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Table of Contents
 
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
x
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 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
(State or other jurisdiction
of incorporation)
  
57-1019001
(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 latest practicable date.
 
300,000 shares of common stock, $5 par value, as of July 31, 2002
 
PAGE 1 OF 1
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
PART II.    OTHER INFORMATION
     
Item 4.
      
14
Item 6.
      
14
    
(a)   Exhibits
  
14
       
14
 

2

Table of Contents
 
COMMUNITYCORP
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
    
June 30,
2002
     
December 31,
2001
  
ASSETS:
                  
Cash and cash equivalents:
                  
Cash and due from banks
   
$
2,866,963
 
   
$
3,841,132
 
Federal funds sold and securities purchased under agreements to resell
   
 
18,096,000
 
   
 
18,062,000
 
    
  
Total cash and cash equivalents
   
 
20,962,963
 
   
 
21,903,132
 
    
  
Time deposits with other banks
   
 
299,000
 
   
 
299,000
 
Investment securities:
                  
Securities available-for-sale
   
 
14,544,921
 
   
 
11,343,473
 
Nonmarketable equity securities
   
 
332,375
 
   
 
332,375
 
Securities held-to-maturity (estimated market value of $3,254,904 and $3,530,683 at June 30, 2002 and December 31, 2001, respectively)
   
 
3,172,658
 
   
 
3,499,225
 
    
  
Total investment securities
   
 
18,049,954
 
   
 
15,175,073
 
    
  
Loans receivable
   
 
73,181,463
 
   
 
71,358,930
 
Less allowance for loan losses
   
 
(1,295,887
)
   
 
(1,231,051
)
    
  
Loans, net
   
 
71,885,576
 
   
 
70,127,879
 
Accrued interest receivable
   
 
934,313
 
   
 
911,811
 
Premises, furniture & equipment, net
   
 
2,129,483
 
   
 
2,013,147
 
Other assets
   
 
556,829
 
   
 
420,126
 
    
  
Total assets
   
$
114,818,118
 
   
$
110,850,168
 
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY:
                  
Liabilities:
                  
Deposits:
                  
Noninterest-bearing
   
$
10,704,231
 
   
$
9,230,016
 
Interest-bearing
   
 
91,508,073
 
   
 
89,190,295
 
    
  
    
 
102,212,304
 
   
 
98,420,311
 
Short-term borrowings
   
 
470,000
 
   
 
560,000
 
Accrued interest payable
   
 
503,849
 
   
 
717,570
 
Other liabilities
   
 
96,756
 
   
 
150,176
 
    
  
Total liabilities
   
 
103,282,909
 
   
 
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
   
 
110,291
 
   
 
51,132
 
Retained earnings
   
 
9,202,816
 
   
 
8,648,977
 
Treasury stock (23,324 shares in 2002 and 21,594 shares in 2001)
   
 
(1,009,606
)
   
 
(929,706
)
    
  
Total shareholders’ equity
   
 
11,535,209
 
   
 
11,002,111
 
    
  
Total liabilities and shareholders’ equity
   
$
114,818,118
 
   
$
110,850,168
 
    
  
 
See notes to condensed consolidated financial statements

3

Table of Contents
 
COMMUNITYCORP
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
    
Six Months Ended June 30,
   
Three Months Ended June 30,
    
2002
   
2001
   
2002
   
2001
Interest income:
                            
Loans, including fees
   
$
2,934,769
   
$
3,206,320
   
$
1,472,218
   
$
1,613,886
Securities
   
 
363,432
   
 
456,445
   
 
190,806
   
 
180,914
Other interest income
   
 
165,504
   
 
479,212
   
 
81,649
   
 
220,983
    
  
  
  
Total
   
 
3,463,705
   
 
4,141,977
   
 
1,744,673
   
 
2,015,783
    
  
  
  
Interest expense:
                            
Deposit accounts
   
 
1,411,218
   
 
2,187,654
   
 
680,020
   
 
1,048,276
Other interest expense
   
 
2,279
   
 
12,475
   
 
1,122
   
 
5,735
    
  
  
  
Total
   
 
1,413,497
   
 
2,200,129
   
 
681,142
   
 
1,054,011
    
  
  
  
Net interest income
   
 
2,050,208
   
 
1,941,848
   
 
1,063,531
   
 
961,772
Provision for loan losses
   
 
150,000
   
 
142,000
   
 
75,000
   
 
80,000
    
  
  
  
Net interest income after provision for loan losses
   
 
1,900,208
   
 
1,799,848
   
 
988,531
   
 
881,772
    
  
  
  
Other operating income:
                            
Service charges
   
 
175,126
   
 
155,064
   
 
86,880
   
 
76,662
Other income
   
 
58,049
   
 
67,200
   
 
27,111
   
 
30,408
    
  
  
  
Total
   
 
233,175
   
 
222,264
   
 
113,990
   
 
107,070
    
  
  
  
Other operating expenses:
                            
Salaries and benefits
   
 
561,646
   
 
538,979
   
 
287,056
   
 
266,922
Net occupancy expense
   
 
75,584
   
 
74,116
   
 
38,508
   
 
36,749
Equipment expense
   
 
130,418
   
 
127,930
   
 
59,608
   
 
67,208
Other operating expenses
   
 
313,951
   
 
372,069
   
 
154,834
   
 
181,344
    
  
  
  
Total
   
 
1,081,599
   
 
1,113,094
   
 
540,006
   
 
552,223
    
  
  
  
Income before taxes
   
 
1,051,784
   
 
909,018
   
 
562,516
   
 
436,619
Income tax provision
   
 
334,099
   
 
281,901
   
 
182,000
   
 
137,000
    
  
  
  
Net income
   
$
717,685
   
$
627,117
   
$
380,516
   
$
299,619
    
  
  
  
Earnings per share:
                            
Weighted average common shares outstanding
   
 
277,577
   
 
281,212
   
 
277,176
   
 
280,737
    
  
  
  
Net income per common share
   
$
2.59
   
$
2.23
   
$
1.37
   
$
1.07
    
  
  
  
 
See notes to condensed consolidated financial statements

4

Table of Contents
 
COMMUNITYCORP
 
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
For the six months ended June 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
                           
 
627,117
 
          
 
627,117
 
Other comprehensive income, net of taxes
                   
 
122,425
 
                  
 
122,425
 
                                            
Comprehensive income
                                           
 
749,542
 
                                            
Purchase of Treasury Stock
                                   
 
(81,000
)
  
 
(81,000
)
   
 
 
  
 
 
 
Balance, June 30, 2001
  
300,000
  
$
1,500,000
  
$
1,731,708
   
$
50,945
 
  
$
7,973,013
 
  
$
(862,206
)
  
$
10,393,460
 
   
 
 
  
 
 
 
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
                           
 
(163,846
)
          
 
(163,846
)
Net income for the period
                           
 
717,685
 
          
 
717,685
 
Other comprehensive income, net of taxes
                   
 
59,159
 
                  
 
59,159
 
                                            
Comprehensive income
                                           
 
776,844
 
                                            
Purchase of treasury stock
                                   
 
(79,900
)
  
 
(79,900
)
   
 
 
  
 
 
 
Balance, June 30, 2002
  
300,000
  
$
1,500,000
  
$
1,731,708
   
$
110,291
 
  
$
9,202,816
 
  
$
(1,009,606
)
  
$
11,535,209
 
   
 
 
  
 
 
 
 
See notes to condensed consolidated financial statements

5

Table of Contents
 
COMMUNITYCORP
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
    
Six Months Ended June 30,
  
    
2002
     
2001
  
Cash flows from operating activities:
                  
Net income
   
$
717,685
 
   
$
627,117
 
Adjustments to reconcile net income to net cash provided by operating activities:
                  
Depreciation
   
 
95,444
 
   
 
96,214
 
Provision for possible loan losses
   
 
150,000
 
   
 
142,000
 
Amortization less accretion on investments
   
 
19,420
 
   
 
7,764
 
Amortization of deferred loan costs
   
 
34,144
 
   
 
39,738
 
Gain on sale of premises and equipment
   
 
(13,268
)
   
 
—  
 
(Increase) decrease in interest receivable
   
 
(22,502
)
   
 
156,343
 
Increase (decrease) in interest payable
   
 
(213,721
)
   
 
191,238
 
(Increase) decrease in other assets
   
 
(167,862
)
   
 
76,830
 
Increase (decrease) in other liabilities
   
 
(53,420
)
   
 
10,644
 
    
  
Net cash provided by operating activities
   
 
545,920
 
   
 
1,347,888
 
    
  
Cash flows from investing activities:
                  
Net increase in loans to customers
   
 
(1,941,841
)
   
 
(2,353,685
)
Purchases of securities available-for-sale
   
 
(9,407,734
)
   
 
(6,499,531
)
Maturities of securities available-for-sale
   
 
6,278,898
 
   
 
16,126,100
 
Maturities of securities held-to-maturity
   
 
324,853
 
   
 
780,606
 
Proceeds from disposal of premises and equipment
   
 
15,702
 
   
 
—  
 
Purchases of premises and equipment
   
 
(214,214
)
   
 
(12,016
)
    
  
Net cash provided (used) by investing activities
   
 
(4,944,336
)
   
 
8,041,474
 
    
  
Cash flows from financing activities:
                  
Net increase in deposit accounts
   
 
3,791,993
 
   
 
4,670,078
 
(Decrease) increase in short-term borrowings
   
 
(90,000
)
   
 
80,000
 
Dividends paid
   
 
(163,846
)
   
 
(154,938
)
Purchase of treasury stock
   
 
(79,900
)
   
 
(81,000
)
    
  
Net cash provided by financing activities
   
 
3,458,247
 
   
 
4,514,140
 
    
  
Net increase in cash and cash equivalents
   
 
(940,169
)
   
 
13,903,502
 
Cash and cash equivalents, beginning of period
   
 
21,903,132
 
   
 
8,825,660
 
    
  
Cash and cash equivalents, end of period
   
$
20,962,963
 
   
$
22,729,162
 
    
  
Cash paid during the period for:
                  
Income taxes
   
$
538,287
 
   
$
313,588
 
Interest
   
$
1,627,218
 
   
$
2,008,891
 
 
 
See notes 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 June 30, 2002 and for the interim periods ended June 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 Six Months Ended June 30, 2002:
                       
Unrealized gains (losses) on securities available-for-sale
   
$
90,318
   
$
(31,159
)
   
$
59,159
Plus: reclassification adjustment for gains realized in net income
   
 
—  
   
 
—  
 
   
 
—  
    
  
  
Net unrealized gains (losses) on securities
   
 
90,318
   
 
(31,159
)
   
 
59,159
    
  
  
Other comprehensive income
   
$
90,318
   
$
(31,159
)
   
$
59,159
    
  
  
    
Pre-tax
Amount
   
(Expense)
Benefit
     
Net-of-tax
Amount
For the Six Months Ended June 30, 2001:
                       
Unrealized gains (losses) on securities available-for-sale
   
$
186,801
   
$
(64,376
)
   
$
122,425
Plus: reclassification adjustment for gains realized in net income
   
 
—  
   
 
—  
 
   
 
—  
    
  
  
Net unrealized gains (losses) on securities
   
 
186,801
   
 
(64,376
)
   
 
122,425
    
  
  
Other comprehensive income
   
$
186,801
   
$
(64,376
)
   
$
122,425
    
  
  

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 June 30, 2002:
                       
Unrealized gains (losses) on securities available-for-sale
   
$
141,217
   
$
(48,788
)
   
$
92,429
Plus: reclassification adjustment for gains realized in net income
   
 
—  
   
 
—  
 
   
 
—  
    
  
  
Net unrealized gains (losses) on securities
   
 
141,217
   
 
(48,788
)
   
 
92,429
    
  
  
Other comprehensive income
   
$
141,217
   
$
(48,788
)
   
$
92,429
    
  
  
    
Pre-tax
Amount
   
(Expense)
Benefit
     
Net-of-tax
Amount
For the Three Months Ended June 30, 2001:
                       
Unrealized gains (losses) on securities available-for-sale
   
$
17,854
   
$
(5,960
)
   
$
11,894
Plus: reclassification adjustment for gains realized in net income
   
 
—  
   
 
—  
 
   
 
—  
    
  
  
Net unrealized gains (losses) on securities
   
 
17,854
   
 
(5,960
)
   
 
11,894
    
  
  
Other comprehensive income
   
$
17,854
   
$
(5,960
)
   
$
11,894
    
  
  
 
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 the Company’s financial condition as of June 30, 2002 compared to December 31, 2001, and the results of operations for the three and six months ended June 30, 2002 compared to the three and six months ended June 30, 2001. These comments should be read in conjunction with the Company’s condensed consolidated financial statements and accompanying footnotes appearing in this report.
 
Results of Operations
 
Net Interest Income
 
For the six months ended June 30, 2002, net interest income increased $108,360, or 5.58%, as compared to the same period in 2001. Interest and fees on loans decreased $271,551, or 8.47% to $2,934,769 for the six months ended June 30, 2002 as compared to the same period in 2001. Other interest income, which includes interest on federal funds sold, decreased $313,708 or 65.46% to $165,504 for the six months ended June 30, 2002 when compared to the same period in 2001. In addition, interest income on securities decreased $93,013 to $363,432 for the six months ended June 30, 2002 when compared to the same six months ended June 30, 2001. Interest expense decreased $786,632 to $1,413,497 for the six months ended June 30, 2002 when compared to the same period in 2001. The net interest margin realized on earning assets increased from 3.71% for the six months ended June 30, 2001 to 3.79% for the same period in 2002. The interest rate spread also increased by 32 basis points from 3.01% at June 30, 2001 to 3.33% at June 30, 2002.
 
Net interest income increased $101,759 or 10.58% to $1,063,531 for the quarter ended June 30, 2002 when compared to the same quarter ended June 30, 2001. Interest on loans and fees decreased $141,668 or 8.78% to $1,472,218 for the quarter ended June 30, 2002 when compared to the same period in 2001. Other interest income decreased $139,334 from $220,983 for the quarter ended June 30, 2001 to $81,649 for the quarter ended June 30, 2002. The interest income on securities for the quarter ending June 30, 2002 increased $9,892 to $190,806 when compared to the same period in 2001. Interest expense on deposits decreased 35.38% to $372,869 for the quarter ended June 30, 2002 when compared to the same period in 2001. The net interest margin realized on earning assets increased from 3.73% for the quarter ended June 30, 2001 to 3.91% for the quarter ended June 30, 2002. The interest rate spread also increased from 3.00% for the quarter ended June 30, 2001 to 3.34% for the same period in 2002.
 
Provision and Allowance for Loan Losses
 
The provision for loan losses is the charge to operating earnings that management believes is necessary to maintain the allowance for possible loan losses at an adequate level. For the six months ended June 30, 2002, the provision charged to expense was $150,000, as compared to $142,000 for the same period in 2001. For the quarter ended June 30, 2002 and 2001, the provision charged to expense was $75,000 and $80,000, respectively. There are risks inherent in making all loans, including risks with respect to the period of time over which loans may be repaid, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers, and, in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral. We maintain an allowance for loan losses based on, among other things, historical experience, an evaluation of economic conditions, and regular reviews of delinquencies and loan portfolio quality. Our judgment about the adequacy of the allowance is based upon a number of assumptions about future events, which we believe to be reasonable, but which may not prove to be accurate. Thus, there is a risk that charge-offs in future periods could exceed the allowance for loan losses or that substantial additional increases in the allowance for loan losses could be required. Additions to the allowance for loan losses would result in a decrease of our net income and, possibly, our capital.
 
Noninterest Income
 
Noninterest income during the six months ended June 30, 2002 was $233,175, an increase of $10,911 or 4.91% from the comparable period in 2001. Service charges on deposit accounts increased $20,062 from the period ended June 30, 2001 to $175,126 for the period ended June 30, 2002. The increase is partially attributable to a shift in deposit accounts to noninterest bearing checking accounts. Other income decreased 13.62% to $58,049 for the six months ended June 30, 2002 when compared to the same period ended June 30, 2001.
 
For the quarter ended June 30, 2002, noninterest income increased $6,920 or 6.46% over the same period in 2001. This increase is primarily due to service charges, which increased 13.33% from the quarter ended June 30, 2001 to $86,880 for the quarter ended June 30, 2002. The increase in noninterest bearing deposit accounts led to the increase in service charges.

9

Table of Contents
 
COMMUNITYCORP
 
Item 2.    Management’s Discussion and Analysis of Financial Condition—continued
 
Noninterest Expense
 
Total noninterest expense for the six months ended June 30, 2002 was $1,081,599 or 2.83% lower than the six months ended June 30, 2001. Salaries and employee benefits increased from $538,979 for the six months ended June 30, 2001 to $561,646 for the six months ended June 30, 2002. This increase is primarily attributable to annual pay raises. Other operating expenses decreased $58,118 or 15.62% to $313,951 for the six months ended June 30, 2002 when compared to the same period in 2001. Other operating expenses included a one time writedown of $20,983 on the disposal of other real estate owned during 2001 that did not exist in 2002.
 
For the quarter ended June 30, 2002, noninterest expense decreased $12,217 or 2.21% over the same period in 2001. This increase was largely attributable to the decrease of other operating expenses of $26,510 or 14.62% to $154,834 for the quarter ended June 30, 2002 when compared to the quarter ended June 30, 2001. Salaries and employee benefits also increased $20,134 or 7.54% to $287,056 during the same comparable period for the quarter ended June 30, 2002.
 
Income Taxes
 
The income tax provision for the six months ended June 30, 2002 was $334,099 as compared to $281,901 for the same period in 2001. This increase was primarily a result of an increase in income before taxes. The effective tax rates were 31.76% and 31.01% for the six months ended June 30, 2002 and June 30, 2001, respectively. The effective tax rates were 32.35% and 31.38% for the quarter ended June 30, 2002 and June 30, 2001, respectively.
 
Net Income
 
The combination of the above factors resulted in net income for the six months ended June 30, 2002 of $717,685 as compared to $627,117 for the same period in 2001. This represents an increase of $90,568 or 14.44% over the same period in 2001. Net income for the quarter ended June 30, 2002 was $380,516, or 27.00% higher than for the same period in 2001. The increase in net interest income and decrease in noninterest expenses resulted in the increase in the six and three month period.
 
Assets and Liabilities
 
During the first six months of 2002, total assets increased $3,967,950, or 3.58%, when compared to December 31, 2001. This increase was primarily a result of an increase in securities available for sale and loans. Total investment securities increased $2,874,881 from December 31, 2001 to $18,049,954 at June 30, 2002. Loans increased $1,822,533, or 2.55%, to $73,181,463 at June 30, 2002. Total deposits also increased by 3.85%, or $3,791,993, from December 31, 2001 to $102,212,304 at June 30, 2002. While noninterest-bearing deposits increased 15.97% from December 31, 2001 to $10,704,231, interest-bearing deposits also increased $2,317,778 or 2.6% to $91,508,073 at June 30, 2002.
 
Loans
 
The demand for loans continued to increase in the Walterboro marketplace during the first six months of 2002. Gross loans increased $1,822,533 or 2.55% during the period. Balances within the major loans receivable categories as of June 30, 2002 and December 31, 2001 are as follows:
 
    
June 30,
2002
   
December 31,
2001
Real estate—construction
   
$
5,370,108
   
$
6,312,748
Real estate—mortgage
   
 
27,163,048
   
 
24,844,649
Commercial and industrial
   
 
28,399,402
   
 
25,868,360
Consumer and other
   
 
12,248,905
   
 
14,333,173
    
  
    
$
73,181,463
   
$
71,358,930
    
  

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Table of Contents
 
COMMUNITYCORP
 
Item 2.    Management’s Discussion and Analysis of Financial Condition—continued
 
Risk Elements in the Loan Portfolio
 
The following is a summary of risk elements in the loan portfolio:
 
    
June 30,
2002
   
December 31,
2001
Loans: Nonaccrual loans
   
$
2,889,476
   
$
1,096,532
Accruing loans more than 90 days past due
   
$
—  
   
$
3,000
Loans identified by the internal review mechanism:
              
Criticized
   
$
82,649
   
$
—  
Classified
   
$
2,886,268
   
$
1,764,786
 
Activity in the Allowance for Loan Losses is as follows:
 
    
June 30,
  
    
2002
     
2001
  
Balance, January 1,
   
$
1,231,051
 
   
$
1,173,832
 
Provision for loan losses for the period
   
 
150,000
 
   
 
142,000
 
Net loans (charged-off) recovered for the period
   
 
(85,164
)
   
 
(91,166
)
    
  
Balance, end of period
   
$
1,295,887
 
   
$
1,224,666
 
    
  
Gross loans outstanding, end of period
   
$
73,181,463
 
   
$
71,358,930
 
Allowance for loan losses to loans outstanding
   
 
1.77
%
   
 
1.72
%
 
Deposits
 
Total deposits increased $3,791,993 or 3.85% from December 31, 2001. The largest change was an increase in interest-bearing deposits. Interest-bearing deposits increased $2,317,778 to $91,508,073 at June 30, 2002. Expressed in percentages, interest-bearing deposits increased 2.60%. The increases were attributable to normal growth of the Bank.
 
Balances within the major deposit categories as of June 30, 2002 and December 31, 2001 are as follows:
 
    
June 30,
2002
   
December 31,
2001
Noninterest-bearing demand deposits
   
$
10,704,231
   
$
9,230,016
Interest-bearing demand deposits
   
 
14,380,569
   
 
14,692,130
Savings deposits
   
 
25,088,751
   
 
16,815,417
Certificates of deposit
   
 
52,038,753
   
 
57,682,748
    
  
    
$
102,212,304
   
$
98,420,311
    
  
 
Liquidity
 
Liquidity needs are met by the Company 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 71.27% at June 30, 2002 and 72.09% at December 31, 2001.

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Table of Contents
 
COMMUNITYCORP
 
Item 2.    Management’s Discussion and Analysis of Financial Condition—continued
 
Securities available-for-sale, which totaled $14,544,921 at June 30, 2002, serve as a ready source of liquidity. The Company also has lines of credit available with correspondent banks to purchase federal funds. At June 30, 2002, unused lines of credit totaled $3,000,000.
 
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 footnotes to the consolidated financial statements at December 31, 2001 as filed on 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.
 
Capital Resources
 
Total shareholders’ equity increased from $11,002,111 at December 31, 2001 to $11,535,209 at June 30, 2002. The increase of $533,098 is attributable to earnings for the period of $717,685. The increase was also attributable to an increase of $59,159 in the fair value for securities available for sale for the period. Equity was negatively affected by the purchase of treasury stock of $79,900 during the period and by the payment of dividends which totaled $163,846.
 
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%.
 
The following table summarizes the Bank’s risk-based capital at June 30, 2002:
 
          
Shareholders’ equity
   
$
11,410,614
 
Less: intangibles
   
 
—  
 
    
Tier 1 capital
   
 
11,410,614
 
    
Plus: allowance for loan losses(1)
   
 
981,000
 
    
Total capital
   
$
12,391,614
 
    
Net risk-weighted assets
   
$
78,173,000
 
    
Risk-based capital ratios
         
Tier 1 capital (to risk-weighted assets)
   
 
14.60
%
Total capital (to risk-weighted assets)
   
 
15.85
%
Tier 1 capital (to quarterly average assets)
   
 
9.94
%
(1)
 
limited to 1.25% of gross 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.

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Table of Contents
 
COMMUNITYCORP
 
Item 2.    Management’s Discussion and Analysis of Financial Condition—continued
 
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, 2002, we had issued commitments to extend credit of $4,720,000 and standby letters of credit of $434,000 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.
 
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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Table of Contents
 
COMMUNITYCORP
 
PART II—OTHER INFORMATION
 
Item 4.     Submission of Matters to a Vote of Security Holders
 
On April 23, 2002, the Company held its Annual Meeting of Shareholders for the purpose of (a) electing three directors for three-year terms, and (b) ratifying the appointment of Tourville, Simpson and Caskey, L.L.P., as the Company’s independent auditors for the fiscal year ending December 31, 2002.
 
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 204,102 shareholders voting for the nominees out of a total 300,000 outstanding shareholders. There were no abstention votes or no votes against their election. There were 900 votes withheld.
 
Tourville, Simpson and Caskey, L.L.P. also received the requisite number of affirmative votes required for approval pursuant to the Bylaws of the Company. Of the 300,000 outstanding shareholders of the Company, 204,102 shareholders voted for their selection as independent auditors. There were no abstention or no votes against their selection as auditors. There were 900 votes withheld.
 
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 June 30, 2002.
 
Items 1, 2, 3, and 5 are not applicable.

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Table of Contents
 
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
 
 
 
By:
  
/s/    GWEN P. BUNTON         
   
Gwen P. Bunton
Chief Financial Officer
 
Date:    August 12, 2002

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