months Ended September 30, 2002:
                       
Unrealized gains (losses) on securities available-for-sale
   
$
149,577
   
$
(51,603
)
   
$
97,974
Plus: reclassification adjustment for gains (losses) realized in net income
   
 
—  
   
 
—  
 
   
 
—  
    
  
  
Net unrealized gains (losses) on securities
   
$
149,577
   
$
(51,603
)
   
$
97,974
    
  
  
Other comprehensive income
   
$
149,577
   
$
(51,603
)
   
$
97,974
    
  
  
    
Pre-tax Amount
   
(Expense)
Benefit
     
Net-of-tax
Amount
For the Nine Months Ended September 30, 2001:
                       
Unrealized gains (losses) on securities available-for-sale
   
$
261,626
   
$
(89,249
)
   
$
172,377
Plus: reclassification adjustment for gains (losses) realized in net income
   
 
—  
   
 
—  
 
   
 
—  
    
  
  
Net unrealized gains (losses) on securities
   
 
261,626
   
 
(89,249
)
   
 
172,377
    
  
  
Other comprehensive income
   
$
261,626
   
$
(89,249
)
   
$
172,377
    
  
  

7

Table of Contents
 
COMMUNITYCORP
 
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
NOTE 2—COMPREHENSIVE INCOME—continued
 
    
Pre-tax
Amount
   
(Expense)
Benefit
     
Net-of-tax
Amount
For the Three Months Ended September 30, 2002:
                       
Unrealized gains (losses) on securities available-for-sale
   
$
59,259
   
$
(20,444
)
   
$
38,815
Plus: reclassification adjustment for gains (losses) realized in net income
   
 
—  
   
 
—  
 
   
 
—  
    
  
  
Net unrealized gains (losses) on securities
   
 
59,259
   
 
(20,444
)
   
 
38,815
    
  
  
Other comprehensive income
   
$
59,259
   
$
(20,444
)
   
$
38,815
    
  
  
    
Pre-tax
Amount
   
(Expense)
Benefit
     
Net-of-tax
Amount
For the Three Months Ended September 30, 2001:
                       
Unrealized gains (losses) on securities available-for-sale
   
$
74,824
   
$
(24,872
)
   
$
49,952
Plus: reclassification adjustment for gains (losses) realized in net income
   
 
—  
   
 
—  
 
   
 
—  
    
  
  
Net unrealized gains (losses) on securities
   
 
74,824
   
 
(24,872
)
   
 
49,952
    
  
  
Other comprehensive income
   
$
74,824
   
$
(24,872
)
   
$
49,952
    
  
  
 
Accumulated other comprehensive income consists solely of the unrealized gain on securities available for sale, net of the deferred tax effects.

8

Table of Contents
 
COMMUNITYCORP
 
Item 2.    Management’s Discussion and Analysis of Financial Condition
 
The following is a discussion of our financial condition as of September 30, 2002 compared to December 31, 2001, and the results of operations for the three and nine months ended September 30, 2002 compared to the three and nine months ended September 30, 2001. These comments should be read in conjunction with our condensed consolidated financial statements and accompanying footnotes appearing in this report.
 
Results of Operations
 
Net Interest Income
 
For the nine months ended September 30, 2002, net interest income increased $284,028 or 9.80%, as compared to the same period in 2001. Interest and fees on loans decreased $376,041 or 7.81% to $4,437,450 for the nine months ended September 30, 2002 as compared to the same period in 2001. Other interest income, which includes interest on federal funds sold, decreased $399,200, or 61.45% to $250,416 for the nine months ended September 30, 2002 when compared to the same period in 2001. Interest income on securities decreased $81,289, or 13.11%, to $538,676 for the nine months ended September 30, 2002 when compared to the same nine months ended September 30, 2001. Although the volume of loans and securities increased during the nine months ended September 30, 2002, the decline in interest rates led to the overall decrease in interest earned on these assets. Interest expense on deposits decreased 35.57% from $3,168,829 for the nine months ended September 30, 2001 to $2,041,371 for the same period ended September 30, 2002. This decrease was also attributable to the decline in the cost of funds. The net interest margin realized on earning assets decreased from 3.64% for the nine months ended September 30, 2001 to 2.49% for the same period in 2002. The interest rate spread decreased from 2.90% as of September 30, 2001 to 1.78% at September 30, 2002.
 
Net interest income increased $175,668, or 18.37%, to $1,131,689 for the quarter ending September 30, 2002 when compared to the same quarter ended September 30, 2001. Interest on loans and fees decreased $104,490 or 6.50% to $1,502,681 for the quarter ended September 30, 2002 when compared to the same period in 2001. Other interest income decreased $85,492, or 50.17% from $170,404 for the quarter ended September 30, 2001 to $84,912 for the quarter ended September 30, 2002. The interest income on securities for the quarter ending September 30, 2002 increased $11,724, or 7.17% to $175,244 when compared to the same period in 2001. Interest expense decreased $353,926 to $631,148 for the quarter ended September 30, 2002 when compared to the same period in 2001. This decrease in the cost of funds during the quarter led to the increase in net interest income when comparing the two quarters. The net interest margin realized on earning assets increased from 3.5% for the quarter ended September 30, 2001 to 4.06% for the quarter ended September 30, 2002. The interest rate spread increased to 3.62% for the quarter ended September 30, 2002 from 2.69% for the quarter ended September 30, 2001.
 
Provision and Allowance for Loan Losses
 
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 nine months ended September 30, 2002, the provision charged to expense was $240,000. This was $48,000 more than for the comparable period in 2001. The provision charged to expense for the quarter ended September 30, 2002 was $90,000 as compared to $50,000 for the same quarter a year ago. The increases in the provision for the quarter and the nine months are attributable to growth in the loan portfolio and an increase in charged-off loans. Based on present information, management believes the allowance for loan losses is adequate at September 30, 2002 to meet presently known and inherent risks in the loan portfolio. The allowance for loan losses is 1.71% of total loans at September 30, 2002, as compared to 1.77% at September 30, 2001.
 
Noninterest Income
 
Noninterest income during the nine months ended September 30, 2002 was $357,988 an increase of $5,438 or 1.54% from the comparable period in 2001. Service charges on deposit accounts increased $14,944 or 5.84% from the period ended September 30, 2001 to $270,712 for the period ended September 30, 2002. Other income decreased 9.82% to $87,276 for the nine months ended September 30, 2002 when compared to the same period ended September 30, 2001.
 
For the quarter ended September 30, 2002, noninterest income decreased $5,473 or 4.20% over the same period in 2001. This decrease is primarily due to service charges, which decreased 5.08% from the quarter ended September 30, 2001 to $95,586 for the quarter ended September 30, 2002.

9

Table of Contents
COMMUNITYCORP
 
Item 2.    Management’s Discussion and Analysis of Financial Condition—continued
 
Noninterest Expense
 
Total noninterest expense for the nine months ended September 30, 2002 was $1,643,788, or .39%, lower than the nine months ended September 30, 2001. Salaries and employee benefits increased from $809,093 for the nine months ended September 30, 2001 to $852,751 for the nine months ended September 30, 2002. This increase is primarily attributable to the addition of several full time employees and a loan officer. Other operating expenses decreased $53,356, or 10.05%, to $477,450 for the nine months ended September 30, 2002 when compared to the same period in 2001. Included in 2001 other operating expenses was $20,983 related to the writedown on a parcel of real estate. There were no writedowns in 2002.
 
For the quarter ended September 30, 2002, noninterest expense increased $25,041, or 4.66%, over the same period in 2001. Salaries and employee benefits increased $20,991, or 7.77%, from $270,114 for the quarter ended September 30, 2001 to $291,105 for the quarter ended September 30, 2002. The increase was due to the same reasons discussed above.
 
Income Taxes
 
The income tax provision for the nine months ended September 30, 2002 was $531,099 as compared to $445,900 for the same period in 2001. This increase was primarily as a result of a increase in income before taxes. The effective tax rates were 32.07% and 31.67% for the nine months ended September 30, 2002 and September 30, 2001, respectively. The effective tax rates were 32.60% and 32.86% for the quarter ended September 30, 2002 and September 30, 2001, respectively.
 
Net Income
 
The combination of the above factors resulted in net income for the nine months ended September 30, 2002 of $1,124,998 as compared to $962,277 for the same period in 2001. This represents a increase of $162,721, or 16.91%, over the same period in 2001. Net income for the quarter ended September 30, 2002 was $407,313, or 21.53% higher than for the same period in 2001. The increase in net interest income is primarily due to the decrease in the cost of funds.
 
Assets and Liabilities
 
During the first nine months of 2002, total assets increased $5,416,053, or 4.89% when compared to December 31, 2001. Total investment securities increased $2,678,278 from December 31, 2001 to $17,851,351 at September 30, 2002. Loans increased $4,754,182, or 6.66%, to $76,113,112 at September 30, 2002. Total deposits also increased by 5.13%, or $5,050,400, from December 31, 2001 to $103,470,711 at September 30, 2002. Noninterest-bearing deposits increased 37.11% from December 31, 2001 to $12,655,881. Interest-bearing deposits increased $1,624,535, or 1.82%, to $90,814,830 at September 30, 2002. This increase was attributable to additional funds received from Charleston County and to normal growth of the Bank.

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Table of Contents
COMMUNITYCORP
 
Item 2.    Management’s Discussion And Analysis Of Financial Condition—continued
 
Loans
 
The demand for loans was strong in the Bank of Walterboro marketplace during the first nine months of 2002. Gross loans increased $4,754,182 or 6.66% during the period. Balances within the major loans receivable categories as of September 30, 2002 and December 31, 2001 are as follows:
 
    
September 30,
2002
   
December 31,
2001
Real estate – construction
   
$
5,423,694
   
$
6,312,748
Real estate – mortgage
   
 
30,102,503
   
 
24,844,649
Commercial and industrial
   
 
27,397,011
   
 
25,868,360
Consumer and other
   
 
13,189,904
   
 
14,333,173
    
  
    
$
76,113,112
   
$
71,358,930
    
  
 
Risk Elements in the Loan Portfolio
 
The following is a summary of risk elements in the loan portfolio:
 
    
 
September 30,
   
 
December 31
    
2002
   
2001
Loans: Nonaccrual loans
   
$
2,985,548
   
$
1,096,532
Accruing loans more than 90 days past due
   
$
—  
   
$
3,000
Loans identified by the internal review mechanism:
              
Criticized
   
$
136,433
   
$
—  
Classified
   
$
3,597,648
   
$
1,764,786
 
Activity in the Allowance for Loan Losses is as follows:
 
    
September 30,
  
    
2002
     
2001
  
Balance, January 1,
   
$
1,231,051
 
   
$
1,173,832
 
Provision for loan losses for the period
   
 
240,000
 
   
 
192,000
 
Net loans (charged-off) recovered for the period
   
 
(172,300
)
   
 
(143,194
)
    
  
Balance, end of period
   
$
1,298,751
 
   
$
1,222,638
 
    
  
Gross loans outstanding, end of period
   
$
76,113,112
 
   
$
69,288,742
 
Allowance for loan losses to loans outstanding
   
 
1.71
%
   
 
1.77
%
 

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COMMUNITYCORP
 
Item 2.    Management’s Discussion And Analysis Of Financial Condition—continued
 
Deposits
 
Total deposits increased $5,050,400 or 5.13% from December 31, 2001. The largest change was an increase in savings deposits. Savings deposits increased $6,514,743 or 38.74% at September 30, 2002. Certificates of deposit decreased $6,032,878 or 10.46% to at September 30, 2002. Expressed in percentages, interest-bearing deposits increased 7.78%. Noninterest-bearing demand deposits increased $3,425,865 or 37.12%. The increase in noninterest-bearing demand deposits was attributable to normal growth of the Bank. The increase in savings deposits is partially attributable to the movement of funds from certificates of deposit to savings deposits anticipating rate increases. The decrease in certificates of deposits is also partially attributable to the withdrawal of certain Colleton County funds.
 
Balances within the major deposit categories as of September 30, 2002 and December 31, 2001 are as follows:
 
    
September 30, 2002
   
December 31, 2001
Noninterest-bearing demand deposits
   
$
12,655,881
   
$
9,230,016
Interest-bearing demand deposits
   
 
15,834,800
   
 
14,692,130
Savings deposits
   
 
23,330,160
   
 
16,815,417
Certificates of deposit
   
 
51,649,870
   
 
57,682,748
    
  
    
$
103,470,711
   
$
98,420,311
    
  
 
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 interest-bearing deposit accounts. The level of liquidity is measured by the loan-to-total funds ratio, which was at 73.34% at September 30, 2002 and 72.09% at December 31, 2001.
 
Securities available-for-sale, which totaled $14,463,074 at September 30, 2002, serves as a ready source of liquidity. The Company also has lines of credit available with correspondent banks to purchase federal funds. At September 30, 2002, unused lines of credit totaled $3,000,000.
 
Capital Resources
 
Total shareholders’ equity increased from $11,002,111 at December 31, 2001 to $11,884,271 at September 30, 2002. The increase of $882,160 is partially attributed to earnings for the period of $1,124,998. Equity was negatively affected by the purchase of treasury stock of $176,965 during the period.
 
Bank holding companies, such as the Company, 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 the Company’s 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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Table of Contents
 
COMMUNITYCORP
 
Item 2.    Management’s Discussion And Analysis Of Financial Condition—continued
 
Capital Resources—continued
 
The following table summarizes the Bank’s risk-based capital at September 30, 2002:
 
Shareholders’ equity
   
$
11,821,741
 
Less: net unrealized gains on securities available-for-sale
   
 
149,577
 
    
Tier 1 capital
   
 
11,672,164
 
    
Plus: allowance for loan losses (1)
   
 
1,016,000
 
    
Total capital
   
$
12,688,164
 
    
Risk-weighted assets
   
$
80,971,000
 
    
Risk-based capital ratios
         
Tier 1 capital (to risk-weighted assets)
   
 
14.42
%
Total capital (to risk-weighted assets)
   
 
15.67
%
Tier 1 capital (to total average assets)
   
 
10.03
%
 
(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 $150,000,000 in consolidated assets.
 
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 September 30, 2002, we had issued commitments to extend credit of $5,469,000 and standby letters of credit of $446,000 through various types of commercial lending agreements. 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.
 
Regulatory Matters
 
The management of the Company is 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.

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COMMUNITYCORP
 
Item 4.    Controls and Procedures
 
(a)    Based on their evaluation of the issuer’s disclosure controls and procedures (as defined in 17 C.F.R. Sections 240.13a-14(c) and 240.15d-14(c)) as of a date within 90 days prior to the filing of this quarterly report, the issuer’s chief executive officer and chief financial officer concluded that the effectiveness of such controls and procedures was adequate.
 
(b)    There were no significant changes in the issuer’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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COMMUNITYCORP
 
PART II—OTHER INFORMATION
 
Item 6.    Exhibits and Reports on Form 8-K
 
(a
)
   
Exhibits
(b
)
   
Reports on Form 8-K—No reports on Form 8-K were filed during the quarter ended September 30, 2002.
 
Items 1, 2, 3, 4, and 5 are not applicable.

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COMMUNITYCORP
 
SIGNATURE
 
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
 
       
By:
  
/s/    W. ROGER CROOK     
               
W. Roger Crook
President & Chief Executive Officer
 
 
Date: November 12, 2002
      
By:
  
/s/    GWEN P. BUNTON        
               
Gwen P. Bunton
Chief Financial Officer

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COMMUNITYCORP
 
CERTIFICATIONS
 
I, W. Roger Crook, certify that:
 
1.
 
I have reviewed this quarterly report on Form 10-Q of Communitycorp;
 
2.
 
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3.
 
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
4.
 
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
 
a)
 
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
b)
 
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
c)
 
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
5.
 
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
 
a)
 
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
 
b)
 
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
 
6.
 
The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
Date: November 12, 2002
      
/s/    W. ROGER CROOK        
           
W. Roger Crook
President and Chief Executive Officer

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Table of Contents
 
COMMUNITYCORP
 
CERTIFICATIONS
 
I, Gwendolyn P. Bunton, certify that:
 
7.
 
I have reviewed this quarterly report on Form 10-Q of Communitycorp;
 
8.
 
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
9.
 
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
10.
 
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
 
d)
 
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
e)
 
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
f)
 
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
11.
 
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
 
c)
 
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
 
d)
 
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
 
12.
 
The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
Date: November 12, 2002
      
/s/    GWEN P. BUNTON        
           
Gwen P. Bunton
Vice President and Cashier

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