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 September 30, 2011

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

(Issuer’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 o

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  x NO o

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

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

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

233,003 shares of common stock, $5.00 par value, as of October 31,2011

COMMUNITYCORP

Index

		Page No.
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets – September 30, 2011 and December 31, 2010	3
	Condensed Consolidated Statements of Operations - Three and nine months ended September 30, 2011 and 2010	4
	Condensed Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income - Nine months ended September 30, 2011 and 2010	5
	Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 2011 and 2010	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	27
Item 4.	Controls and Procedures	27
PART II. - OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Under Senior Securities	28
Item 4.	Removed and Reserved	28
Item 5.	Other Information	28
Item 6.	Exhibits	28

COMMUNITYCORP

Condensed Consolidated Balance Sheets

	September 30,			December 31,
	2011			2010
	(Unaudited)			(Audited)
Assets:
Cash and cash equivalents:
Cash and due from banks	$	4,201,603		$	4,206,974
Interest bearing deposits		15,739,480			9,966,826
Federal funds sold		6,148,000			2,004,000
Total cash and cash equivalents		26,089,083			16,177,800
Time deposits with other banks		750,000			1,000,000
Investment securities:
Securities available-for-sale		29,332,488			26,955,350
Securities held-to-maturity (estimated fair value of $311,140 in 2011 and $309,023 in 2010)		299,912			299,885
Nonmarketable equity securities		270,500			302,300
Total investment securities		29,902,900			27,557,535
Loans receivable		97,838,368			105,297,684
Less allowance for loan losses		(2,423,417	)		(2,019,497	)
Loans receivable, net		95,414,951			103,278,187
Premises and equipment, net		2,816,734			2,903,212
Accrued interest receivable		722,732			785,859
Other real estate owned		2,875,665			2,764,189
Other assets		952,971			1,361,893
Total assets	$	159,525,036		$	155,828,675
Liabilities:
Deposits:
Noninterest-bearing transaction accounts	$	13,494,596		$	14,077,860
Interest-bearing transaction accounts		22,429,639			21,295,198
Money market savings accounts		4,501,983			4,116,167
Savings		15,980,576			14,452,567
Time deposits $100,000 and over		48,068,274			46,142,153
Other time deposits		36,196,763			37,499,876
Total deposits		140,671,831			137,583,821
Accrued interest payable		293,143			451,331
Other liabilities		181,416			154,686
Total liabilities		141,146,390			138,189,838
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		1,500,000			1,500,000
Capital surplus		1,737,924			1,737,924
Retained earnings		18,910,257			18,782,807
Accumulated other comprehensive income (loss)		547,607			(64,752	)
Treasury Stock (66,997 shares at cost)		(4,317,142	)		(4,317,142	)
Total shareholders’ equity		18,378,646			17,638,837
Total liabilities and shareholders’ equity	$	159,525,036		$	155,828,675

See notes to condensed consolidated financial statements.

3

COMMUNITYCORP

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
Interest income:
Loans, including fees	$	1,481,117		$	1,642,566	$	4,619,744	$	5,163,742
Securities		210,254			183,473		620,786		597,330
Other interest income		12,556			17,060		33,465		53,643
Total		1,703,927			1,843,099		5,273,995		5,814,715
Interest expense:
Deposit accounts		350,491			521,189		1,131,311		1,686,426
Other interest expense		-			-		-		1
Total		350,491			521,189		1,131,311		1,686,427
Net interest income		1,353,436			1,321,910		4,142,684		4,128,288
Provision for loan losses		615,000			415,000		1,153,000		1,626,000
Net interest income after provision for loan losses		738,436			906,910		2,989,684		2,502,288
Noninterest income:
Service charges		102,278			121,624		307,998		332,097
Gain on sale of securities available-for-sale		-			262,011		-		262,011
Other income		29,550			26,211		93,982		101,735
Total		131,828			409,846		401,980		695,843
Noninterest expenses:
Salaries and benefits		493,219			521,505		1,475,797		1,532,304
Net occupancy expense		78,356			73,251		224,618		198,495
Equipment expense		87,591			89,802		269,819		270,795
Other operating expenses		387,147			363,984		1,127,208		982,148
Total		1,046,313			1,048,542		3,097,442		2,983,742
Income (loss) before taxes		(176,049	)		268,214		294,222		214,389
Income tax provision		(49,529	)		33,000		50,271		10,750
Net income (loss)	$	(126,520	)	$	235,214	$	243,951	$	203,639
Earnings per share:
Weighted average common shares outstanding		233,003			233,003		233,003		233,335
Net income (loss) per common share	$	(0.54	)	$	1.01	$	1.05	$	0.87

See notes to condensed consolidated financial statements.

4

COMMUNITYCORP

Condensed Consolidated Statement of Shareholders’ Equity and Comprehensive Income

For The Nine Months Ended September 30, 2011 and 2010

(Unaudited)

							Accumulated
							Other
							Comprehensive
	Common stock				Capital		Income			Retained			Treasury
	Shares		Amount		Surplus		(Loss)			Earnings			Stock			Total
Balance, December 31, 2010		300,000	$	1,500,000	$	1,737,924	$	(64,752	)	$	18,782,807		$	(4,317,142	)	$	17,638,837
Cash dividends paid ($ .50 per share)											(116,501	)					(116,501	)
Net income for the period											243,951						243,951
Other comprehensive income, net of tax expense of $322,539								612,359									612,359
Comprehensive income																	856,310
Balance, September 30, 2011		300,000	$	1,500,000	$	1,737,924	$	547,607		$	18,910,257		$	(4,317,142	)	$	18,378,646

							Accumulated
							Other
							Comprehensive
	Common stock				Capital		Income		Retained			Treasury
	Shares		Amount		Surplus		(Loss)		Earnings			Stock			Total
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										203,369						203,369
Other comprehensive income, net of tax expense of $67,333								127,836								127,836
Comprehensive income																331,475
Purchase of treasury stock													(98,401	)		(98,401	)
Balance, September 30, 2010		300,000	$	1,500,000	$	1,737,924	$	413,908	$	18,527,036		$	(4,317,142	)	$	17,861,726

See notes to condensed consolidated financial statements.

5

COMMUNITYCORP

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	September 30,
	2011			2010
Cash flows from operating activities:
Net income	$	243,951		$	203,639
Adjustments to reconcile net income to net cash
Provided (used) by operating activities:
Provision for loan losses		1,153,000			1,626,000
Depreciation expense		162,608			179,265
Loss on sale of other real estate owned		21,432			17,000
Write down of other real estate owned		74,201			-
Net premium amortization of investment securities		17,833			39,077
Net amortization of deferred loan costs		-			326
Gain on sale of securities available-for-sale		-			(262,011	)
Decrease in accrued interest receivable		63,127			134,710
Decrease in accrued interest payable		(158,188	)		(172,133	)
Decrease in other assets		86,383			468,456
Increase in other liabilities		26,730			110,523
Net cash provided by operating activities		1,691,077			2,344,852
Cash flows from investing activities:
Proceeds from maturities of securities available-for-sale		11,668,836			7,939,663
Purchases of securities available-for-sale		(13,128,936	)		(11,593,700	)
Proceeds from the sale of securities available-for-sale		-			4,562,437
Proceeds from maturities of securities held-to-maturity		-			265,000
Decrease of nonmarketable equity securities		31,800			-
Net decrease in loans to customers		5,966,738			5,438,333
Net decrease in time deposits in other banks		250,000			250,000
Proceeds from sales of other real estate owned		536,389			50,000
Purchases of premises and equipment		(76,130	)		(39,287	)
Net cash provided by investing activities		5,248,697			6,872,446
Cash flows from financing activities:
Net increase (decrease) in demand deposits, interest-bearing transaction accounts and savings accounts		2,465,002			(2,327,694	)
Net increase (decrease) in time deposits		623,008			(2,409,681	)
Cash dividends paid		(116,501	)		(117,001	)
Purchase of treasury stock		-			(98,401	)
Net cash provided (used) by financing activities		2,971,509			(4,952,777	)
Net increase in cash and cash equivalents		9,911,283			4,264,521
Cash and cash equivalents, beginning of period		16,177,800			17,694,266
Cash and cash equivalents, end of period	$	26,089,083		$	21,958,787
Cash paid during the period for:
Income taxes	$	50,000		$	-
Interest	$	1,289,499		$	1,858,560
Supplemental noncash investing and financing activities
Foreclosures on loans	$	743,498		$	1,215,357
Net change in valuation allowance - available-for-sale	$	612,359		$	127,836

See notes to condensed consolidated financial statements.

6

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, 2011 and for the interim periods ended September 30, 2011 and 2010 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 nine months ended September 30, 2011 are not necessarily indicative of the results which may be expected for the entire calendar year.  The financial information as of December 31, 2010 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 2010 Annual Report.

NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS

The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting, and / or disclosure of financial information by the Company.

In July 2010, the Receivables topic of the Accounting Standards Codification (“ASC”) was amended by Accounting Standards Update (“ASU”) 2010-20 to require expanded disclosures related to a company’s allowance for credit losses and the credit quality of its financing receivables. The amendments require the allowance disclosures to be provided on a disaggregated basis.  The Company is required to include these disclosures in its interim and annual financial statements.  See Note 6.

Disclosures about Troubled Debt Restructurings (“TDRs”) required by ASU 2010-20 were deferred by the Financial Accounting Standards Board (“FASB”) in ASU 2011-01 issued in January 2011. In April 2011 the FASB issued ASU 2011-02 to assist creditors with their determination of when a restructuring is a TDR.   The determination is based on whether the restructuring constitutes a concession and whether the debtor is experiencing financial difficulties as both events must be present.

Disclosures related to TDRs under ASU 2010-20 have been presented in Note 6.

In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the ASC was amended by ASU 2011-03.  The requirement for the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and the collateral maintenance implementation guidance related to that criterion were removed from the assessment of effective control.  The other criteria to assess effective control were not changed.  The amendments are effective for the Company beginning January 1, 2012, but are not expected to have a material effect on the financial statements.

ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements.  The amendments will be effective for the Company beginning January 1, 2012, but are not expected to have a material effect on the financial statements.

The Comprehensive Income topic of the ASC was amended in June 2011.  The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in stockholders’ equity.  The amendment requires consecutive presentation of the statement of net income and other comprehensive income and requires an entity to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements.  The amendments will be applicable to the Company on January 1, 2012 and will be applied retrospectively.

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 - RECLASSIFICATIONS

Certain captions and amounts in the financial statements in the Company’s Form 10-Q for the quarter ended September 30, 2010 and Form 10-K for the year ended December 31, 2010 were reclassified to conform to the September 30, 2011 presentation.

7

NOTE 4 - COMPREHENSIVE INCOME

Accounting principles generally require that recognized income, expenses, gains, and losses be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

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

			Tax
	Pre-tax		(Expense)			Net-of-tax
	Amount		Benefit			Amount
For the Three Months Ended September 30, 2011:
Unrealized gains on securities available-for-sale	$	241,252	$	(83,231	)	$	158,021
Reclassification adjustment for gains (losses) in net income		-		-			-
Other Comprehensive income	$	241,252	$	(83,231	)	$	158,021
For the Three Months Ended September 30, 2010:
Unrealized gains on securities available-for-sale	$	303,384	$	(104,668	)	$	198,716
Reclassification adjustment for gains (losses) in net income		262,011		(90,394	)		171,617
Other Comprehensive income	$	41,373	$	(14,274	)	$	27,099
For the Nine Months Ended September 30, 2011:
Unrealized gains on securities available-for-sale	$	934,898	$	(322,539	)	$	612,359
Reclassification adjustment for gains (losses) in net income		-		-			-
Other Comprehensive income	$	934,898	$	(322,539	)	$	612,359
For the Nine Months Ended September 30, 2010:
Unrealized gains on securities available-for-sale	$	457,180	$	(157,727	)	$	299,453
Reclassification adjustment for gains (losses) in net income		262,011		(90,394	)		171,617
Other Comprehensive income	$	195,169	$	(67,333	)	$	127,836

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

NOTE 5 - INVESTMENT SECURITIES

Securities Available-for-Sale

The amortized cost and estimated fair values of securities available-for-sale at September 30, 2011 and December 31, 2010 were:

	Amortized		Gross Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2011
Government-sponsored enterprises	$	15,006,704	$	35,285	$	8,393	$	15,033,596
Mortgage-backed securities		2,787,372		116,421		-		2,903,793
Obligations of state and local governments		10,502,372		692,727		-		11,195,099
Other		200,000		-		-		200,000
Total	$	28,496,448	$	844,433	$	8,393	$	29,332,488
	Amortized		Gross Unrealized					Estimated
	Cost		Gains		Losses			Fair Value
December 31, 2010
Government-sponsored enterprises	$	13,891,989	$	11,473	$	312,020	$	13,591,442
Mortgage-backed securities		1,842,249		24,286		15,269		1,851,266
Obligations of state and local governments		11,119,970		247,905		55,233		11,312,642
Other		200,000		-		-		200,000
Total	$	27,054,208	$	283,664	$	382,522	$	26,955,350

8

The following is a summary of maturities of securities available-for-sale as of September 30, 2011.  The amortized cost and estimated fair values are based on the contractual maturity dates.  Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.

	Securities
	Available-For-Sale
	Amortized		Estimated
	Cost		Fair Value
Due in one year or less	$	200,000		205,678
Due after one year but within five years		1,240,207		1,303,901
Due after five years but within ten years		13,661,771		14,133,306
Due after ten years		10,607,098		10,785,811
		25,709,076		26,428,696
Mortgage-backed securities		2,787,372		2,903,792
Total	$	28,496,448	$	29,332,488

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 September 30, 2011 and December 31, 2010.

	September 30, 2011				December 31, 2010
	Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses
Less Than 12 Months
Government-sponsored enterprises	$	3,339,321	$	8,393	$	12,379,970	$	312,020
Mortgaged-backed Securities		-		-		964,073		15,269
Obligations of state and local governments		-		-		2,151,511		55,233
Total	$	3,339,321	$	8,393	$	15,495,554	$	382,522

A total of five available-for-sale securities were in a loss position at September 30, 2011, none of which had been in a continuous loss position for twelve months or more.  The Company believes, based on industry analyst reports and credit ratings, 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.

Securities Held-to-Maturity

The amortized cost and estimated fair values of securities held-to-maturity at September 30, 2011 and December 31, 2010 were:

	Amortized		Gross Unrealized				Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2011
Obligations of state and local governments	$	299,912	$	11,228	$	-	$	311,140
December 31, 2010
Obligations of state and local governments	$	299,885	$	9,138	$	-	$	309,023

The following is a summary of maturities of securities held-to-maturity as of September 30, 2011.  The amortized cost and estimated fair values are based on the contractual maturity dates.  Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.

	Securities
	Held-to-Maturity
	Amortized		Estimated
	Cost		Fair Value
Due after one year but within five years	$	99,912	$	101,638
Due after five years but within ten years		200,000		209,502
Total	$	299,912	$	311,140

9

NOTE 6 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans receivable are summarized as follows:

	September 30,		December 31,
	2011		2010
Real estate – construction	$	12,935,754	$	12,674,197
Real estate – mortgage		71,514,060		76,149,357
Commercial and industrial		7,869,260		11,602,305
Consumer and other		5,519,294		4,871,825
Total gross loans	$	97,838,368	$	105,297,684

The loan portfolio consisted of loans having:

	September 30,		December 31,
	2011		2010
Variable rates loans	$	5,028,259	$	3,206,699
Fixed rates		92,810,109		102,090,985
Total gross loans	$	97,838,368	$	105,297,684

A summary of the allowance for loan losses for the nine months ended September 30, 2011 and year ended December 31, 2010 is as follows:

	September 30,			December 31,
	2011			2010
Balance, beginning of year	$	2,019,497		$	2,053,340
Provision charged to operations		1,153,000			1,866,000
Recoveries on loans previously charged-off		14,857			11,932
Loans charged-off		(763,937	)		(1,911,775	)
Balance, end of period	$	2,423,417		$	2,019,497

The following is an analysis of the allowance for loan losses by class of loans for the nine months ended September 30, 2011 and the year ended December 31, 2010

September 30, 2011

				Real Estate Loans
										Total
										Real
(Dollars in Thousands)										Estate						Consumer
	Total			Construction			Mortgage			Loans			Commercial			and Other
Beginning Balance	$	2,019		$	807		$	404		$	1,211		$	606		$	202
Provisions		1,153			795			806			1,601			(336	)		(112	)
Recoveries		15			-			3			3			8			4
Charge-offs		(764	)		(538	)		(105	)		(643	)		(76	)		(45	)
Ending balance	$	2,423		$	1,064		$	1,108		$	2,172		$	202		$	49

December 31, 2010

				Real Estate Loans
										Total
										Real
(Dollars in Thousands)										Estate						Consumer
	Total			Construction			Mortgage			Loans			Commercial			and Other
Beginning Balance	$	2,053		$	826		$	413		$	1,239		$	616		$	198
Provisions		1,866			746			373			1,119			560			187
Recoveries		12			-			-			-			4			8
Charge-offs		(1,912	)		(765	)		(382	)		(1,147	)		(574	)		(191	)
Ending balance	$	2,019		$	807		$	404		$	1,211		$	606		$	202

10

At September 30, 2011 and December 31, 2010 the allocation of the allowance for loan losses and the recorded investment in loans summarized on the basis of the Company’s impairment methodology was as follows:

September 30, 2011

			Real Estate Loans
							Total
							Real
(Dollars in Thousands)							Estate				Consumer
	Total		Construction		Mortgage		Loans		Commercial		and Other
Allowance for Loan Losses
Examined for Impairment
Individually	$	1,586	$	740	$	702	$	1,442	$	144	$	-
Collectively		837		324		406		730		58		49
Allowance for Loan Losses	$	2,423	$	1,064	$	1,108	$	2,172	$	202	$	49
Total Loans
Examined for Impairment
Individually	$	11,232	$	4,861	$	4,491	$	9,352	$	1,755	$	125
Collectively		86,606		8,075		67,023		75,098		6,114		5,394
Total Loans	$	97,838	$	12,936	$	71,514	$	84,450	$	7,869	$	5,519
December 31, 2010
			Real Estate Loans
							Total
							Real
(Dollars in Thousands)							Estate				Consumer
	Total		Construction		Mortgage		Loans		Commercial		and Other
Allowance for Loan Losses
Examined for Impairment
Individually	$	373	$	296	$	25	$	321	$	40	$	12
Collectively		1,646		511		379		890		566		190
Allowance for Loan Losses	$	2,019	$	807	$	404	$	1,211	$	606	$	202
Total Loans
Examined for Impairment
Individually	$	7,703	$	3,162	$	4,121	$	7,283	$	303	$	117
Collectively		97,595		9,512		72,029		81,541		11,299		4,755
Total Loans	$	105,298	$	12,674	$	76,150	$	88,824	$	11,602	$	4,872

The Company identifies impaired loans through its normal internal loan review process.  Loans on the Company’s problem loan watch list are considered potentially impaired loans.  These loans are evaluated in determining whether all outstanding principal and interest are expected to be collected.  Loans are not considered impaired if a minimal delay occurs and all amounts due including accrued interest at the contractual interest rate for the period of delay are expected to be collected.

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The following summarizes the Company’s impaired loans by class as of September 30, 2011 and December 31, 2010.

September 30, 2011

			Unpaid
(Dollars in Thousands)	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Real estate
Construction	$	1,706	$	1,706	$	-
Mortgage		2,568		2,805		-
Total real estate loans		4,274		4,511		-
Commercial		1,593		1,636		-
Consumer and other		125		125		-
		5,992		6,272		-
With an allowance recorded:
Real estate
Construction		3,155		4,092		740
Mortgage		1,923		2,204		702
Total real estate loans		5,078		6,296		1,442
Commercial		162		162		144
Consumer and other		-		-		-
		5,240		6,458		1,586
Total
Real estate
Construction		4,861		5,798		740
Mortgage		4,491		5,009		702
Total real estate loans		9,352		10,807		1,442
Commercial		1,755		1,798		144
Consumer and other		125		125		-
Total	$	11,232	$	12,730	$	1,586
December 31, 2010
			Unpaid
(Dollars in Thousands)	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Real estate
Construction	$	1,326	$	1,294	$	-
Mortgage		4,016		4,196		-
Total real estate loans		5,342		5,490		-
Commercial		218		249		-
Consumer and other		62		61		-
		5,622		5,800		-
With an allowance recorded:
Real estate
Construction		1,836		1,879		296
Mortgage		105		103		25
Total real estate loans		1,941		1,982		321
Commercial		85		741		40
Consumer and other		55		53		12
		2,081		2,776		373

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			Unpaid
(Dollars in Thousands)	Recorded		Principal		Related
	Investment		Balance		Allowance
Total
Real estate
Construction	$	3,162	$	3,173	$	296
Mortgage		4,121		4,299		25
Total real estate loans		7,283		7,472		321
Commercial		303		990		40
Consumer and other		117		114		12
Total	$	7,703	$	8,576		373

The average recorded investment in impaired loans for the nine months and year ended September 30, 2011 and December 31, 2010, was $8,648,438 and $8,512,074, respectively.

Nonaccrual loans were $6,502,127 and $4,805,658 at September 30, 2011 and December 31, 2010, respectively.

Included in the loans above are particular loans that have been modified in order to maximize the collection of loan balances.  If, for economic or legal reasons related to the customer’s financial difficulties, the Company grants a concession compared to the original terms and conditions on a loan, the modified loan is classified as a troubled debt restructuring (“TDR”).

During the third quarter of 2011, the Company adopted Accounting Standards Update (“ASU”) 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring (Topic 310), which modified guidance for identifying restructurings of receivables that constitute a TDR.  In complying with the provisions of the ASU, the Company did not identify any new TDRs.

Total amount of troubled debt restructured loans outstanding as of September 30, 2011, was $902,808, including one loan of $133,625 which was performing and three loans totaling $769,223 which were not performing.  At that date, restructured loans consist of three loans that were restructured due to the capitalization of interest and one loan that was restructured due to the lowering of the interest rate.  All restructured loans at September 30, 2011, were included impaired loans.

Interest income on impaired loans other than nonaccrual loans is recognized on an accrual basis. Interest income on nonaccrual loans is recognized only as collected.  During the nine months ended September 30, 2011 and for the year ended December 31, 2010, interest income recognized on nonaccrual loans was $25,215 and $30,674, respectively.  If the nonaccrual loans had been accruing interest at their original contracted rates, related income would have been $210,129 and $275,415 for the nine months ended September 30, 2011 and for the year ended December 31, 2010, respectively.

A summary of current, past due and nonaccrual loans as of September 30, 2011 and December 31, 2010 were as follows:

September 30, 2011

	Past Due		Past Due Over 90 days
(Dollars in Thousands)	30-89		and		Non-		Total				Total
	Days		Accruing		Accruing		Past Due		Current		Loans
Real estate
Construction	$	779	$	-	$	3,760	$	4,539	$	8,397	$	12,936
Mortgage		1,383		-		2,687		4,070		67,444		71,514
Total real estate loans		2,162		-		6,447		8,609		75,841		84,450
Commercial		319		-		49		368		7,501		7,869
Consumer and other		77		-		6		83		5,436		5,519
Totals	$	2,558	$	-	$	6,502	$	9,060	$	88,778	$	97,838
December 31, 2010
	Past Due		Past Due Over 90 days
(Dollars in Thousands)	30-89		and		Non-		Total				Total
	Days		Accruing		Accruing		Past Due		Current		Loans
Real estate
Construction	$	397	$	-	$	3,010	$	3,407	$	9,267	$	12,674
Mortgage		768		-		1,533		2,301		73,849		76,150
Total real estate loans		1,165		-		4,543		5,708		83,116		88,824
Commercial		99		-		203		302		11,300		11,602
Consumer and other		63		-		60		123		4,749		4,872
Totals	$	1,327	$	-	$	4,806	$	6,133	$	99,165	$	105,298

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Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The following definitions are utilized for risk ratings, which are consistent with the definitions used in supervisory guidance:

Special Mention - Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

As of September 30, 2011 and December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

September 30, 2011

			Real Estate Loans
							Total
							Real
(Dollars in Thousands)							Estate				Consumer
	Total		Construction		Mortgage		Loans		Commercial		and Other
Pass	$	89,233	$	8,439	$	68,307	$	76,746	$	7,147	$	5,340
Special mention		1,107		635		181		816		122		169
Substandard		7,498		3,862		3,026		6,888		600		10
Doubtful		-		-		-		-		-		-
Total	$	97,838	$	12,936	$	71,514	$	84,450	$	7,869	$	5,519
December 31, 2010
			Real Estate Loans
							Total
							Real
(Dollars in Thousands)							Estate				Consumer
	Total		Construction		Mortgage		Loans		Commercial		and Other
Pass	$	98,620	$	8,847	$	76,150	$	84,997	$	9,793	$	3,830
Special mention		1,378		681		-		681		551		146
Substandard		5,300		3,146		-		3,146		1,258		896
Doubtful		-		-		-		-		-
Total	$	105,298	$	12,674	$	76,150	$	88,824	$	11,602	$	4,872

The Company enters into financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments consist of commitments to extend credit and standby letters of credit.  Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. A commitment involves, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.  The Company’s exposure to credit loss in the event of nonperformance by the other parties to the instrument is represented by the contractual notional amount of the instrument. Since certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company uses the same credit policies in making commitments to extend credit as it does for on-balance-sheet instruments.  Letters of credit are conditional commitments issued to guarantee a customer’s performance to a third party and have essentially the same credit risk as other lending facilities.

Collateral held for commitments to extend credit and standby letters of credit varies but may include accounts receivable, inventory, property, plant, equipment, and income-producing commercial properties.

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The following table summarizes the Company’s off-balance sheet financial instruments as of September 30, 2011 and December 31, 2010 whose contract amounts represent credit risk:

	September 30,		December 31,
	2011		2010
Commitments to extend credit	$	6,175,000	$	5,855,857
Standby letters of credit		847,000		850,000

NOTE 7 – OTHER REAL ESTATE OWNED

Transactions in other real estate owned for the nine months ended September 30, 2011 and year ended December 31, 2010 are summarized below:

	September 30,			December 31,
	2011			2010
Balance, beginning of year	$	2,764,189		$	340,000
Additions		743,498			2,491,189
Write downs		(74,201	)		-
Sales		(557,821	)		(67,000	)
Balance, end of period	$	2,875,665		$	2,764,189

The Company recognized a net loss of $21,432 and $17,000 on the sale of other real estate owned for the nine months ended September 30, 2011 and 2010, respectively.

Other real estate owned expense for the three and nine months ended September 30, 2011 was $140,548 and $254,170, respectively, which includes gains and losses on sales.  For both the three and nine months ended September 30, 2010 expenses attributable to other real estate owned was $29,322.

NOTE 8 - FAIR VALUE MEASUREMENTS

The following methods and assumptions were used to estimate the fair value of significant financial instruments:

Cash and Due from Banks and Interest-bearing Deposits with Other Banks- The carrying amount is a reasonable estimate of fair value.

Federal Funds sold - The carrying amount is a reasonable estimate of fair value because these instruments typically have terms of one to seven days.

Time Deposits in other Banks - The carrying amount is a reasonable estimate of fair value.

Securities Available-for-Sale - The fair values of securities available-for-sale equal the carrying amounts, which are the quoted market prices.  If quoted market prices are not available, fair values are based on quoted market prices of comparable securities.

Securities Held to Maturity - securities for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity or to call dates.  The fair values of securities held-to-maturity are based on quoted market prices.  If quoted market prices are not available, fair values are based on quoted market prices of comparable securities.

Nonmarketable Equity Securities - The carrying amount of nonmarketable equity securities is a reasonable estimate of fair value since no ready market exists for these securities.

Loans Receivable - For certain categories of loans, such as variable rate loans which are repriced frequently and have no significant change in credit risk, 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 borrowers with similar credit ratings and for the same remaining maturities.

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Deposits - The fair value of demand deposits, savings, and money market accounts is the amount payable on demand at the reporting date.  The fair values of certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to a schedule of aggregated expected maturities.

Accrued Interest Receivable and Payable- The carrying value of these instruments is a reasonable estimate of fair value.

Off-Balance Sheet Financial Instruments- Fair values of off-balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

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

	September 30, 2011				December 31, 2010
	Carrying		Estimated Fair		Carrying		Estimated Fair
	Amount		Value		Amount		Value
Financial Assets:
Cash and due from banks	$	19,941,083	$	19,941,083	$	14,173,800	$	14,173,800
Federal funds sold		6,148,000		6,148,000		2,004,000		2,004,000
Time deposits with other banks		750,000		750,000		1,000,000		1,000,000
Securities available-for-sale		29,332,488		29,332,488		26,955,350		26,955,350
Securities held-to-maturity		299,912		311,140		299,885		309,023
Nonmarketable equity securities		270,500		270,500		302,300		302,300
Loans receivable, gross		97,838,367		97,940,138		105,297,684		105,748,184
Accrued interest receivable		722,732		722,732		785,859		785,859
Financial Liabilities:
Demand deposit, interest-bearing transactions, money market, and savings accounts	$	56,406,794	$	56,406,794	$	53,941,792	$	53,941,792
Time deposits		84,265,037		84,630,539		83,642,029		84,001,754
Accrued interest payable		293,143		293,143		451,331		451,331

	Notional		Notional
	Amount		Amount
Off-Balance Sheet Financial Instruments:
Commitments	$	6,175,000	$	5,855,857
Standby letters of credit		847,000		850,000

Generally accepted accounting principles (GAAP) provide a framework for measuring and disclosing fair value which requires disclosures about the fair value of assets and liabilities recognized in the balance sheet, whether the measurements are made on a recurring basis (for example, available-for-sale investment securities) or on a nonrecurring basis (for example, impaired loans).

Fair value is defined as the exchange in 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. GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value. These levels are:

Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets.

16

Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 - Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

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

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

Loans - The Company does not record loans at fair value on a recurring basis, however, from time to time, a loan is considered impaired and an allowance for loan loss is established.  Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are considered impaired. Once a loan is identified as individually impaired, management measures the impairment. The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At September 30, 2011 and December 31, 2010, substantially all of the impaired loans were evaluated based upon the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3.

Other Real Estate Owned - Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Real estate acquired in settlement of loans is recorded initially at estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charges to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy.

Available-for-Sale Securities:

	Total		Level 1		Level 2		Level 3
September 30, 2011
Government-sponsored enterprises	$	15,033,596	$	-	$	15,033,596	$	-
Mortgage-backed securities		2,903,793		-		2,903,793		-
Obligations of state and local governments		11,195,099		-		11,195,099		-
Other		200,000		-		200,000		-
Total	$	29,332,488	$	-	$	29,332,488	$	-

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Available-for-Sale Securities:

	Total		Level 1		Level 2		Level 3
December 31, 2010
Government-sponsored enterprises	$	13,591,442	$	-	$	13,591,442	$	-
Mortgage-backed securities		1,851,266		-		1,851,266		-
Obligations of state and local governments		11,312,642		-		11,312,642		-
Other		200,000		-		200,000		-
Total	$	26,955,350	$	-	$	26,955,350	$	-

There were no liabilities measured at fair value on a recurring basis at September 30, 2011 and December 31, 2010.

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  The following table presents the assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2011 and December 31, 2010, aggregated by level in the fair value hierarchy within which those measurements fall.

	Total		Level 1		Level 2		Level 3
September 30, 2011
Impaired loans	$	9,646,119	$	-	$	9,646,119	$	-
Other real estate owned		2,875,665		-		2,875,665		-
Total assets at fair value	$	12,521,784	$	-	$	12,521,784	$	-
December 31, 2010
Impaired loans	$	7,329,757	$	-	$	7,329,757	$	-
Other real estate owned		2,764,189		-		2,764,189		-
Total assets at fair value	$	10,093,946	$	-	$	10,093,946	$	-

There were no liabilities measured at fair value on a nonrecurring basis at September 30, 2011 and December 31, 2010.

Impaired loans which are measured for impairment using the fair value of collateral for collateral dependent loans, had a carrying value of $11,232,009 at September 30, 2011 with a valuation allowance of $1,585,890.  Impaired loans had a carrying value of $7,703,241 at December 31, 2010 with a valuation allowance of $373,484.

Other real estate owned, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying value of $2,875,665 and $2,764,189 at September 30, 2011 and December 31, 2010, respectively.  There were no write downs of other real estate owned for the nine months ended September 30, 2011 or for the year ended December 31, 2010.

The Company has no assets or liabilities whose fair values are measured using level 3 inputs.

NOTE 9 - SUBSEQUENT EVENTS

Subsequent eventsare 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.  Unrecognized 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 that require accrual or disclosure.

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

The following discussion reviews our results of operations and assesses our financial condition.  You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements.  The commentary should be read in conjunction with the discussion of forward-looking statements, the financial statements and the related notes and the other statistical information included in this report.

Cautionary Note Regarding Forward-Looking Statements

The statements contained in this report on Form 10-Q that are not historical facts are forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995.  We caution readers of this report that such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of us to be materially different from those expressed or implied by such forward-looking statements.

Although we believe that our expectations of future performance are based on reasonable assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that actual results will not differ materially from our expectations.

These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, but not limited to the following:

• deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses;

• changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments;

• the failure of assumptions underlying the establishment of reserves for possible loan losses;

• changes in political and economic conditions, including the political and economic effects of the current economic downturn and other major developments, including the ongoing war on terrorism and political unrest in the Middle East;

• changes in financial market conditions, either internationally, nationally or locally in areas in which we operate, including, without limitation, reduced rates of business formation and growth, commercial and residential real estate development, and real estate prices;

• our ability to comply with any requirements imposed on us and our banking subsidiary by our respective regulators, and the potential negative consequences that may result;

• fluctuations in markets for equity, fixed-income, commercial paper and other securities, which could affect availability, market liquidity levels, and pricing;

• governmental monetary and fiscal policies, as well as legislative and regulatory changes;

• our participation or lack of participation in governmental programs implemented under the Emergency Economic Stabilization Act (the “EESA”) and the American Recovery and Reinvestment Act (the “ARRA”), including, without limitation, the CPP administered under the Troubled Asset Relief Program, and the Temporary Liquidity Guarantee Program (the “TLGP”) and the impact of such programs and related regulations on us and on international, national, and local economic and financial markets and conditions.

Forward-looking statements speak only as of the date on which they are made.  We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect the occurrence of unanticipated events.

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Results of Operations

For the quarter ended September 30, 2011, we realized a net loss $126,520, or $0.54 per share compared to a net income of $235,214, or $1.01 per share quarter ended September 30, 2010.  For the nine months ended September 30, 2011 and 2010, we realized a net income of $243,951, or $1.05 per share and a net income of $203,639, or $0.87 per share, respectively.  We did not realize any gains or losses on available for sale securities during the third quarter of 2011, therefore, our net income was negatively impacted compared to the 2010 period where we realized a net gain of $262,011.  In addition, we experienced an increase of $111,226 in other real estate owned expenses and an increase of $200,000 to provide for loan losses in the third quarter of 2011.  During the first nine months of 2011, we experienced a slight increase in our net income compared to the same period for 2010 as the result of an overall reduction of $453,000 to provide for loan losses.

Net Interest Income

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

Net interest income for the quarter ended September 30, 2011, was $1,353,436, compared to $1,321,910 for the same period last year, an increase of $31,526, or 2.38%.  This increase is primarily attributable to the yield on our average earning assets declining 23 basis points while the cost of our interest-bearing liabilities declined by 52 basis points.  Net interest income for the nine months ended September 30, 2011 was $4,142,684, compared to $4,128,288 for the same period last year, an increase of $14,396, or 0.35%.  This increase is due to the cost of our average interest-bearing liabilities, when comparing 2011 with 2010, declining 30 basis points more than the yield on our average earning assets.

For the three months ended September 30, 2011, average-earning assets totaled $148,968,174 with an annualized average yield of 4.54%.  Average earning assets and annualized average yield were $153,174,681 and 4.77%, respectively, for the three months ended September 30, 2010.  For the nine months ended September 30, 2011, average earning assets totaled $147,945,997 with an annualized average yield of 4.77%.  Average earning assets and annualized average yield were $155,706,824 and 4.99%, respectively for the same period of 2010.

For the three months ended September 30, 2011, average interest-bearing liabilities totaled $125,994,957 with an annualized average cost of 1.10%. Average interest-bearing liabilities and annualized average cost were $127,862,613 and 1.62%, respectively, for the three months ended September 30, 2010. For the nine months ended September 30, 2011, average interest-bearing liabilities totaled $124,967,631 with an annualized average cost of 1.21%. Average interest-bearing liabilities and annualized average cost were $130,535,795 and 1.73%, respectively, for the nine months ended September 30, 2010.

Our net interest margin and net interest spread were 3.60% and 3.43% for the quarter ended September 30, 2011 compared to 3.42% and 3.16%, respectively for the quarter ended September 30, 2010.  Our net interest margin and net interest spread were 3.74% and 3.56%, respectively for the nine months ended September 30, 2011 compared to 3.54% and 3.27%, respectively for the nine months ended September 30, 2010.

Average Earning Assets

Loans - Loans comprised approximately 66.55% and 72.15% of average earning assets for the quarter ended September 30, 2011 and 2010, respectively, and 68.73% and 72.81%, for the nine months ended September 30, 2011 and 2010, respectively.  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.

Loan interest income was $1,481,117 and $1,642,566 for quarter ended September 30, 2011 and 2010, respectively.  Loan interest income for the nine months ended September 30, 2011 totaled $4,619,744 compared to $5,163,742 for the same period of 2010.

The annualized average yield on loans was 5.93% and 5.90% for the quarter ended September 30, 2011 and 2010, respectively.  The annualized average yield on loans was 6.07% and 6.09% for the nine months ended September 30, 2011 and 2010, respectively.  The slight changes in the annualized yield on loans for the 2011 periods compared to the 2010 periods were due mainly to the leveling off of market interest rates during the periods.

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Average balances of loans decreased to $99,132,507 for the quarter ended September 30, 2011, a decrease of $11,376.801, or 10.29% from the average balance of $110,509,308 for the quarter ended September 30, 2010.  For the nine months ended September 30, 2011, the average balances of loans decreased by $11,686,438, or 10.31% from the average balances of $113,373,186 for the nine months ended September 30, 2010, to $101,686,748.  Fixed rate loans averaged approximately 97% of our loan portfolio for all periods presented.

Investment Securities - Investment securities averaged $30,672,088, or 20.59% of average earning assets for the three months ended September 30, 2011, compared to $21,825,994, or 14.25%, of average earning assets, for the same period in 2010.  For the nine months ended September 30, 2011, investment securities averaged $29,829,960, or 20.16% of average earning assets compared to $22,687,520, or 14.57%, of average earning assets, for the same period in 2010.  Interest earned on investment securities amounted to $210,254 for the three months ended September 30, 2011, compared to $183,473 for the same period of 2010.  For the nine months ended September 30, 2011, interest earned on investment securities amounted to $620,786 compared to $597,330 for the same period last year.  Investment securities yielded 2.72% and 3.34% for the three months ended September 30, 2011 and 2010, respectively.  For the nine months ended September 30, 2011 and 2010 the yield on investment securities was 2.78% and 3.52%, respectively.

Average Interest Bearing Liabilities

Deposits - The largest component of interest expense is interest on deposit accounts.  Interest expense for deposit accounts for the quarter ended September 30, 2011 and 2010 was $350,491 and $521,189, respectively.  Interest expense for deposit accounts for the nine months ended September 30, 2011 and 2010 was $1,131,311 and $1,686,426, respectively.

The average balance of interest bearing deposits decreased to $125,994,957 during the quarter ended September 30, 2011 from $127,862,613 for the quarter ended September 30, 2010.  During the nine months ended September 30, 2011 the average balances of interest bearing deposits decreased to $124,967,631 from $130,535,601 for the same period in 2010.

The annualized average cost of deposits was 1.10% for the quarter ended September 30, 2011 compared to 1.62% for the same period in 2010.  The annualized average cost of deposits was 1.21% for the nine months ended September 30, 2011 compared to 1.73% for the same period in 2010.

For the three and nine months ended September 30, 2011 and 2010, interest expense on other interest-bearing liabilities was insignificant.

Provision and Allowance for Loan Losses

We have developed policies and procedures for evaluating the overall quality of our credit portfolio and the timely identification of potential problem credits.  On a quarterly basis, our Board of Directors reviews and approves the appropriate level for the allowance for loan losses based upon management’s recommendations, the results of our internal monitoring and reporting system, and an analysis of economic conditions in our market.  The objective of management has been to fund the allowance for loan losses at a level greater than or equal to our internal risk measurement system for loan risk.

Additions to the allowance for loan losses, which are expensed as the provision for loan losses on our statement of operations, are made periodically to maintain the allowance at an appropriate level based on management’s analysis of the potential risk in the loan portfolio.  Loan losses and recoveries are charged or credited directly to the allowance.  The amount of the provision is a function of the level of loans outstanding, the level of nonperforming loans, historical loan loss experience, the amount of loan losses actually charged against the reserve during a given period, and current and anticipated economic conditions.

The allowance represents an amount which management believes will be adequate to absorb inherent losses on existing loans that may become uncollectible.  Our judgment as to the adequacy of the allowance for loan losses is based on a number of assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate. Our determination of the allowance for loan losses is based on regular evaluations of the collectability of loans, including consideration of factors such as the balance of impaired loans, the quality, mix, and size of our overall loan portfolio, economic conditions that may affect the borrower’s ability to repay, the amount and quality of collateral securing the loans, our historical loan loss experience, and a review of specific problem loans. We also consider subjective issues such as changes in our lending policies and procedures, changes in the local and national economy, changes in volume or type of credits, changes in the volume or severity of problem loans, quality of loan review and board of director oversight, concentrations of credit, and peer group comparisons.

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More specifically, in determining our allowance for loan losses, we regularly review loans for specific and impaired reserves based on the appropriate impairment assessment methodology. Pooled reserves are determined using historical loss trends measured over a five-year average, adjusted for environmental risk, which is then applied to risk rated loans grouped by Federal Financial Examination Council (“FFIEC”) call code and segmented by impairment status. The pooled reserves are calculated by applying the appropriate historical loss ratio to the loan categories. Impaired loans greater than a minimum threshold established by management are excluded from this analysis. The sum of all such amounts determines our pooled reserves.

We track our portfolio and analyze loans grouped by FFIEC call code categories. The first step in this process is to risk grade each and every loan in the portfolio based on one common set of parameters. These parameters include items like debt-to-worth ratio, liquidity of the borrower, net worth, experience in a particular field and other factors such as underwriting exceptions. Weight is also given to the relative strength of any guarantors on the loan.

After risk grading each loan, we then segment the portfolio by FFIEC call code groupings, separating out substandard or impaired loans.  The remaining loans are grouped into “performing loan pools.”  The loss history for each performing loan pool is measured over a specific period of time to create a loss factor.  The relevant look back period is determined by the Bank, regulatory guidance, and current market events.  The loss factor is then applied to the pool balance and the reserve per pool calculated.  Loans deemed to be substandard but not impaired are segregated and a loss factor is applied to this pool as well.  Finally, impaired loans are segmented based upon size; smaller impaired loans are pooled and a loss factor applied, while larger impaired loans are assessed individually using the appropriate impairment measuring methodology.  Finally, certain qualitative factors are utilized to assess economic and other trends not currently reflected in the loss history. These factors include concentration of credit across the portfolio, the experience level of management and staff, effects of changes in risk selection and underwriting practice, industry conditions and the current economic and business environment.  A quantitative value is assigned to each of the factors, which is then applied to the performing loan pools. Negative trends in the loan portfolio increase the quantitative values assigned to each of the qualitative factors and, therefore, increase the reserve.  For example, as general economic and business conditions decline, this qualitative factor’s quantitative value will increase, which will increase reserve requirement for this factor.  Similarly, positive trends in the loan portfolio, such as improvement in general economic and business conditions, will decrease the quantitative value assigned to this qualitative factor, thereby decreasing the reserve requirement for this factor.  These factors are reviewed and updated by our risk management committee on a regular basis to arrive at a consensus for our qualitative adjustments.

Periodically, we adjust the amount of the allowance based on changing circumstances. We recognize loan losses to the allowance and add subsequent recoveries back to the allowance for loan losses. In addition, on a quarterly basis we informally compare our allowance for loan losses to various peer institutions; however, we recognize that allowances will vary as financial institutions are unique in the make-up of their loan portfolios and customers, which necessarily creates different risk profiles for the institutions.  If our allowance was significantly different from our peer group, we would carefully review our assessment procedures again to ensure that all procedures were completed accurately and all environmental risk factors were thoroughly considered.  There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for loan losses as estimated at any point in time or that provisions for loan losses will not be significant to a particular accounting period, especially considering the overall weakness in the economic environment in our market areas.

Various regulatory agencies review our allowance for loan losses through their periodic examinations, and they may require additions to the allowance for loan losses based on their judgment about information available to them at the time of their examinations. Our losses will undoubtedly vary from our estimates, and it is possible that charge-offs in future periods will exceed the allowance for loan losses as estimated at any point in time.

For the third quarter of 2011 and 2010, the provision for loan losses was $615,000 and $415,000, respectively, an increase of $200,000, or 48.19%.  The provision for loan losses was $1,153,000 and $1,626,000 for the nine months ended September 30, 2011 and 2010, respectively.  This represents a decrease of $473,000, or 29.09%.  The increase in the provision expense for the third quarter of 2011 is due primarily to the deterioration of certain large credits that occurred during the quarter.  The provision expense estimate is the result of a statistical model that is subject to a great degree of volatility and is sensitive to current quarter loss experience and real estate collateral values in the marketplace.  While we expect our current period loss experience to be lower than that realized over the past several years, there can be no assurance that this will occur.  We are closely monitoring current economic developments and their impact our loan portfolio.

As of September 30, 2011 and 2010, the allowance for loan losses was $2,423,417 and $2,058,795, respectively. As a percentage of total loans, the allowance for loan losses was 2.48% and 1.90% at September 30, 2011 and 2010, respectively.  We believe the allowance for loan losses at September 30, 2011, is adequate to meet potential loan losses inherent in the loan portfolio, and, as described earlier, maintain the flexibility to adjust the allowance should our local economy and loan portfolio either improve or decline in the future.

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Noninterest Income

Noninterest income for the three months ending September 30, 2011 was $131,828 compared to $409,846 for the three months ending September 30, 2010.  For the nine months ending September 30, 2011 and 2010 noninterest income was $401,980 and $695,843, respectively.  The decline in noninterest income for the three and nine months ended September 30, 2011 is the result of the $262,011 gain on the sale of available-for-securities that was realized in the third quarter of 2010.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2011 and 2010 was $1,046,313 and $1,048,542, respectively.  This represented a decrease in noninterest expense of $2,229, or 0.21%. Salaries and employee benefits decreased $28,286 from $521,505 for the three months ended September 30, 2010 to $493,219 for the comparable period in 2011.  The net occupancy expense was $78,356, or $5,105 higher for the three months ended September 30, 2011 than for the same period in 2010.  Equipment expense decreased $2,211 from $89,802 for the three months ended September 30, 2010 to $87,591 for the three months ended September 30, 2011.  For the three months ended September 30, 2011, other operating expenses were $387,147, or $23,163 higher than the three months ended September 30, 2010.  This increase is mainly attributable to the increase in other real estate owned expenses, which increased $111,226.

Noninterest expense for the nine months ended September 30, 2011 and 2010 was $3,097,442 and $2,983,742, respectively.  This represented an increase of $113,700, or 3.81%.  Salaries and employee benefits decreased $56,507, from $1,532,304 for the nine months ended September 30, 2010 to $1,475,797 for the comparable period in 2011.  The net occupancy expense was $224,618, or $26,123 higher for the nine months ended September 30, 2011 than for the same period in 2010.  Equipment expense decreased $976 from $270,795 for the nine months ended September 30, 2010 to $269,819 for the nine months ended September 30, 2011. For the nine months ended September 30, 2011, other operating expense was $1,127,208, or $145,060, higher than the nine months ended September 30, 2010.  The increase in other operating expense is primarily attributable to the increase of $224,848, in other real estate owned expenses.

Income Taxes

The income tax provision for the three and nine months ended September 30, 2011 reflects an income tax benefit of $49,529 and an income tax expense of $50,271, respectively compared to income tax expense of $33,000 and $10,750, respectively for the comparable 2010 periods.  The change in our tax provision for both periods presented is due primarily to our net income (loss) before income taxes and the relationship of our tax exempt income to net income (loss) before taxes.

Assets and Liabilities

During the first nine months of 2011, total assets increased $3,696,361 or 2.37%, when compared to December 31, 2010.  The balance of cash and cash equivalent was $26,089,083 at September 30, 2011 and $16,177,800 at December 31, 2010, an increase of $9,911,283, or 61.26%.  Total investment securities increased $2,345,365, or 8.51% from December 31, 2010 to $29,902,900 at September 30, 2011.  Gross loans decreased $7,459,316, or 7.08%, to $97,838,368 at September 30, 2011.

For the nine months ended September 30, 2011, total liabilities increased $2,956,552 or 2.14% and total deposits increased $3,088,010 or 2.24% from December 31, 2010.

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

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

Loans

At September 30, 2011, our total loans were $97,838,368 compared to $105,297,684 at December 31, 2010, a decrease of $7,459,316, or 7.08%.  At September 30, 2011 and December 31, 2010, approximately 95% and 97% of our loan portfolio consisted of fixed rate loans, respectively.  Balances within the major loans receivable categories as of September 30, 2011 and December 31, 2010 are as follows:

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	September 30,		December 31,
	2011		2010
Real estate – construction	$	12,935,754	$	12,674,197
Real estate – mortgage		71,514,060		76,149,357
Commercial and industrial		7,869,260		11,602,305
Consumer and other		5,519,294		4,871,825
Total gross loans	$	97,838,368	$	105,297,684

The loan portfolio consisted of loans having:

	September 30,		December 31,
	2011		2010
Variable rates	$	5,028,259	$	3,206,699
Fixed rates		92,810,109		102,090,985
Total gross loans	$	97,838,368	$	105,297,684

Risk Elements in the Loan Portfolio

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

	September 30,
	2011			2010
Loans impaired and included in nonaccrual loans	$	6,502,127		$	5,708,894
Loans impaired and not included in nonaccrual		4,729,882			3,026,630
Total impaired loans		11,232,009			8,735,524
Loans 90 days or more past due and still accruing interest		-			3,176
Total impaired and nonperforming loans		11,232,009			8,738,700
Other real estate owned		2,875,665			1,488,357
Total impaired and nonperforming assets	$	14,107,674		$	10,227,057
Nonperforming assets to total assets		8.84	%		6.36	%
Total impaired and nonperforming loans to total loans		11.48	%		8.08	%
Allowance for loan losses as a percentage of impaired and nonperforming loans		21.58	%		23.56	%

The following tables summarize information on impaired loans for the nine months ended September 30, 2011 and 2010.

	Nine Months Ended
	September 30,
	2011		2010
Impaired loans with specific allowance	$	5,240,208	$	2,604,179
Impaired loans with no specific allowance		5,991,801		6,131,345
Total impaired loans	$	11,232,009	$	8,735,524
Related specific allowance	$	1,585,890	$	441,907
Average recorded investment in impaired loans	$	8,648,438	$	8,714,283

Since December 31, 2010, our impaired loans had a net increase of $3,528,768, or 45.81%.  The majority of the increase is due to the deterioration of loans to six borrowers totaling $4,162,779.  All of these loans are secured by real estate and have a specific allocation of the allowance for loan losses totaling $714,441 at September 30, 2011.

Impaired loans, as a percentage of total loans, were 11.48% at September 30, 2011, as compared to 8.29% at September 30, 2010.   Our impaired loans, at September 30, 2011, included 14 borrowers that accounted for 78.12% of the total amount of the impaired loans.

At September 30, 2011 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.

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Activity in the Allowance for Loan Losses is as follows:

	Nine Months Ended
	September 30,
	2011			2010
Balance, January 1,	$	2,019,497		$	2,053,340
Provision for loan losses for the period		1,153,000			1,626,000
Net loans charged-off for the period		(749,080	)		(1,620,545	)
Balance, end of period	$	2,423,417		$	2,058,795
Gross loans outstanding, end of period	$	97,838,368		$	108,183,919
Allowance for loan losses to loans outstanding		2.48	%		1.90	%

Deposits

Deposits account for practically all of our interest bearing liabilities.  Total average deposits decreased from $145,318,453 for the first nine months in 2010 to $139,214,686 for the first nine months in 2011.  This represents a decrease of $6,103,767, or 4.20% from the 2010 amount.

The following table summarizes our average deposits for the nine months ended September 30, 2011 and 2010.

	Nine Months Ended September 30,
	2011					2010
			Percent of					Percent of
	Amount		Deposits			Amount		Deposits
Noninterest-bearing demand	$	14,247,055		10.23	%	$	14,782,852		10.17	%
Interest-bearing demand		21,281,024		15.29			21,777,679		14.99
Savings accounts		20,210,212		14.52			16,907,614		11.63
Time deposits		83,476,395		59.96			91,850,308		63.21
Total deposits	$	139,214,686		100.00	%	$	145,318,453		100.00	%

Our actual deposits at September 30, 2011 and December 31, 2010 were $140,671,831 and $137,583,821, respectively, representing an increase of $3,088,010, or 2.24%.

Core deposits, which exclude certificates of deposit of $100,000 or more, provide a relatively stable funding source for our loan portfolio and other earning assets.  Our core deposits were $92,603,557 and $91,441,668 at September 30, 2011 and December 31, 2010, respectively.  A stable base of deposits is expected to be our primary source of funding to meet both our short-term and long-term liquidity needs in the future.

Deposits, and particularly core deposits, have been our primary source of funding and have enabled us to meet successfully both our short-term and long-term liquidity needs.  We anticipate that such deposits will continue to be our primary source of funding in the future.  Our loan-to-deposit ratio was 69.55% and 76.53% on September 30, 2011 and December 31, 2010, respectively.

We did not have any brokered deposits at September 30, 2011 or December 31, 2010.

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 if any), which was 69.55% at September 30, 2011 and 76.53% at December 31, 2010.

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.  Additionally, funds from maturing loans are a source of liquidity.

At September 30, 2011 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 September 30, 2011, the available credit totaled approximately $23,972,000 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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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 Nine months ended September 30, 2011 Compared to the Nine months Ended September 30, 2010 – Net Interest Income,” our net interest margin increased during the current period. If the net interest margin were to decline, the net income will likely decline also.

Capital Resources

Total shareholders' equity at September 30, 2011 and December 31, 2010 was $18,378,646, or 11.52% and $17,638,837, or 11.32%, respectively, of total assets.

The following table shows the return on average assets (net income divided by average total assets), return on average equity (net income divided by average equity), and equity to assets ratio (average equity divided by average total assets) for the nine months ended September 30, 2011 and 2010.

	Nine Months Ended
	September 30,
	2011			2010
Return on average assets		0.21	%		0.17	%
Return on average equity		1.81			1.53
Average equity to average assets ratio		11.45			10.84

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 various capital ratios at September 30, 2011and December 31, 2010:

	September 30,			December 31,
	2011			2010
Tier 1 capital (to risk-weighted assets)		17.10	%		15.23	%
Total capital (to risk-weighted assets)		18.37	%		16.49	%
Tier 1 capital (leverage ratio)		11.17	%		11.15	%

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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 September 30, 2011, we had issued commitments to extend credit of $6,175,000 and standby letters of credit of $847,000 through various types of commercial lending arrangements.  We evaluate each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower.  Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate.

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, 2010 as filed in our annual report on Form 10-K.  Certain accounting policies involve significant judgments and assumptions by us, which have a material impact on the carrying value of certain assets and liabilities.  We consider these accounting policies to be critical accounting policies.  The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances.  Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates which could have a material impact on our carrying values of assets and liabilities and our results of operations.

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

Recently Issued Accounting Standards

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

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

Not applicable since we are a smaller reporting company.

Item 4.  Controls and Procedures

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

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

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PART II – Other Information

Item 1.   Legal Proceedings

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

Item 1A.   Risk Factors

There has been no change in the risk factors, which were reported on Form 10-K for the year ended December 31, 2010.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

Item 3.   Default Upon Senior Securities

Not applicable

Item 4.   Removed and Reserved

Not applicable

Item 5.   Other Information

Not applicable

Item 6.   Exhibits

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

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

32 Section 1350 Certifications.

101 Interactive Data File

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SIGNATURES

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

COMMUNITYCORP

Date:    November 10, 2011	By:	/s/ W. ROGER CROOK
		W. Roger Crook
		President & Chief Executive Officer
Date:    November 10, 2011	By:	/s/ GWEN P. BUNTON
		Gwen P. Bunton
		Chief Financial Officer

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