10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2008

¨ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

Commission file no. 33-76644

COMMUNITYCORP

(Exact Name of Registrant as Specified in Its Charter)

South Carolina	57-1019001
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1100 N. Jefferies Blvd. Walterboro, South Carolina	29488
(Address of Principal Executive Offices)	(Zip Code)

(843) 549-2265

Registrant’s Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

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 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 past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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

The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold was $18,820,640 as of March 24, 2009.

The number of shares of common stock outstanding as of March 24, 2009, was 235,258.

DOCUMENTS INCORPORATED BY REFERENCE

Annual Report to Shareholders for the year ended December 31, 2008

Proxy Statement for the Annual Meeting of April 29, 2009

COMMUNITYCORP

Index

PART I
Item 1	Business	2
Item 1A	Risk Factors	14
Item 1B	Unresolved Staff Comment	19
Item 2	Description of Properties	20
Item 3	Legal Proceedings	20
Item 4	Submission of Matters to a Vote of Security Holders	20
PART II
Item 5	Market for Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	20
Item 6	Selected Financial Data	20
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operation	20
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	20
Item 8	Financial Statements and Supplementary Data	21
Item 9	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	21
Item 9A	Controls and Procedures	21
Item 9B	Other Information	22
PART III
Item 10	Directors, Executive Officers, and Corporate Governance of the Registrant	22
Item 11	Executive Compensation	22
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	22
Item 13	Certain Relationships and Related Transactions, and Director Independence	22
Item 14	Principal Accountant Fees and Services	22
PART IV
Item 15	Exhibits	22

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PART I

FORWARD-LOOKING STATEMENTS

This report contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “would,” “could,” “will,” “expect,” “anticipate,” “believe,” “intend,” “plan,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ from those anticipated in our forward-looking statements include, but are not limited, to those described below under “Risk Factors” and the following:

• significant increases in competitive pressure in the banking and financial services industries;

• changes in the interest rate environment which could reduce anticipated or actual margins;

• changes in political conditions or the legislative or regulatory environment;

• general economic conditions, either nationally or regionally and especially in our primary service area, becoming less favorable than expected resulting in, among other things, a deterioration in credit quality;

• changes occurring in business conditions and inflation;

• changes in technology;

• changes in monetary and tax policies;

• the level of allowance for loan loss;

• the rate of delinquencies and amounts of charge-offs;

• the rates of loan growth;

• adverse changes in asset quality and resulting credit risk-related losses and expenses;

• loss of consumer confidence and economic disruptions resulting from terrorist activities;

• changes in the securities markets; and

• other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission (“SEC”).

Item 1. Description of Business

General

Communitycorp was organized in 1995 to serve as a bank holding company for Bank of Walterboro (the, “Bank”). The bank commenced business on May 1, 1989 as a South Carolina state-chartered bank headquartered in Walterboro, South Carolina. The principal business activity of the Company is to provide banking services to domestic markets, principally in Colleton County, Jasper County and Northern Charleston County, South Carolina. The Company opened an additional branch in 2004 in Ridgeland, South Carolina.

Our primary source of revenue is interest income and fees, which we earn by lending and investing our capital and the funds which are held on deposit. Because loans generally earn higher rates of interest than investments, the bank seeks to employ as many of its deposit funds as possible in the form of loans to individuals and businesses. To ensure sufficient liquidity, we also maintain a portion of the Bank’s deposits in cash, government securities, deposits with other financial institutions, and overnight loans of excess reserves (known as “federal funds sold”) to correspondent banks. The revenue which the bank earns (prior to deducting its overhead expenses) is essentially a function of the amount of the Bank’s loans and deposits, as well as the profit margin (“interest spread”) and fee income.

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Marketing Focus

Our bank primarily serves the city of Walterboro and the surrounding area of Colleton County, South Carolina. The bank’s extended market area also includes the north side of Charleston County, South Carolina where the Ravenel branch is located and Jasper County where the Ridgeland branch is located. The Bank strives to maintain its business in these market areas.

Banking Services

The bank strives to provide its customers with the breadth of products and services comparable to those offered by large regional banks, while maintaining the quick response and personal service of a locally owned and managed bank. We offer a full range of deposit services and originate commercial and personal loans.

• Deposit Services. The bank offers a full range of deposit services that are typically available in most banks and savings and loan associations, including checking accounts, NOW accounts, savings accounts, and other time deposits of various types, ranging from daily money market accounts to longer-term certificates of deposit. The transaction accounts and time certificates are tailored to our principal market area at rates competitive to those offered by other banks in the area. In addition, we offer certain retirement account services, such as Individual Retirement Accounts (IRAs). All deposit accounts are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to the maximum amount allowed by law. The bank solicits these accounts from individuals, businesses, associations and organizations, and governmental authorities.

• Loan Products. The bank offers a full range of commercial and personal loans. Commercial loans include both secured and unsecured loans for working capital (including loans secured by inventory and accounts receivable), business expansion (including acquisition of real estate and improvements), and purchase of equipment and machinery. Consumer loans include equity lines of credit and secured and unsecured loans for financing automobiles, home improvements, education, and personal investments. The bank also makes real estate construction and acquisition loans. The bank’s lending activities are subject to a variety of lending limits imposed by federal law. While differing limits apply in certain circumstances based on the type of loan or the nature of the borrower (including the borrower’s relationship to us), in general we are subject to a loans-to-one-borrower limit of an amount equal to 15% of the bank’s unimpaired capital and surplus. We may not make any loans to any director, officer, employee, or 10% shareholder of the bank unless the loan is approved by our board of directors and is made on terms not more favorable to such a person than would be available to a person not affiliated with us.

• Other Services. Other bank services include cash management services, safe deposit boxes, travelers checks, direct deposit of payroll and social security checks, and automatic drafts for various accounts. The bank is associated with Honor and Plus networks of automated teller machines that may be used by our customers throughout South Carolina and other regions. The bank also offers VISA credit card services through a correspondent bank as an agent for us. The Bank offers an Internet banking product accessible via the Bank’s custom website at www.bankofwalterboro.com.

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Competition

Banks generally compete with other financial institutions through the selection of banking products and services offered, the pricing of services, the level of service provided, the convenience and availability of services, and the degree of expertise and the personal manner in which services are offered. South Carolina law permits statewide branching by banks and savings institutions, and many financial institutions in the state have branch networks. Consequently, commercial banking in South Carolina is highly competitive. As of June 30, 2008, there were four commercial banks, a savings and loan institutions, and a credit union in the same area as Bank of Walterboro. Many large banking organizations currently operate in the Bank’s market area, several of which are controlled by out-of-state ownership. In addition, competition between commercial banks and thrift institutions (savings institutions and credit unions) has been intensified significantly by the elimination of many previous distinctions between the various types of financial institutions and the expanded powers and increased activity of thrift institutions in areas of banking which previously had been the sole domain of commercial banks. Recent legislation, together with other regulatory changes by the primary regulators of the various financial institutions, has resulted in almost total elimination of practical distinctions between a commercial bank and a thrift institution. Consequently, competition among financial institutions of all types is largely unlimited with respect to legal authority to provide most financial services.

Employees

As of December 31, 2008, the Bank had forty-two full time and five part time employees. The Company had no employees.

Supervision and Regulations

Both Communitycorp and The Bank of Walterboro are subject to extensive state and federal banking regulations that impose restrictions on and provide for general regulatory oversight of their operations. These laws generally are intended to protect depositors and not shareholders. The following summary is qualified by reference to the statutory and regulatory provisions discussed. Changes in applicable laws or regulations may have a material effect on our business and prospects. Our operations may be affected by legislative changes and the policies of various regulatory authorities. We cannot predict the effect that fiscal or monetary policies, economic control, or new federal or state legislation may have on our business and earnings in the future.

The following discussion is not intended to be a complete list of all the activities regulated by the banking laws or of the impact of such laws and regulations on our operations. It is intended only to briefly summarize some material provisions.

COMMUNITYCORP

We own 100% of the outstanding capital stock of the Bank, and therefore we are considered to be a bank holding company under the federal Bank Holding Company Act of 1956 (the “Bank Holding Company Act”). As a result, we are primarily subject to the supervision, examination and reporting requirements of the Board of Governors of the Federal Reserve (the “Federal Reserve”) under the Bank Holding Company Act and its regulations promulgated thereunder. As a bank holding company located in South Carolina, the South Carolina Board of Financial Institutions also regulates and monitors all significant aspects of our operations.

Permitted Activities. Under the Bank Holding Company Act, a bank holding company is generally permitted to engage in, or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in, the following activities:

• banking or managing or controlling banks;

• furnishing services to or performing services for our subsidiaries; and

• any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking.

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Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include:

• factoring accounts receivable;

• making, acquiring, brokering or servicing loans and usual related activities;

• leasing personal or real property;

• operating a non-bank depository institution, such as a savings association;

• trust company functions;

• financial and investment advisory activities;

• conducting discount securities brokerage activities;

• underwriting and dealing in government obligations and money market instruments;

• providing specified management consulting and counseling activities;

• performing selected data processing services and support services;

• acting as agent or broker in selling credit life insurance and other types of insurance in

• connection with credit transactions; and

• performing selected insurance underwriting activities.

As a bank holding company we also can elect to be treated as a “financial holding company,” which would allow us engage in a broader array of activities. In sum, a financial holding company can engage in activities that are financial in nature or incidental or complementary to financial activities, including insurance underwriting, sales and brokerage activities, providing financial and investment advisory services, underwriting services and limited merchant banking activities. We have not sought financial holding company status, but may elect such status in the future as our business matures. If we were to elect in writing for financial holding company status, each insured depository institution we control would have to be well capitalized, well managed and have at least a satisfactory rating under the CRA (discussed below).

The Federal Reserve has the authority to order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness or stability of it or any of its bank subsidiaries.

Change in Control. In addition, and subject to certain exceptions, the Bank Holding Company Act and the Change in Bank Control Act, together with regulations promulgated there under, require Federal Reserve approval prior to any person or company acquiring “control” of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of a bank holding company. Following the relaxing of these restrictions by the Federal Reserve in September 2008, control will be rebuttably presumed to exist if a person acquires more than 33% of the total equity of a bank or bank holding company, of which it may own, control or have the power to vote not more than 15% of any class of voting securities.

Source of Strength. In accordance with Federal Reserve Board policy, we are expected to act as a source of financial strength to the bank and to commit resources to support the bank in circumstances in which we might not otherwise do so. If the bank were to become “undercapitalized” (see below “Bank of Walterboro — Prompt Corrective Action”), we would be required to provide a guarantee of the bank’s plan to return to capital adequacy. Additionally, under the bank Holding Company Act, the Federal Reserve Board may require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary, other than a nonbank subsidiary of a bank, upon the Federal Reserve Board’s determination that such activity or control constitutes a serious risk to the financial soundness or stability of any depository institution subsidiary of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiaries if the agency determines that divestiture may aid the depository institution’s financial condition. Further, any loans by a bank holding company to a subsidiary bank are subordinate in right of payment to deposits and certain other indebtedness of the subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank at a certain level would be assumed by the bankruptcy trustee and entitled to priority payment.

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Capital Requirements. The Federal Reserve Board imposes certain capital requirements on the bank holding company under the Bank Holding Company Act, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are essentially the same as those that apply to the bank described below under “Bank of Walterboro—Capital Regulations.” However, The Federal Reserve guidelines contain an exemption from the capital requirements for “small bank holding companies” which in 2006 were amended to cover most bank holding companies with less than $500 million in total assets that do not have a material amount of debt or equity securities outstanding registered with the SEC. Although our class of common stock is registered under Section 12 of the Securities Exchange Act, we believe that because our stock is not listed on any exchange or otherwise actively traded, the Federal Reserve Board will interpret its new guidelines to mean that we qualify as a small bank holding company. Nevertheless, our Bank remains subject to these capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Regardless, our Bank is “well capitalized” under these minimum capital requirements as set per bank regulatory agencies.

Subject to our capital requirements and certain other restrictions, we are able to borrow money to make a capital contribution to the bank, and these loans may be repaid from dividends paid from the bank to the Company. Our ability to pay dividends depends on the bank’s ability to pay dividends to us, which is subject to regulatory restrictions as described below in “Bank of Walterboro — Dividends.” We are also able to raise capital for contribution to the bank by issuing securities without having to receive regulatory approval, subject to compliance with federal and state securities laws.

South Carolina State Regulation. As a South Carolina bank holding company under the South Carolina Banking and Branching Efficiency Act, we are subject to limitations on sale or merger and to regulation by the South Carolina Board of Financial Institutions. We are not required to obtain the approval of the South Carolina Board prior to acquiring the capital stock of a national bank, but we must notify them at least 15 days prior to doing so. We must receive the Board’s approval prior to engaging in the acquisition of a South Carolina state chartered bank or another South Carolina bank holding company.

Bank of Walterboro

The Bank operates as a state bank incorporated under the laws of the State of South Carolina and is subject to examination by the South Carolina Board of Financial Institutions. Deposits in the bank are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to a maximum amount, which is currently $100,000 for each non-retirement depositor and $250,000 for certain retirement-account depositors. However, the FDIC has increased the coverage up to $250,000 for each non-retirement depositor through December 31, 2009, and the bank is participating in the FDIC’s Temporary Liquidity Guarantee Program (discussed below in greater detail) which, in part, fully insures non-interest bearing transaction accounts.

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The South Carolina Board of Financial Institutions and the FDIC regulate or monitor virtually all areas of the bank’s operations, including:

• adequacy of capitalization and loss reserves;

• loans;

• investments;

• borrowings;

• deposits;

• mergers;

• issuances of securities;

• payment of dividends;

• interest rates payable on deposits;

• interest rates or fees chargeable on loans;

• establishment of branches;

• corporate reorganizations;

• maintenance of books and records; and

• adequacy of staff training to carry on safe lending and deposit gathering practices.

The South Carolina Board of Financial Institutions requires the bank to maintain specified capital ratios and imposes limitations on the bank’s aggregate investment in real estate, bank premises, and furniture and fixtures. The South Carolina Board of Financial Institutions also requires the bank to prepare quarterly reports on the bank’s financial condition in compliance with its minimum standards and procedures.

All insured institutions must undergo regular on site examinations by their appropriate banking agency. The cost of examinations of insured depository institutions and any affiliates may be assessed by the appropriate agency against each institution or affiliate as it deems necessary or appropriate. Insured institutions are required to submit annual reports to the FDIC, their federal regulatory agency, and their state supervisor when applicable. The FDIC has developed a method for insured depository institutions to provide supplemental disclosure of the estimated fair market value of assets and liabilities, to the extent feasible and practicable, in any balance sheet, financial statement, report of condition or any other report of any insured depository institution. The FDIC Improvement Act also requires the federal banking regulatory agencies to prescribe, by regulation, standards for all insured depository institutions and depository institution holding companies relating, among other things, to the following:

• internal controls;

• information systems and audit systems;

• loan documentation;

• credit underwriting;

• interest rate risk exposure; and

• asset quality.

Prompt Corrective Action. As an insured depository institution, the bank is required to comply with the capital requirements promulgated under the Federal Deposit Insurance Act and the regulations thereunder, which set forth five capital categories, each with specific regulatory consequences. Under these regulations, the categories are:

• Well Capitalized — The institution exceeds the required minimum level for each relevant capital measure. A well capitalized institution is one (i) having a total capital ratio of 10% or greater, (ii) having a tier 1 capital ratio of 6% or greater, (iii) having a leverage capital ratio of 5% or greater and (iv) that is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure.

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• Adequately Capitalized — The institution meets the required minimum level for each relevant capital measure. No capital distribution may be made that would result in the institution becoming undercapitalized. An adequately capitalized institution is one (i) having a total capital ratio of 8% or greater, (ii) having a tier 1 capital ratio of 4% or greater and (iii) having a leverage capital ratio of 4% or greater or a leverage capital ratio of 3% or greater if the institution is rated composite 1 under the CAMELS (Capital, Assets, Management, Earnings, Liquidity and Sensitivity to market risk) rating system.

• Undercapitalized — The institution fails to meet the required minimum level for any relevant capital measure. An undercapitalized institution is one (i) having a total capital ratio of less than 8% or (ii) having a tier 1 capital ratio of less than 4% or (iii) having a leverage capital ratio of less than 4%, or if the institution is rated a composite 1 under the CAMELS rating system, a leverage capital ratio of less than 3%.

• Significantly Undercapitalized — The institution is significantly below the required minimum level for any relevant capital measure. A significantly undercapitalized institution is one (i) having a total capital ratio of less than 6% or (ii) having a tier 1 capital ratio of less than 3% or (iii) having a leverage capital ratio of less than 3%.

• Critically Undercapitalized — The institution fails to meet a critical capital level set by the appropriate federal banking agency. A critically undercapitalized institution is one having a ratio of tangible equity to total assets that is equal to or less than 2%.

If the FDIC determines, after notice and an opportunity for hearing, that the bank is in an unsafe or unsound condition, the regulator is authorized to reclassify the bank to the next lower capital category (other than critically undercapitalized) and require the submission of a plan to correct the unsafe or unsound condition.

If the bank is not well capitalized, it cannot accept brokered deposits without prior FDIC approval and, if approval is granted, cannot offer an effective yield in excess of 75 basis points on interests paid on deposits of comparable size and maturity in such institution’s normal market area for deposits accepted from within its normal market area, or national rate paid on deposits of comparable size and maturity for deposits accepted outside the bank’s normal market area. Moreover, if the bank becomes less than adequately capitalized, it must adopt a capital restoration plan acceptable to the FDIC. The bank also would become subject to increased regulatory oversight, and is increasingly restricted in the scope of its permissible activities. Each company having control over an undercapitalized institution also must provide a limited guarantee that the institution will comply with its capital restoration plan. Except under limited circumstances consistent with an accepted capital restoration plan, an undercapitalized institution may not grow. An undercapitalized institution may not acquire another institution, establish additional branch offices or engage in any new line of business unless determined by the appropriate Federal banking agency to be consistent with an accepted capital restoration plan, or unless the FDIC determines that the proposed action will further the purpose of prompt corrective action. The appropriate federal banking agency may take any action authorized for a significantly undercapitalized institution if an undercapitalized institution fails to submit an acceptable capital restoration plan or fails in any material respect to implement a plan accepted by the agency. A critically undercapitalized institution is subject to having a receiver or conservator appointed to manage its affairs and for loss of its charter to conduct banking activities.

An insured depository institution may not pay a management fee to a bank holding company controlling that institution or any other person having control of the institution if, after making the payment, the institution, would be undercapitalized. In addition, an institution cannot make a capital distribution, such as a dividend or other distribution that is in substance a distribution of capital to the owners of the institution if following such a distribution the institution would be undercapitalized. Thus, if payment of such a management fee or the making of such would cause the bank to become undercapitalized, it could not pay a management fee or dividend to us.

As of December 31, 2008, the bank was deemed to be “well capitalized.

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Standards for Safety and Soundness. The Federal Deposit Insurance Act (“FDIA”) also requires the federal banking regulatory agencies to prescribe, by regulation or guideline, operational and managerial standards for all insured depository institutions relating to: (i) internal controls, information systems, and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; and (v) asset growth. The agencies also must prescribe standards for asset quality, earnings, and stock valuation, as well as standards for compensation, fees, and benefits. The federal banking agencies have adopted regulations and Interagency Guidelines Prescribing Standards for Safety and Soundness to implement these required standards. These guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. Under the regulations, if the FDIC determines that the bank fails to meet any standards prescribed by the guidelines, the agency may require the bank to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the FDIC. The final regulations establish deadlines for the submission and review of such safety and soundness compliance plans.

Transactions with Affiliates and Insiders. The company is a legal entity separate and distinct from the bank and its other subsidiaries. Various legal limitations restrict the bank from lending or otherwise supplying funds to the company or its non-bank subsidiaries. The company and the bank are subject to Section 23A and 23B of the Federal Reserve Act and Federal Reserve Regulation W. Section 23A of the Federal Reserve Act places limits on the amount of loans or extensions of credit to, or investments in, or certain other transactions with, affiliates and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. The aggregate of all covered transactions is limited in amount, as to any one affiliate, to 10% of the bank’s capital and surplus and, as to all affiliates combined, to 20% of the bank’s capital and surplus. Furthermore, within the foregoing limitations as to amount, each covered transaction must meet specified collateral requirements. The bank is forbidden to purchase low quality assets from an affiliate.

Section 23B of the Federal Reserve Act, among other things, prohibits an institution from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.

Regulation W generally excludes all non-bank and non-savings association subsidiaries of banks from treatment as affiliates, except to the extent that the Federal Reserve Board decides to treat these subsidiaries as affiliates. The regulation also limits the amount of loans that can be purchased by a bank from an affiliate to not more than 100% of the bank’s capital and surplus.

The bank is also subject to certain restrictions on extensions of credit to executive officers, directors, certain principal shareholders, and their related interests. Such extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features.

Branching. Under current South Carolina law, we may open branch offices throughout South Carolina with the prior approval of the South Carolina Board of Financial Institutions. In addition, with prior regulatory approval, the bank will be able to acquire existing banking operations in South Carolina. Furthermore, federal legislation has been passed that permits interstate branching by banks if allowed by state law, and interstate merging by banks. However, South Carolina law, with limited exceptions, currently permits branching across state lines only through interstate mergers.

Anti-Tying Restrictions. Under amendments to the Bank Holding Company Act and Federal Reserve regulations, a bank is prohibited from engaging in certain tying or reciprocity arrangements with its customers. In general, a bank may not extend credit, lease, sell property, or furnish any services or fix or vary the consideration for these on the condition that (i) the customer obtain or provide some additional credit, property, or services from or to the bank, the bank holding company or subsidiaries thereof or (ii) the customer may not obtain some other credit, property, or services from a competitor, except to the extent reasonable conditions are imposed to assure the soundness of the credit extended. Certain arrangements are permissible: a bank may offer combined-balance products and may otherwise offer more favorable terms if a customer obtains two or more traditional bank products; and certain foreign transactions are exempt from the general rule. A bank holding company or any bank affiliate also is subject to anti-tying requirements in connection with electronic benefit transfer services.

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Community Reinvestment Act. The Community Reinvestment Act (“CRA”) requires that, in connection with examinations of financial institutions within their respective jurisdictions, a financial institution’s primary regulator, which is the FDIC for the bank, shall evaluate the record of each financial institution in meeting the credit needs of its local community, including low and moderate income neighborhoods. These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. Failure to adequately meet these criteria could impose additional requirements and limitations on our bank. Additionally, we must publicly disclose the terms of various Community Reinvestment Act-related agreements.

Finance Subsidiaries. Under the Gramm-Leach-Bliley Act (the “GLBA”), subject to certain conditions imposed by their respective banking regulators, national and state-chartered banks are permitted to form “financial subsidiaries” that may conduct financial or incidental activities, thereby permitting bank subsidiaries to engage in certain activities that previously were impermissible. The GLBA imposes several safeguards and restrictions on financial subsidiaries, including that the parent bank’s equity investment in the financial subsidiary be deducted from the bank’s assets and tangible equity for purposes of calculating the bank’s capital adequacy. In addition, the GLBA imposes new restrictions on transactions between a bank and its financial subsidiaries similar to restrictions applicable to transactions between banks and non-bank affiliates.

Consumer Protection Regulations. Activities of the bank are subject to a variety of statutes and regulations designed to protect consumers. Interest and other charges collected or contracted for by the bank are subject to state usury laws and federal laws concerning interest rates. The bank’s loan operations are also subject to federal laws applicable to credit transactions, such as the:

• The federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

• The Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

• The Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

• The Fair Credit Reporting Act of 1978, as amended by the Fair and Accurate Credit Transactions Act, governing the use and provision of information to credit reporting agencies, certain identity theft protections and certain credit and other disclosures;

• The Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and

• The Rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.

The deposit operations of the bank also are subject to:

• the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; and

• the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to implement that Act, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.

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Enforcement Powers. The Bank and its “institution-affiliated parties,” including its management, employees, agents, independent contractors, and consultants such as attorneys and accountants and others who participate in the conduct of the financial institution’s affairs, are subject to potential civil and criminal penalties for violations of law, regulations or written orders of a government agency. These practices can include the failure of an institution to timely file required reports or the filing of false or misleading information or the submission of inaccurate reports. Civil penalties may be as high as $1,000,000 a day for such violations. Criminal penalties for some financial institution crimes have been increased to 20 years. In addition, regulators are provided with greater flexibility to commence enforcement actions against institutions and institution-affiliated parties. Possible enforcement actions include the termination of deposit insurance. Furthermore, banking agencies’ power to issue cease-and-desist orders were expanded. Such orders may, among other things, require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions as determined by the ordering agency to be appropriate.

Anti-Money Laundering. Financial institutions must maintain anti-money laundering programs that include established internal policies, procedures, and controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function. The company and the bank are also prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and “knowing your customer” in their dealings with foreign financial institutions and foreign customers. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions, and recent laws provide law enforcement authorities with increased access to financial information maintained by banks. Anti-money laundering obligations have been substantially strengthened as a result of the USA Patriot Act, enacted in 2001 and renewed in 2006. Bank regulators routinely examine institutions for compliance with these obligations and are required to consider compliance in connection with the regulatory review of applications. The regulatory authorities have been active in imposing “cease and desist” orders and money penalty sanctions against institutions found to be violating these obligations.

USA Patriot Act. The USA PATRIOT Act became effective on October 26, 2001, amended, in part, the Bank Secrecy Act, and provides, in part, for the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering by enhancing anti-money laundering and financial transparency laws, as well as enhanced information collection tools and enforcement mechanics for the U.S. government, including: (i) requiring standards for verifying customer identification at account opening; (ii) rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; (iii) reports by nonfinancial trades and businesses filed with the Treasury Department’s Financial Crimes Enforcement Network for transactions exceeding $10,000; and (iv) filing suspicious activities reports by brokers and dealers if they believe a customer may be violating U.S. laws and regulations and requires enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons. Bank regulators routinely examine institutions for compliance with these obligations and are required to consider compliance in connection with the regulatory review of applications.

Under the USA Patriot Act, the Federal Bureau of Investigation (“FBI”) can send our banking regulatory agencies lists of the names of persons suspected of involvement in terrorist activities. The bank can be requested, to search its records for any relationships or transactions with persons on those lists. If the bank finds any relationships or transactions, it must file a suspicious activity report and contact the FBI.

The Office of Foreign Assets Control (“OFAC”), which is a division of the U.S. Department of the Treasury, is responsible for helping to insure that United States entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress. OFAC has sent, and will send, our banking regulatory agencies lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts. If the bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account, file a suspicious activity report and notify the FBI. The Bank has appointed an OFAC compliance officer to oversee the inspection of its accounts and the filing of any notifications. The Bank actively checks high-risk OFAC areas such as new accounts, wire transfers and customer files. The Bank performs these checks utilizing software, which is updated each time a modification is made to the lists provided by OFAC and other agencies of Specially Designated Nationals and Blocked Persons.

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Privacy and Credit Reporting. Financial institutions are required to disclose their policies for collecting and protecting confidential information. Customers generally may prevent financial institutions from sharing nonpublic personal financial information with nonaffiliated third parties except under narrow circumstances, such as the processing of transactions requested by the consumer or when the financial institution is jointly sponsoring a product or service with a nonaffiliated third party. Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing to consumers. It is the bank’s policy not to disclose any personal information unless required by law.

Like other lending institutions, the bank utilizes credit bureau data in its underwriting activities. Use of such data is regulated under the Federal Credit Reporting Act on a uniform, nationwide basis, including credit reporting, prescreening, sharing of information between affiliates, and the use of credit data. The Fair and Accurate Credit Transactions Act of 2003 (the “FACT Act”) authorizes states to enact identity theft laws that are not inconsistent with the conduct required by the provisions of the FACT Act.

Payment of Dividends. A South Carolina state bank may not pay dividends from its capital. All dividends must be paid out of undivided profits then on hand, after deducting expenses, including reserves for losses and bad debts. The bank is authorized to pay cash dividends up to 100% of net income in any calendar year without obtaining the prior approval of the South Carolina Board of Financial Institutions, provided that the bank received a composite rating of one or two at the last federal or state regulatory examination. The bank must obtain approval from the South Carolina Board of Financial Institutions prior to the payment of any other cash dividends. In addition, under the FDIC Improvement Act, the bank may not pay a dividend if, after paying the dividend, the bank would be undercapitalized.

Check 21. The Check Clearing for the 21st Century Act gives “substitute checks,” such as a digital image of a check and copies made from that image, the same legal standing as the original paper check. Some of the major provisions include:

• allowing check truncation without making it mandatory;

• demanding that every financial institution communicate to accountholders in writing a description of its substitute check processing program and their rights under the law;

• legalizing substitutions for and replacements of paper checks without agreement from consumers;

• retaining in place the previously mandated electronic collection and return of checks between financial institutions only when individual agreements are in place;

• requiring that when accountholders request verification, financial institutions produce the original check (or a copy that accurately represents the original) and demonstrate that the account debit was accurate and valid; and

• requiring the re-crediting of funds to an individual’s account on the next business day after a consumer proves that the financial institution has erred.

Effect of Governmental Monetary Policies. Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve bank’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve Board have major effects upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies.

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Proposed Legislation and Regulatory Action. New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations, and competitive relationships of the nation’s financial institutions. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.

Recent Legislative and Regulatory Initiatives to Address Financial and Economic Crises. The Congress, Treasury Department and the federal banking regulators, including the FDIC, have taken broad action since early September 2008 to address volatility in the U.S. banking system.

In October 2008, the Emergency Economic Stabilization Act of 2008 (“EESA”) was enacted. The EESA authorizes the Treasury Department to purchase from financial institutions and their holding companies up to $700 billion in mortgage loans, mortgage-related securities and certain other financial instruments, including debt and equity securities issued by financial institutions and their holding companies in a troubled asset relief program (“TARP”). The purpose of TARP is to restore confidence and stability to the U.S. banking system and to encourage financial institutions to increase their lending to customers and to each other. The Treasury Department has allocated $250 billion towards the TARP Capital Purchase Program (“CPP”). Under the CPP, Treasury will purchase debt or equity securities from participating institutions. The TARP also will include direct purchases or guarantees of troubled assets of financial institutions. Participants in the CPP are subject to executive compensation limits and are encouraged to expand their lending and mortgage loan modifications.

EESA also increased FDIC deposit insurance on most accounts from $100,000 to $250,000. This increase is in place until the end of 2009 and is not covered by deposit insurance premiums paid by the banking industry.

Following a systemic risk determination, the FDIC established the Temporary Liquidity Guarantee Program (“TLGP”) on October 14, 2008. The TLGP includes the Transaction Account Guarantee Program (“TAGP”), which provides unlimited deposit insurance coverage through December 31, 2009 for noninterest-bearing transaction accounts (typically business checking accounts) and certain funds swept into noninterest-bearing savings accounts. Institutions participating in the TLGP pay a 10 basis points fee (annualized) on the balance of each covered account in excess of $250,000, while the extra deposit insurance is in place. The TLGP also includes the Debt Guarantee Program (“DGP”), under which the FDIC guarantees certain senior unsecured debt of FDIC-insured institutions and their holding companies. The unsecured debt must be issued on or after October 14, 2008 and not later than June 30, 2009, and the guarantee is effective through the earlier of the maturity date or June 30, 2012. On March 17, 2009, the FDIC adopted an interim rule that extends the DGP and imposes surcharges on existing rates for certain debt issuances. This extension allows institutions that have issued guaranteed debt before April 1, 2009 to issue guaranteed debt during the extended issuance period that ends on October 31, 2009. For such institutions, the guarantee on debt issued on or after April 1, 2009, will expire no later than December 31, 2012. The DGP coverage limit is generally 125% of the eligible entity’s eligible debt outstanding on September 30, 2008 and scheduled to mature on or before June 30, 2009 or, for certain insured institutions, 2% of their liabilities as of September 30, 2008. Depending on the term of the debt maturity, the nonrefundable DGP fee ranges from 60 to 110 basis points (annualized) for covered debt outstanding until the earlier of maturity or June 30, 2012 and 75 to 125 basis points (annualized) for covered debt outstanding until after June 30, 2012. The TAGP and DGP are in effect for all eligible entities, unless the entity opted out on or before December 5, 2008. We will participate in the TAGP but will not participate in the DGP.

Insurance of Accounts and Regulation by the FDIC. Deposits at the bank are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. The Deposit Insurance Fund is the successor to the Bank Insurance Fund and the Savings Association Insurance Fund, which were merged effective March 31, 2006. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC insured institutions. It also may prohibit any FDIC insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the insurance fund. The FDIC also has the authority to initiate enforcement actions against savings institutions, after giving the Office of Thrift Supervision an opportunity to take such action, and may terminate the deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

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Under regulations effective January 1, 2007, the FDIC adopted a new risk-based premium system that provides for quarterly assessments based on an insured institution’s ranking in one of four risk categories based upon supervisory and capital evaluations. For deposits held as of March 31, 2009, institutions are assessed at annual rates ranging from 12 to 50 basis points, depending on each institution’s risk of default as measured by regulatory capital ratios and other supervisory measures. Effective April 1, 2009, assessments will take into account each institution’s reliance on secured liabilities and brokered deposits. This will result in assessments ranging from 7 to 77.5 basis points. We anticipate our future insurance costs to be higher than in previous periods.

FDIC insured institutions are required to pay a Financing Corporation assessment, in order to fund the interest on bonds issued to resolve thrift failures in the 1980s. For the first quarter of 2009, the Financing Corporation assessment equaled 1.14 basis points for domestic deposits. These assessments, which may be revised based upon the level of deposits, will continue until the bonds mature in the years 2017 through 2019.

The FDIC may terminate the deposit insurance of any insured depository institution, including the bank, if it determines after a hearing that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management of the bank is not aware of any practice, condition or violation that might lead to termination of the bank’s deposit insurance

Item 1A Risk Factors

Our business, financial condition, and results of operations could be harmed by any of the following risks, or other risks that have not been identified or which we believe are immaterial or unlikely. Shareholders should carefully consider the risks described below in conjunction with the other information in this Form 10-K and the information incorporated by reference in this Form 10-K, including our consolidated financial statements and related notes

Recent negative developments in the financial industry and the domestic and international credit markets may adversely affect our operations and results.

Negative developments in the latter half of 2007 and during 2008 in the global credit and securitization markets have resulted in uncertainty in the financial markets in general with the expectation of the general economic downturn continuing into 2009. As a result of this “credit crunch,” commercial as well as consumer loan portfolio performances have deteriorated at many institutions and the competition for deposits and quality loans has increased significantly. In addition, the values of real estate collateral supporting many commercial loans and home mortgages have declined and may continue to decline. Global securities markets, and bank holding company stock prices in particular, have been negatively affected, as has the ability of banks and bank holding companies to raise capital or borrow in the debt markets. As a result, significant new federal laws and regulations relating to financial institutions, including, without limitation, the EESA and the U.S. Treasury Department’s CPP, have been adopted. Furthermore, the potential exists for additional federal or state laws and regulations regarding, among other matters, lending and funding practices and liquidity standards, and bank regulatory agencies are expected to be active in responding to concerns and trends identified in examinations, including the expected issuance of many formal enforcement orders. Negative developments in the financial industry and the domestic and international credit markets, and the impact of new legislation in response to those developments, may negatively impact our operations by restricting our business operations, including our ability to originate or sell loans, and adversely impact our financial performance. We can provide no assurance regarding the manner in which any new laws and regulations will affect us.

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There can be no assurance that recently enacted legislation will help stabilize the U.S. financial system.

The EESA was signed into law on October 3, 2008 in response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions. Pursuant to EESA, the Treasury Department has the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. The Treasury Department announced the CPP under EESA pursuant to which it has purchased and may continue to purchase senior preferred stock in participating financial institutions.

In addition, the FDIC created the TGLP as part of a larger government effort to strengthen confidence and encourage liquidity in the nation’s banking system. The TLGP has two components. First, the TLGP includes the TAGP, which provides unlimited deposit insurance coverage through December 31, 2009 for noninterest-bearing transaction accounts (typically business checking accounts) and certain funds swept into noninterest-bearing savings accounts. Institutions participating in the TLGP pay a 10 basis points fee (annualized) on the balance of each covered account in excess of $250,000, while the extra deposit insurance is in place. Second, the TLGP includes the DGP, under which the FDIC guarantees certain senior unsecured debt of FDIC-insured institutions and their holding companies. The unsecured debt must be issued on or after October 14, 2008 and not later than June 30, 2009, and the guarantee is effective through the earlier of the maturity date or June 30, 2012. On March 17, 2009, the FDIC adopted an interim rule that extends the DGP and imposes surcharges on existing rates for certain debt issuances. This extension allows institutions that have issued guaranteed debt before April 1, 2009 to issue guaranteed debt during the extended issuance period that ends on October 31, 2009. For such institutions, the guarantee on debt issued on or after April 1, 2009, will expire no later than December 31, 2012. The DGP coverage limit is generally 125% of the eligible entity’s eligible debt outstanding on September 30, 2008 and scheduled to mature on or before June 30, 2009 or, for certain insured institutions, 2% of their liabilities as of September 30, 2008. Depending on the term of the debt maturity, the nonrefundable DGP fee ranges from 60 to 110 basis points (annualized) for covered debt outstanding until the earlier of maturity or June 30, 2012 and 75 to 125 basis points (annualized) for covered debt outstanding until after June 30, 2012. The TAGP and DGP are in effect for all eligible entities, unless the entity opted out on or before December 5, 2008. We will participate in the TAGP and will not participate in the DGP.

On February 17, 2009, the ARRA was signed into law in an effort to, among other things, create jobs and stimulate growth in the United States economy. The ARRA specifies appropriations of approximately $787 billion for a wide range of Federal programs and will increase or extend certain benefits payable under the Medicaid, unemployment compensation, and nutrition assistance programs. The ARRA also reduces individual and corporate income tax collections and makes a variety of other changes to tax laws. The ARRA also imposes certain limitations on compensation paid by participants in the TARP, which includes programs under TARP such as the CPP.

There can be no assurance that these government actions will achieve their purpose. The failure of the financial markets to stabilize, or a continuation or worsening of the current financial market conditions, could have a material adverse affect on our business, our financial condition, the financial condition of our customers, our common stock trading price, as well as our ability to access credit. It could also result in declines in our investment portfolio, which could be “other-than-temporary impairments.”

Continuation of the economic downturn could reduce our customer base, our level of deposits, and demand for financial products such as loans.

Our success significantly depends upon the growth in population, income levels, deposits, and housing starts in our markets. The current economic downturn has negatively affected the markets in which we operate and, in turn, the quality of our loan portfolio. If the communities in which we operate do not grow or if prevailing economic conditions locally or nationally remain unfavorable, our business may not succeed. A continuation of the economic downturn or prolonged recession would likely result in the continued deterioration of the quality of our loan portfolio and reduce our level of deposits, which in turn would hurt our business. If the economic downturn continues or a prolonged economic recession occurs in the economy as a whole, borrowers will be less likely to repay their loans as scheduled. Moreover, in many cases the value of real estate or other collateral that secures our loans has been adversely affected by the economic conditions and could continue to be negatively affected. Unlike many larger institutions, we are not able to spread the risks of unfavorable local economic conditions across a large number of diversified economies. A continued economic downturn could, therefore, result in losses that materially and adversely affect our business.

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Our small- to medium-sized business target markets may have fewer financial resources to weather a continued downturn in the economy.

We target the banking and financial services needs of small- and medium-sized businesses. These businesses generally have fewer financial resources in terms of capital borrowing capacity than larger entities. If general economic conditions continue to negatively impact these businesses in the markets in which we operate, our business, financial condition, and results of operation may be adversely affected.

We are exposed to changes in the regulation of financial services companies.

Proposals for further regulation of the financial services industry are continually being introduced in the Congress of the United States of America and the General Assembly of the State of South Carolina. The agencies regulating the financial services industry also periodically adopt changes to their regulations. On September 7, 2008, the Treasury Department announced that Fannie Mae (along with Freddie Mac) has been placed into conservatorship under the control of the newly created Federal Housing Finance Agency. On October 3, 2008, EESA was signed into law, and on October 14, 2008 the U.S. Treasury Department announced the CPP under EESA. It is possible that additional legislative proposals may be adopted or regulatory changes may be made that would have an adverse effect on our business.

The FDIC Deposit Insurance assessments that we are required to pay may materially increase in the future, which would have an adverse effect on our earnings and our ability to pay our liabilities as they come due.

As a member institution of the FDIC, we are required to pay semi-annual deposit insurance premium assessments to the FDIC. Due to the recent failure of several unaffiliated FDIC insurance depository institutions, and the FDIC’s new TLGP, the deposit insurance premium assessments paid by all banks will likely increase. In addition, new FDIC requirements shift a greater share of any increase in such assessments onto institutions with higher risk profiles, including banks with heavy reliance on brokered deposits.

Our continued pace of growth may require us to raise additional capital in the future, but that capital may not be available when it is needed.

We are required by regulatory authorities to maintain adequate levels of capital to support our operations. To support our continued growth, we may need to raise additional capital. Our ability to raise additional capital, if needed, will depend in part on conditions in the capital markets at that time, which are outside our control. Accordingly, we cannot assure you of our ability to raise additional capital, if needed, on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired. In addition, if we decide to raise additional equity capital, your interest could be diluted.

We are exposed to the possibility of technology failure.

We rely on our computer systems and the technology of outside service providers. Our daily operations depend on the operational effectiveness of their technology. We rely on our systems to accurately track and record our assets and liabilities. If our computer systems or outside technology sources become unreliable, fail, or experience a breach of security, our ability to maintain accurate financial records may be impaired, which could materially affect our business operations and financial condition.

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Our recent operating results may not be indicative of our future operating results.

We may not be able to sustain our historical rates of growth of assets and earnings, and we may not be able to grow our business at all. Although we have plans for continued expansion of our company, our historical results of operation will not necessarily be indicative of our future operations. Various factors, such as economic conditions, regulatory and legislative considerations, and competition, may also impede our ability to expand our market presence. If we experience a significant decrease in our historical rate of growth, our results of operations and financial condition may be adversely affected because a high percentage of our operating costs are fixed expenses.

Our decisions regarding credit risk and reserves for loan losses may materially and adversely affect our business.

Making loans and other extensions of credit is an essential element of our business. Although we seek to mitigate risks inherent in lending by adhering to specific underwriting practices, our loans and other extensions of credit may not be repaid. The risk of nonpayment is affected by a number of factors, including:

• the duration of the credit;

• credit risks of a particular customer;

• changes in economic and industry conditions; and

• in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral.

We attempt to maintain an appropriate allowance for loan losses to provide for potential losses in our loan portfolio. We periodically determine the amount of the allowance based on consideration of several factors, including:

• an ongoing review of the quality, mix, and size of our overall loan portfolio;

• our historical loan loss experience;

• evaluation of economic conditions;

• regular reviews of loan delinquencies and loan portfolio quality; and

• the amount and quality of collateral, including guarantees, securing the loans.

There is no precise method of predicting credit losses; therefore, we face the risk that charge-offs in future periods will exceed our allowance for loan losses and that additional increases in the allowance for loan losses will be required. Additions to the allowance for loan losses would result in a decrease of our net income, and possibly our capital.

A significant portion of our loan portfolio is secured by real estate, and events that negatively impact the real estate market could hurt our business.

A significant portion of our loan portfolio is secured by real estate as a primary or secondary component of collateral. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. The recent weakening of the real estate market could result in an increase in the number of borrowers who default on their loans and a reduction in the value of the collateral securing their loans, which in turn could have an adverse effect on our profitability and asset quality. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, our earnings and capital could be adversely affected. Acts of nature, including hurricanes, tornados, earthquakes, fires and floods, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively impact our financial condition.

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Changes in prevailing interest rates may reduce our profitability.

Our results of operations depend in large part upon the level of our net interest income, which is the difference between interest income from interest-earning assets, such as loans and mortgage-backed securities, and interest expense on interest-bearing liabilities, such as deposits and other borrowings. Depending on the terms and maturities of our assets and liabilities, a significant change in interest rates could have a material adverse effect on our profitability. Many factors cause changes in interest rates, including governmental monetary policies and domestic and international economic and political conditions. While we intend to manage the effects of changes in interest rates by adjusting the terms, maturities, and pricing of our assets and liabilities, our efforts may not be effective and our financial condition and results of operations could suffer. During the second half of 2007, the Federal Reserve began to reduce short-term interest rates, which had an adverse effect on our earnings in 2008 and may continue to negatively impact our earnings in 2009.

We are dependent on key individuals and the loss of one or more of these key individuals could curtail our growth and adversely affect our prospects.

Our president and chief executive officer, has extensive and long-standing ties within our primary market area and he has contributed significantly to our growth. If we lose his services it could be difficult to replace him, and our business and development could be materially and adversely affected.

Our success also depends, in part, on our continued ability to attract and retain experienced loan originators, as well as other management personnel. The loss of the services of several of such key personnel could adversely affect our growth strategy and prospects to the extent we are unable to replace such personnel.

We are subject to extensive regulation that could limit or restrict our activities.

We operate in a highly regulated industry and are subject to examination, supervision, and comprehensive regulation by various regulatory agencies. Our compliance with these regulations is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits, and locations of offices. We are also subject to capitalization guidelines established by our regulators, which require us to maintain adequate capital to support our growth.

The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of these changes on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, our cost of compliance could adversely affect our ability to operate profitably.

The Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by the Securities and Exchange Commission that are now applicable to us, have increased the scope, complexity, and cost of corporate governance, reporting, and disclosure practices. We have experienced, and we expect to continue to experience, greater compliance costs, including costs related to internal controls, as a result of the Sarbanes-Oxley Act.

Our continued growth may require us to raise additional capital in the future, but that capital may not be available when it is needed.

We are required by regulatory authorities to maintain adequate levels of capital to support our operations. To support our continued growth, we may need to raise additional capital. Our ability to raise additional capital, if needed, will depend in part on conditions in the capital markets at that time, which are outside our control. Accordingly, we cannot assure you of our ability to raise additional capital, if needed, on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired. In addition, if we decide to raise additional equity capital, your interest could be diluted.

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We face strong competition for customers, which could prevent us from obtaining customers and may cause us to pay higher interest rates to attract customers.

The banking business is highly competitive, and we experience competition in our market from many other financial institutions. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other super-regional, national, and international financial institutions that operate offices in our primary market areas and elsewhere. We compete with these institutions both in attracting deposits and in making loans. In addition, we have to attract our client base from other existing financial institutions and from new residents. Many of our competitors are well-established, larger financial institutions. These institutions offer some services, such as extensive and established branch networks, that we do not currently provide. There is a risk that we will not be able to compete successfully with other financial institutions in our market, and that we may have to pay higher interest rates to attract deposits, resulting in reduced profitability. In addition, competitors that are not depository institutions are generally not subject to the extensive regulations that apply to us.

We will face risks with respect to future expansion and acquisitions or mergers.

If we ever decide to acquire other financial institutions, expand into new markets, open new lines of business, offer new products or services, these activities would involve a number of risks, including:

• taking additional time and creating expense associated with identifying and evaluating potential acquisitions and merger partners;

• using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target institution or assets;

• diluting our existing shareholders in an acquisition;

• taking additional time and creating expense associated with evaluating new markets for expansion, hiring experienced local management, and opening new offices, as there may be a substantial time lag between these activities before we generate sufficient assets and deposits to support the costs of the expansion;

• taking a significant amount of time negotiating a transaction or working on expansion plans, resulting in management’s attention being diverted from the operation of our existing business;

• taking time and creating expense integrating the operations and personnel of the combined businesses;

• creating an adverse short-term effect on our results of operations; and

• losing key employees and customers as a result of an acquisition that is poorly received.

We have never acquired another institution before, so we lack experience in handling any of these risks. There is also a risk that any expansion effort will not be successfully.

Item 1B Unresolved Staff Comments

Not applicable

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Item 2. Description of Property

The Company owns a 5,400 square foot facility located at 1100 North Jefferies Boulevard, Walterboro, South Carolina, which is its corporate banking office. Construction on this facility was completed in 1989 at a total cost, including land, furniture and fixtures of $775,345. All corporate headquarters as well as normal banking services and operations are housed at this location. The facility has a second floor which would allow for expansion consisting of 2,700 square feet. The existing building was built to adequately serve the anticipated needs of the Bank for the foreseeable future.

The Company opened its second banking location at 6225 Savannah Highway, Ravenel, South Carolina. This 3,622 square foot facility opened for business on October 6, 1997 and provides traditional banking services. The total cost of this facility, including land, and furniture and fixtures was $930,344.

The Company acquired a 5500 square foot building at 110 Forest Hills Road in Walterboro, South Carolina on November 16, 2000 and began using it as a branch location in 2001. The total cost of the facility, including land, was $485,000.

The Company opened its fourth banking location at 398 East Main street Ridgeland, South Carolina. This 3,800 square foot facility opened for business on December 6, 2004 and provides traditional banking services. The total cost of this facility, including land, and furniture and fixtures was $1,105,257.

Item 3. Legal Proceedings

The Company may from time to time be a party to various legal proceedings arising in the ordinary course of business, but management of the Company is not aware of any pending or threatened litigation or unasserted claims or assessments that are expected to result in losses, if any, that would be material to the Company’s business and operations.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

Part II

Item 5. Market for Common Equity and Related Stockholder Matters

In response to this Item, the information contained on page 52 of the Company’s Annual Report to Shareholders for the year ended December 31, 2008 is incorporated herein by reference.

Item 6. Selected Financial Data

In response to this Item, the information contained on page 3 of the Company’s Annual Report to Shareholders for the year ended December 31, 2008 is incorporated herein by reference.

Item 7. Management’s Discussion and Analysis or Plan of Operation

In response to this Item, the information contained on pages 8 through 24 of the Company’s Annual Report to Shareholders for the year ended December 31, 2008 is incorporated herein by reference.

Item 7A. Quantitative and Qualitative disclosure about Market Risk

In response to this Item, the information contained on pages 8 through 24 of the Company’s Annual Report to Shareholders for the year ended December 31, 2008 is incorporated herein by reference.

20

Item 8. Financial Statements and Supplementary Data

In response to this Item, the information contained on pages 26 through 50 of the Company’s Annual Report to Shareholders for the year ended December 31, 2008 is incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable

Item 9A. Control and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and acting Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer and acting Chief Financial Officer have concluded that our current disclosure controls and procedures are effective as of December 31, 2008. There have been no significant changes in our internal controls over financial reporting during the fourth fiscal quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Management’s Annual Report on Internal Controls Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f). A system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2008 based on the criteria established in a report entitled “Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission” and the interpretive guidance issued by the Commission in Release No. 34-55929. Based on this evaluation, the Company’s management has evaluated and concluded that the Company’s internal control over financial reporting was effective as of December 31, 2008.

The Company is continuously seeking to improve the efficiency and effectiveness of its operations and of its internal controls. This results in modifications to its processes throughout the Company. However, there has been no change in its internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

21

Item 9B. Other Information

Not applicable

Part III

Item 10. Directors, Executive Officers, Corporate Governance of the Registrant

In response to this Item, the information contained on pages 2 through 3 of the company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 29, 2009 is incorporated herein by reference.

Item 11. Executive Compensation

In response to this Item, the information contained on page 6 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 29, 2009 is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

In response to this Item, the information contained on page 5 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 29, 2009 is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

In response to this Item, the information contained on page 5 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 29, 2009 is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services.

In response to this Item, the information contained on page 4 of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 29, 2009 is incorporated herein by reference.

Part IV

Item 15. Exhibits and Financial Statement Schedules

13	Annual Report of Shareholders for the year ended December 31, 2008 (Incorporated by reference)
21.1	Subsidiaries of the Company
31.1	Rule 15d-14(a) Certifications
31.2	Rule 15d-14(a) Certifications
32	Section 1350 Certification

22

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BANK OF WALTERBORO
Date:	March 27, 2009	By:	/s/ W. Roger Crook
			W. Roger Crook.
			President and Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints W. Roger Crook, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature	Title	Date
W. Roger Crook	President, Director (CEO)	March 27, 2009
Gwendolyn P. Bunton	Vice President (CFO)	March 27, 2009
Peden B. McLeod	Director & Chairman of the Board	March 27, 2009
George W. Cone	Director & Corporate Secretary	March 27, 2009
J. Barnwell Fishburne	Director	March 27, 2009
Harry L. Hill	Director	March 27, 2009
Steven D. Murdaugh	Director	March 27, 2009
Harold M. Robertson	Director	March 27, 2009
Calvert Huffines	Director	March 27, 2009
John Reaves McLeod	Director	March 27, 2009

23

Index To Exhibits

Exhibit No.	Description
13	Annual Report of Shareholders for the year ended December 31, 2008 (Incorporated by reference)
21.1	Subsidiaries of the Company
31.1	Rule 15d-14(a) Certifications
31.2	Rule 15d-14(a) Certifications
32	Section 1350 Certifications

24

EX-13

Exhibit 13

Providing personal, prompt, efficient service is the goal of Bank of Walterboro. We are committed to the concept of “Hometown Banking” and hope we can be of service to you. “Strong roots – strong branches.”

Contents:

Shareholder Letter	2
Summary of Selected Financial Data	3
Financial Charts	4-7
Management’s Discussion and Analysis	8-24
Management’s Annual Report on Internal Control Over Financial Reporting	25
Report of Independent Registered Public Accounting Firm	26
Consolidated Balance Sheets	27
Consolidated Statements of Income	28
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income	29
Consolidated Statements of Cash Flows	30
Notes to Consolidated Financial Statements	31-50
Directors, Officers and Staff	51
Corporate Data	52
Services	53

Member FDIC

COMMUNITYCORP AND SUBSIDIARY

Dear Shareholder,

It is a pleasure to report the progress of Communitycorp and its subsidiary, Bank of Walterboro, during 2008. More detailed information follows, but we are pleased to report return on average assets of 0.91%, a sound capital to asset ratio of 10.75% and an allowance for loan losses to loans of 1.74%.

Deposits at year-end were $145,713,985 an increase of $6,119,673, or 4.38%, from 2007 year-end. Net loans decreased from $112,668,059 to $111,722,883, a decrease of $945,176, or 0.84%. The allowance for loan losses increased from a December 31, 2007 balance of $1,929,319 to $1,981,637 or 1.74% of gross loans. Total assets increased from $161,319,687 to a December 31, 2008 total of $164,585,287 an increase of $3,265,600, or 2.02%.

2008 was a challenging year for the banking industry and decreased earnings occurred through the industry.

Earnings decreased in 2008 for the Company with net income of $1,491,661, a decrease of $270,253, or 15.34%, less than 2007 earnings of $1,761,914. For 2008 we earned $6.22 per share compared to $7.32 for 2007. Our net interest margin increased from 3.64% in 2007 to 3.69% in 2008.

Please read the following financial information so you may become aware of your Company’s progress. We believe the information contained in this Annual Report shows that a local, well-managed, independent bank can compete successfully in a deregulated market against national, regional, and state-wide banking institutions. Our success can be attributed to the teamwork of our shareholders, directors, officers, and employees. We most importantly want to thank our customers for allowing us to be of service to them.

The Board of Directors, officers, and employees thank you for your past support and solicit your continued support as we continue our efforts to provide prompt, efficient, and courteous service to our customers. We welcome any suggestions you may have.

We invite and encourage you to attend our Annual Meeting on Wednesday, April 29, 2009.

Very truly yours,
W. Roger Crook	Peden B. McLeod
President and CEO	Chairman of the Board

2

COMMUNITYCORP AND SUBSIDIARY

SELECTED FINANCIAL DATA

The following selected consolidated financial data for the five years ended December 31, 2008 are derived from our consolidated financial statements and other data. The selected consolidated financial data should be read in conjunction with our consolidated financial statements, including the accompanying notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere herein.

Year Ended December 31, (Dollars in thousands, except per share)	2008			2007			2006			2005			2004
Results of Operations:
Interest income	$	9,958		$	10,392		$	9,358		$	7,737		$	6,831
Interest expense		4,213			4,767			3,871			2,225			1,607
Net interest income		5,745			5,625			5,487			5,512			5,224
Provision for loan losses		400			202			225			381			471
Net interest income after provision for loan losses		5,345			5,423			5,262			5,131			4,753
Noninterest income		691			666			713			599			579
Noninterest expense		3,845			3,533			3,411			3,232			2,875
Income before income taxes		2,191			2,556			2,565			2,498			2,457
Income tax expense		699			794			823			788			802
Net income	$	1,492		$	1,762		$	1,742		$	1,710		$	1,655
Balance Sheet Data:
Securities available-for-sale	$	27,815		$	34,585		$	32,468		$	30,856		$	25,310
Securities held-to-maturity		1,320			1,819			1,574			1,875			2,181
Allowance for loan losses		1,982			1,929			1,857			1,665			1,456
Net loans		111,723			112,668			103,983			95,930			81,550
Premises and equipment, net		3,029			2,989			3,131			3,266			3,441
Total assets		164,585			161,320			158,092			142,220			138,408
Noninterest-bearing deposits		15,652			16,461			19,765			18,021			16,532
Interest-bearing deposits		130,062			123,133			121,021			109,437			108,379
Total deposits		145,714			139,594			140,786			127,458			124,911
Short-term borrowings		—			3,068			250			370			390
Total liabilities		146,892			144,583			142,955			128,576			125,772
Total shareholders’ equity		17,693			16,736			15,137			13,643			12,636
Per Share Data:
Weighted-average common shares outstanding		239,634			240,708			242,636			244,788			247,446
Net income	$	6.22		$	7.32		$	7.18		$	6.99		$	6.69
Cash dividends paid	$	1.05		$	1.00		$	0.90		$	0.82		$	0.72
Period end book value	$	74.69		$	69.60		$	62.62		$	56.13		$	51.26
Equity and Assets Ratios:
Return on average assets		0.91	%		1.08	%		1.11	%		1.23	%		1.29	%
Return on average equity		8.70	%		11.24	%		12.35	%		13.11	%		14.04	%
Equity to assets ratio		10.75	%		10.37	%		9.58	%		9.35	%		9.16	%
Dividend payout ratio		16.93	%		13.65	%		12.57	%		11.79	%		10.85	%

3

4

5

6

7

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

GENERAL

Communitycorp is a South Carolina corporation organized on March 13, 1995 to be a bank holding company (the “Company”). The Company’s subsidiary, Bank of Walterboro, (the “Bank”) is a state-chartered commercial bank with four banking locations. The Bank’s main office and operations center is in Walterboro, South Carolina. In addition, the Bank has branches in Ravenel, and Ridgeland, South Carolina. The Company’s primary market area includes Colleton, Jasper and Charleston Counties. Depository accounts are insured by the Federal Deposit Insurance Corporation up to the maximum amount permitted by law. The Bank, which received its charter on October 11, 1988 and opened for business on May 1, 1989, is dedicated to providing prompt, efficient, personal service to its customers. The Bank offers a full range of deposit services for individuals and businesses. Deposit products include checking accounts, savings accounts, certificates of deposit, money market accounts, and IRA’s.

The Company primarily is engaged in the business of attracting deposits from the general public and using these deposits together with other funds to make commercial, consumer, and real estate loans. The Company’s operating results depend to a substantial extent on the difference between interest and fees earned on loans, investments, and services, and the Company’s interest expense, consisting principally of interest paid on deposits. Unlike most industrial companies, virtually all of the assets and liabilities of financial institutions are monetary. As a result, interest rates have a greater effect on the financial institution’s performance. In addition to competing with other traditional financial institutions, the Company also competes for savings dollars with nontraditional financial intermediaries such as mutual funds. This has resulted in a highly competitive market area, which demands the type of personal service and attention provided by the Bank.

The earnings and growth of the banking industry and the Company are and will be affected by general conditions of the economy and by the fiscal and monetary policies of the federal government and its agencies, including the Board of Governors of the Federal Reserve System (the “Board”). The Board regulates money and credit conditions and, as a result, has a strong influence on interest rates and on general economic conditions. The effect of such policies in the future on the business and earnings of the Company cannot be predicted with certainty.

As of December 31, 2008, the Company had forty-two full-time employees and five part time employees.

This discussion and analysis is intended to assist the reader in understanding the financial condition and results of operations of the Company and its subsidiary, the Bank. This commentary should be read in conjunction with the consolidated financial statements and the related notes and the other statistical information in this report.

CRITICAL ACCOUNTING POLICIES

The Company has adopted various accounting policies, which govern the application of account principles generally accepted in the United States of America in the preparation of the Company’s consolidated financial statements. The significant accounting policies of the Company are described in the notes to the consolidated financial statements.

Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities. Management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of operations of the Company.

The Company believes the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of its consolidated financial statements. Refer to the section “Provision and Allowance for Loan Losses” and Note 1 to the consolidated financial statements for a detailed description of the Company’s estimation process and methodology related to the allowance for loan losses.

8

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

Statements included in Management’s Discussion and Analysis which are not historical in nature are intended to be, and are hereby identified, as “forward looking statements” for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical facts. Such forward-looking statements may be identified, without limitation, by the use of the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” and similar expressions. The Company’s expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management’s examination of historical operating trends, data contained in the Company’s records and other data available from third parties, but there can be no assurance that management’s expectations, beliefs or projections will result or be achieved or accomplished. The Company cautions readers that forward looking statements, including without limitation, those relating to future business prospects, revenues, working capital, liquidity, capital needs, interest costs, and income, are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward looking statements, due to several important factors herein identified, among others, and other risks and factors identified from time to time in the Company’s reports filed with the Securities and Exchange Commission.

RESULTS OF OPERATIONS

OVERVIEW

Net income for the year ended December 31, 2008 was $1,491,661 or $6.22 per share, compared to $1,761,914, or $7.32 per share, for the year ended December 31, 2007. Interest income decreased $433,756 from the 2007 amount of $10,391,728. Total interest expense also decreased $554,206 from the 2007 amount of $4,767,080. Net interest income increased $120,450 from the 2007 amount of $5,624,648. For the year ended December 31, 2008 net interest margin increased from 3.64% in 2007 to 3.69% in 2008. Non-interest income increased $24,366 from the 2007 amount of $666,421. Non-interest expense was $3,844,714, which is an increase of $311,532 over the 2007 amount.

9

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

NET INTEREST INCOME

General. 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 it from the weighted-average yield on earning assets.

Net interest income for 2008 was $5,745,097 compared to $5,624,648 for 2007, an increase of 2.14%. The increase was mainly attributable to the increase in the average balances of our earning assets, which increased by 0.75% while our average interest bearing liabilities increased only 0.83%.

For 2008 average-earning assets totaled approximately $155,677,000 with an annualized average yield of 6.40% compared to approximately $154,524,000 and 6.73%, respectively, for 2007. Average interest-bearing liabilities totaled approximately $129,211,000 with an annualized average cost of 3.26% for 2008 compared to approximately $128,153,000 and 3.72%, respectively, for 2007.

Our net interest margin and net interest spread was 3.69% and 3.14%, respectively, for 2008 compared to 3.64% and 3.01% respectively for 2007.

Our annualized yield on average earning assets decreased 33 basis points for 2008 compared to 2007, while our annualized average cost of our interest-bearing liabilities decreased 46 basis points for 2008 compared to 2007. These decreases were reflective of the decreasing interest rate environment during 2008.

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

Because loans often provide a higher yield than other types of earning assets, one of our goals it to maintain our loan portfolio as the largest component of total earning assets. Loans comprised approximately 72.33% and 70.42% of average earning assets for December 31, 2008 and 2007, respectively. Loan interest income for the years ended December 31, 2008 and 2007 was $8,322,422 and $8,270,237, respectively. The annualized average yield on loans was 7.39% and 7.60% for 2008 and 2007, respectively. Average balances of loans increased to approximately $112,597,000 during 2008, an increase of approximately $3,788,000 over the average of approximately $108,809,000 during 2007. The decrease in the annualized yield on loans is mainly attributable to the decline in market interest rates.

Investment securities averaged approximately $33,915,000 or 21.79% of average earning assets, for December 31, 2008 compared to approximately $36,961,000 or 23.92% of average earning assets, for 2007. Interest earned on investment securities amounted to $1,460,722 for the year ended December 31, 2008, compared to $1,667,782 for the same period last year. Investment securities yielded 4.31% and 4.51% for the period ended December 31, 2008 and 2007, respectively.

Total interest expense for the years ended December 31, 2008 and 2007 was $4,212,875 and $4,767,080, respectively. The largest component of interest expense is interest on deposit accounts. Interest expense on deposit accounts was $4,207,282 and $4,756,053, for the years ended December 31, 2008 and 2007, respectively. The average balance of interest bearing deposits increased to approximately $128,880,00 for the year ended December 31, 2008 from approximately $127,904,00 during the same period last year. The annualized average cost of deposits was approximately 3.26% for the year ended December 31, 2008 compared to 3.72% for the same period in 2007.

For the year ended December 31, 2008 and 2007, the total annualized average cost of funds was 3.26% and 3.72%, respectively.

10

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

NET INTEREST INCOME (continued)

Average Balances, Income, Expenses, Yields, and Rates. The following table sets forth, for the periods indicated, the weighted average yields earned, the weighted average rates paid, the net interest spread, and the net interest margin on earning assets. The table also indicates the average balance during the year and the interest income or expense by specific categories.

Average Balances, Income, Expenses, and Rates

	2008							2007
(Dollars in thousands)	Average Balance			Income/ Expense		Yield/ Rate		Average Balance			Income/ Expense		Yield/ Rate
Assets:
Earning assets:
Securities, taxable (1)	$	24,172		$	1,070	4.43	%	$	27,684		$	1,305	4.71	%
Securities, tax-exempt (1)		9,278			353	3.80			8,937			344	3.85
Nonmarketable equity securities		465			38	8.17			340			19	5.59
Federal funds sold		8,954			167	1.87			8,683			444	5.11
Time deposits with other banks		211			8	3.79			71			10	14.08
Loans (2)		112,597			8,322	7.39			108,809			8,270	7.60
Total earning assets		155,677			9,958	6.40			154,524			10,392	6.73
Cash and due from banks		4,815							5,268
Allowance for loan losses		(1,933	)						(1,896	)
Premises and equipment		2,999							3,064
Accrued interest and other assets		1,795							1,962
Total assets	$	163,353						$	162,922
Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
Interest-bearing deposits	$	128,880		$	4,207	3.26	%	$	127,904		$	4,756	3.72	%
Short-term borrowings		331			6	1.81			249			11	4.42
Total interest-bearing liabilities		129,211			4,213	3.26			128,153			4,767	3.72
Noninterest-bearing deposits		15,440							17,495
Accrued interest and other liabilities		1,566							1,603
Shareholders’ equity		17,136							15,671
Total liabilities and shareholders’ equity	$	163,353						$	162,922
Net interest spread						3.14	%						3.01	%
Net interest income				$	5,745						$	5,625
Net interest margin						3.69	%						3.64	%

(1) Averages for securities are stated at historical cost.

(2) The effect of loans in nonaccrual status and fees collected is not significant to the computations. All loans and deposits are domestic.

11

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

NET INTEREST INCOME (continued)

Analysis of Changes in Net Interest Income. Net interest income can also be analyzed in terms of the impact of changing rates and changing volume. The following table describes the extent to which changes in interest rates and changes in the volume of earning assets and interest-bearing liabilities have affected the Company’s interest income and interest expense during the periods indicated. Information on changes in each category attributable to (i) changes due to volume (change in volume multiplied by prior period rate), (ii) changes due to rates (changes in rates multiplied by prior period volume) and (iii) changes in rate and volume (change in rate multiplied by the change in volume) is provided as follows:

Analysis of Changes in Net Interest Income

	2008 Compared With 2007												2007 Compared With 2006
	Variance Due to Changes in												Variance Due to Changes in
(Dollars in thousands)	Volume			Rate			Volume/ Rate			Total			Volume			Rate			Volume/ Rate			Total
Earning Assets
Securities, taxable	$	(166	)	$	(80	)	$	11		$	(235	)	$	22		$	215		$	4		$	241
Securities, tax-exempt		13			(4	)		0			9			80			—			—			80
Nonmarketable equity securities		7			9			3			19			—			10			—			10
Federal funds sold		14			(282	)		(9	)		(277	)		(125	)		17			(3	)		(111	)
Time deposits with other banks		20			(7	)		(15	)		(2	)		(5	)		6			(2	)		(1	)
Loans		288			(228	)		(8	)		52			482			313			20			815
Total interest income		176			(592	)		(18	)		434			454			561			19			1,034
Interest-Bearing Liabilities
Interest-bearing deposits		36			(581	)		(4	)		(549	)		161			708			30			899
Short-term borrowings		(4	)		(6	)		(3	)		(5	)		(6	)		4			(1	)		(3	)
Total interest expense		40			(587	)		(7	)		(554	)		155			712			29			896
Net interest income	$	136		$	(5	)	$	(11	)	$	120		$	299		$	(151	)	$	(10	)	$	138

Interest Sensitivity. The Company monitors and manages the pricing and maturity of its assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on its net interest income. The principal monitoring technique employed by the Company is the measurement of the Company’s interest sensitivity “gap,” which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. 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. Managing the amount of assets and liabilities repricing in this same time interval helps to manage the risk and minimize the impact on net interest income of rising or falling interest rates.

12

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

NET INTEREST INCOME (continued)

The following table presents the Company’s rate sensitivity at each of the time intervals indicated as of December 31, 2008. The table may not be indicative of the Company’s rate sensitivity position at other points in time.

Interest Sensitivity Analysis

(Dollars in thousands)	Within Three Months			After Three Through Twelve Months			After One Through Five Years			Greater Than Five Years			Total
Assets
Earning assets:
Federal funds sold and securities purchased under agreements to resell	$	13 146		$	—		$	—		$	—		$	13,146
Investment securities		1,834			2,086			11,076			14,647			29,643
Loans (1)		20,194			34,829			56,554			152			111,729
Total earning assets		35,174			36,915			67,630			14,799			154,518
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
Demand		21,065			—			—			—			21,065
Savings and money market		16,442			—			—			—			16,442
Time		25,696			61,608			5,214			36			92,554
Total interest-bearing deposits and liabilities		63,203			61,608			5,214			36			130,061
Period gap	$	(28,029	)	$	(24,693	)	$	62,416		$	14,763
Cumulative gap	$	(28,029	)	$	(52,722	)	$	9,694		$	24,457
Ratio of cumulative gap to total earning assets		(18.14	)%		(34.12	)%		6.27	%		15.83	%

(1) Excludes nonaccrual loans.

The above table reflects the balances of earning assets and interest-bearing liabilities at the earlier of their repricing or maturity dates. Overnight federal funds are reflected at the earliest pricing interval due to the immediately available nature of the instruments. Scheduled payment amounts of fixed rate amortizing loans are reflected at each scheduled payment date. Scheduled payment amounts of variable rate amortizing loans are reflected at each scheduled payment date until the loan may be repriced contractually; the unamortized balance is reflected at that point. Interest-bearing liabilities with no contractual maturity, such as savings deposits and interest-bearing transaction accounts, are reflected in the earliest repricing period due to contractual arrangements which give the Company the opportunity to vary the rates paid on those deposits within a thirty-day or shorter period. Fixed rate time deposits, principally certificates of deposit, are reflected at their contractual maturity date. Short-term borrowings are reflected in the earliest repricing period since these borrowings mature daily.

13

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

NET INTEREST INCOME (continued)

The Company generally would benefit from increasing market rates of interest when it has an asset-sensitive gap and generally would benefit from decreasing market rates of interest when it is liability sensitive. The Company currently is liability-sensitive over periods with maturity dates of less than twelve months. However, the Company’s gap analysis is not a precise indicator of its interest sensitive position. The analysis presents a static view of the timing of maturities and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. Net interest income is also impacted by other significant factors, including changes in the volume and mix of earning assets and interest-bearing liabilities.

PROVISION AND ALLOWANCE FOR LOAN LOSSES

We provide for loan losses using the allowance method. Increases to the allowance are charged by recording a provision for loan losses in the consolidated statement of income. Loan losses and recoveries are charged to the allowance. Charge-offs to the allowance are made when all or a portion of the loan is confirmed as a loss based on our review of the loan, through possession of the underlying security, or through a troubled debt restructuring transaction. Likewise, recoveries offset these increases through credits to the allowance.

The allowance is maintained at a level that we believe is sufficient to cover losses in the loan portfolio at a specific point in time. Assessing the adequacy of the allowance requires considerable judgment. The adequacy of the allowance is analyzed on a monthly basis using an internal analysis model. For purposes of this analysis, adequacy is defined as a level sufficient to absorb probable losses in the portfolio. This methodology relies upon our judgment. Our judgments are based on our assessment of various issues, including, but not limited to, the pace of loan growth, emerging portfolio concentrations, the risk management system relating to lending activities, entry into new markets, new product offerings, loan portfolio quality trends, and uncertainty in current economic and business conditions. An allowance model is used that takes into account factors including the composition of the loan portfolio such as risk grade classifications, historical asset quality trends including, but not limited to, previous loss experience ratios, our assessment of current economic conditions, and reviews of specific high risk sectors of the portfolio. Loans are graded at inception and are reviewed on a periodic basis to ensure that assigned risk grades are proper based on the definition of such classification. The value of underlying collateral is also considered during such analysis. The resulting monthly model and the related conclusions are reviewed and approved by Senior Management. Our analysis of allowance adequacy includes consideration for loan impairment. While we use the best information available to make evaluations, future adjustments to the allowance may be necessary if results differ substantially from the assumptions used in making the evaluations.

The methodology for assessing the adequacy of the allowance establishes both an allocated and unallocated component of the allowance. The allocated component is based principally on current loan grades and historical loss rates. The unallocated component is the result of the portion of the assessment that estimates probable losses in the portfolio that are not fully captured in the allocated allowance. This analysis includes, but is not necessarily limited to, industry concentrations, future market expansions, model imprecision, and the estimated impact of current economic conditions on historical loss rates. On a continual basis, we monitor trends within the portfolio, both quantitative and qualitative, and assess the reasonableness of the unallocated component.

The allowance is subject to examination and adequacy testing by regulatory agencies. In addition, such regulatory agencies could require allowance adjustments based on information available to them at the time of their examination.

The allowance for loan losses was 1.74% and 1.68% of total loans on December 31, 2008 and 2007, respectively. Although there has been an increase in classified loans from December 31, 2007 to December 31, 2008, we believe the allowance for loan losses at December 31, 2008 is reflective of the results of our allowance model methodology. We monitor and evaluate the adequacy of the allowance and loss exposure in the loan portfolio by considering the borrowers’ financial conditions and other factors in the unallocated component of the allowance. Accordingly, we believe the allowance as of December 31, 2008 is adequate, based on our assessment of probable losses, and available facts and circumstances then prevailing.

14

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

PROVISION AND ALLOWANCE FOR LOAN LOSSES (continued)

Allowance for Loan Losses

	Year ended December 31,
	2008			2007
Total loans outstanding at end of year	$	113,704,520		$	114,597,378
Average loans outstanding	$	112,596,835		$	108,808,888
Balance of allowance for loan losses at beginning of period	$	1,929,319		$	1,856,888
Loan losses:
Real estate - construction		—			—
Real estate - mortgage		—			—
Commercial and industrial		261,094			110,508
Consumer		102,037			41,191
Total loan losses		363,131			151,699
Recoveries of previous loan losses:
Real estate - construction		—			—
Real estate - mortgage		—			—
Commercial and industrial		1,030			10,537
Consumer		14,419			11,593
Total recoveries		15,449			22,130
Net charge-offs		(347,682	)		(129,569	)
Provision charged to operations		400,000			202,000
Balance of allowance for loan losses at end of year	$	1,981,637		$	1,929,319
Ratios:
Net charge-offs to average loans outstanding		0.31	%		0.12	%
Net charge-offs to loans at end of year		0.31	%		0.11	%
Allowance for loan losses to average loans		1.76	%		1.77	%
Allowance for loan losses to loans at end of year		1.74	%		1.68	%
Net charge-offs to allowance for loan losses		17.55	%		6.72	%
Net charge-offs to provisions for loan losses		86.92	%		64.14	%

Nonperforming Assets.

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

	December 31,
	2008			2007
Impaired Loans	$	4,712,038		$	814,874
Loans 90 days or more past due and still accruing interest		2,951			3,433
Total impaired and nonperforming loans		4,714,989			818,307
Other real estate owned		75,000			—
Total impaired and nonperforming assets	$	4,789,989		$	818,307
Impaired and nonperforming assets to year end loans		4.21	%		0.71	%

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. At December 31, 2008 and 2007 impaired totaled $4,712,038 and $814,874, respectively. Nonaccrual loans of $1,975,834 and $814,874 were included in impaired loans at December 31, 2008 and 2007, respectively. The impaired loans had specific valuation allowances of $275,548 and $122,146 at December 31, 2008 and 2007, respectively. The average balances of impaired loans during 2008 and 2007 were $3,940,498 and $808,868, respectively.

15

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

PROVISION AND ALLOWANCE FOR LOAN LOSSES (continued)

Potential Problem Loans. The following is a summary of potential problems loans at December 31, 2008 and 2007, which were identified through our internal review mechanisms.

	December 31,
	2008		2007
Criticized loans	$	1,872,889	$	90,586
Classified loans		3,939,110		1,480,047

Criticized loans have potential weaknesses that deserve close attention and could, if uncorrected, result in deterioration of the prospects for repayment or the Bank’s credit position at a future date. Classified loans are inadequately protected by the sound worth and paying capacity of the borrower or any collateral and there is a distinct possibility or probability that the Bank will sustain a loss if the deficiencies are not corrected. During 2008, we employed a more robust process for reviewing and categorizing loans, which caused part of the increase of the levels of criticized, classified and impaired loans.

At December 31, 2008 real estate or other collateral secured practically all of the loans that were criticized and classified. 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 of this 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.

NONINTEREST INCOME AND EXPENSE

Noninterest Income. Noninterest income for the year ended December 31, 2008 was $690,787, an increase of $24,366 or 3.66% from the comparable period in 2007. Service charges on deposit accounts increased $62,054 or 12.97% from the year ended December 31, 2007 to $540,457 for the comparable period in 2008. This increase is primarily attributable to the increase in service charges on deposit accounts, which increased because of increasing the charge for non-sufficient checks. All other categories of noninterest income decreased 20.05% to $150,330 for the year ended December 31, 2008 when compared to the year ended December 31, 2007. The decline in other income is attributable to the decline in rates paid for certain types of miscellaneous income.

Noninterest Expense. Total noninterest expenses for the year ended December 31, 2008 were $3,844,714, an increase of $311,532 or 8.82%, higher when compared to total noninterest expenses of $3,533,182 for the year ended December 31, 2007. Salaries and employee benefits increased 4.52% from $1,924,825 for the year ended December 31, 2007 to $2,011,830 for the year ended December 31, 2008. This increase is primarily attributable to normal salary increases. Net occupancy and equipment expense increased 5.37% from $571,313 for the year ended December 31, 2007 to $601,965 for the year ended December 31, 2008. Other operating expenses increased $193,875 from the year ended December 31, 2007 to $1,230,921 for the year ended December 31, 2008. This increase is primarily attributable to the increase of $31,372 in our ATM networking fees due to increased usage of our ATM machines, a $41,464 increase in our FDIC deposit insurance premiums, and increased professional fees of $61,495, most of which were related to the cost of complying with the provisions of section 404 of the Sarbanes-Oxley Act.

16

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

NONINTEREST INCOME AND EXPENSE (continued)

Income Taxes. The Company’s income tax expense for 2008 was $699,509, a decrease of $94,464 over the 2007 expense of $793,973. The Company’s effective tax rates for the years ended December 31, 2008 and 2007 were 31.92% and 31.06%, respectively.

Net Income. The combination of the above factors resulted in net income for the year ended December 31, 2008 of $1,491,661 as compared to $1,761,914 for the same period in 2007. This represents a decrease of $270,253 or 15.34% over the same period in 2007.

EARNING ASSETS

Loans. Loans are the largest category of earning assets and typically provide higher yields than other types of earning assets. Associated with the higher loan yields are the inherent credit and liquidity risks which management attempts to control and counterbalance. Loans averaged approximately $112,597,000 in 2008 compared to approximately $108,809,000 in 2007, an increase of approximately $3,788,000 or 3.48%. Total loans were $113,704,520 and $114,597,378 at December 31, 2008 and 2007, respectively. Fixed rates loans comprised approximately 98% and 99% of our loan portfolio at December 31, 2008 and 2007, respectively.

The Company’s ratio of loans to deposits was 78.03% at December 31, 2008 as compared to 82.09% at December 31, 2007. The loan to deposit ratio is used to monitor a financial institution’s potential profitability and efficiency of asset distribution and utilization. Generally, a higher loan to deposit ratio is indicative of higher interest income since loans yield a higher return than alternative investment vehicles. Management has concentrated on maintaining quality in the loan portfolio while continuing to increase the deposit base.

The Company extends credit primarily to consumers and small businesses in Walterboro, Ravenel and Ridgeland, South Carolina, and to customers in surrounding areas. The Company’s service area is mixed in nature. Walterboro is a regional business center whose economy contains elements of medium and light manufacturing, higher education, regional health care, and distribution facilities. Outside the incorporated city limits of Walterboro, the economy includes manufacturing, agriculture, timber, and recreational activities. Loan growth in the Ravenel and Ridgeland area is expected to come primarily from consumer loans and small businesses in neighboring Charleston and Jasper Counties. No particular category or segment of the economies previously described is expected to grow or contract disproportionately in 2008. Management believes that the loan portfolio is adequately diversified. There are no significant concentrations of loans in any particular individuals, industry, or group of related individuals or industries. The loan demand remains strong in the Company’s market area.

The Company considers a loan to be impaired when, based upon current information and events, Management believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company’s impaired loans include loans identified as impaired through review of the nonhomogeneous portfolio and troubled debt restructurings. Specific allowances are established on impaired loans, if deemed necessary, for the difference between the loan amount and the fair market value less estimated selling costs. Impaired loans may be left on accrual status during the period the Company is pursuing repayment of the loan. Impairment losses are recognized through an increase in the allowance for loan losses and a corresponding charge to the provision for loan losses. Adjustments to impairment losses due to changes in the fair market value of the collateral properties for impaired loans are also recognized through an increase in the allowance for loan losses and a corresponding charge to the provision for loan losses. When an impaired loan is sold, transferred to other real estate owned, or written-down, the loan is removed from the portfolio through a charge-off to the allowance for loan losses.

17

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

EARNING ASSETS (continued)

The following table sets forth the composition of the loan portfolio by category at December 31, 2008 and 2007 and highlights our general emphasis on commercial and mortgage lending.

Loan Portfolio Composition

	2008					2007
	Amount			Percent of Total		Amount			Percent of Total
Commercial and industrial	$	68,540,891		60.28	%	$	65,995,943		57.59	%
Real estate
Construction		4,564,879		4.01			4,791,125		4.18
Mortgage		31,204,675		27.44			32,249,064		28.14
Consumer and other loans		9,394,075		8.26			11,561,246		10.09
Total loans		113,704,520		100.00	%		114,597,378		100.00	%
Allowance for loan losses		(1,981,637	)				(1,929,319	)
Net loans	$	111,722,883				$	112,668,059

Commercial and industrial loans increased $2,544,948 or 3.86% from $65,995,943 at December 31, 2007. Real estate loans, including construction and mortgage loans, decreased $1,270,635 or 3.43% to $35,769,554 at December 31, 2008. Consumer and all other loans decreased $2,167,171 or 18.75% to $9,394,075 at December 31, 2008.

Maturities and Sensitivity of Loans to Changes in Interest Rates

The following table summarizes the loan maturity distribution, by type, at December 31, 2008 and related interest rate characteristics:

	One Year or Less		Over One Year Through Five Years		Over Five Years		Total
Real estate - construction	$	3,782,344	$	782,535	$	—	$	4,564,879
Real estate - mortgage		9,681,682		20,527,908		995,085		31,204,675
Commercial and industrial		30,816,306		37,144,668		579,917		68,540,891
Consumer and other		2,936,599		6,250,803		206,673		9,394,075
	$	47,216,931	$	64,705,914	$	1,781,675	$	113,704,520
Loans maturing after one year with:
Fixed interest rates							$	65,462,557
Floating interest rates								1,025,032
							$	66,487,589

18

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

EARNING ASSETS (continued)

The information presented in the above table is based on the contractual maturities of the individual loans, including loans, which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval as well as modification of terms upon their maturity. Consequently, management believes the treatment shown in the above table presents fairly the maturity and repricing structure of the loan portfolio.

Short-Term Investments. Short-term investments, which consist of federal funds sold, averaged approximately $8,954,126 in 2008, compared to approximately $8,683,000 in 2007. At December 31, 2008, we had no short-term investments. Short-term investments are a primary source of the Company’s liquidity and are generally invested in an earning capacity on an overnight basis.

Investment Securities. The investment securities portfolio is a significant component of the Company’s total earning assets. Total investment securities, stated at carrying amount, averaged approximately $33,916,000 in 2008, compared to approximately $36,961,000 in 2007. At December 31, 2008, the carrying value of the securities portfolio was $29,643,306. Securities designated as available-for-sale totaled $27,815,275 and were recorded at estimated fair value. Securities designated as held-to-maturity totaled $1,319,596 and were recorded at amortized cost. Securities designated as nonmarketable equity securities totaled $508,435 at December 31, 2008. The investment objectives of the Company include maintaining and investing in a portfolio of high quality and highly liquid investments with competitive returns. Based on these objectives, the Company’s investments primarily consist of obligations of government-sponsored enterprises and obligations of states and local governments.

Investment Portfolio. The following tables summarize the carrying value of investment securities at December 31, 2008 and 2007 and the weighted average yields of those securities at December 31, 2008.

Investment Securities Portfolio Composition

	2008		2007
Available-for-Sale (1)
Government-sponsored enterprises	$	11,554,710	$	21,028,089
Obligations of states and local governments		8,330,464		7,803,335
Other		446,356		202,160
		20,331,530		29,033,584
Mortgage-backed securities		7,483,745		5,551,489
Total available-for-sale securities	$	27,815,275	$	34,585,073
Held-to-Maturity (1)
Government-sponsored enterprises	$	—	$	300,000
Obligations of states and local governments		1,319,596		1,519,481
Total held-to-maturity securities	$	1,319,596	$	1,819,481

(1) Held-to-maturity securities are stated at amortized cost and available-for-sale securities are stated at estimated fair value.

19

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

EARNING ASSETS (continued)

Investment Securities Maturity Distribution and Yields

Available-for-Sale

December 31, 2008 (Dollars in thousands)	Within One Year				After One But Within Five Years				After Five But Within Ten Years				Over Ten Years
	Amount		Yield (1)		Amount		Yield (1)		Amount		Yield (1)		Amount		Yield (1)
Government-sponsored enterprises (2)	$	2,716	3.16	%	$	8,086	3.84	%	$	753	5.42	%	$	—	—	%
Obligations of states and local governments		732	6.31	%		1,243	5.86	%		4,952	5.51	%		1,403	5.42	%
Other		—	—	%		—	—	%		446	7.22	%		—	—	%
Total available-for-sale securities	$	3,448	3.82	%	$	9,329	4.11	%	$	6,152	5.62	%	$	1,403	5.42	%
Held-to-Maturity
December 31, 2008 (Dollars in thousands)	Within One Year				After One But Within Five Years				After Five But Within Ten Years				Over Ten Years
	Amount		Yield (1)		Amount		Yield (1)		Amount		Yield (1)		Amount		Yield (1)
Obligations of states and local governments	$	255	6.41	%	$	765	6.78	%	$	300	6.18	%	$	—	—

(1) Tax equivalent yield has been calculated using an incremental rate of 34%.

(2) Excludes mortgage-backed securities totaling $7,483,745 with a yield of 4.77%.

DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES

Deposits. Deposits account for practically all of our interest bearing liabilities. Total average deposits decreased from approximately $145,399,000 in 2007 to approximately $144,320,000 in 2008. This represents a decrease of approximately $1,079 or 0.74% from the 2007 amount.

The following table summarizes the Company’s deposits for the years ended December 31, 2008 and 2007.

	2008				2007
	Amount		Percent of Deposits		Amount		Percent of Deposits
Noninterest-bearing demand	$	15,652,393	10.74	%	$	16,461,238	11.79	%
Interest-bearing demand		21,065,476	14.46			20,840,913	14.93
Savings accounts		16,442,403	11.28			14,270,926	10.22
Time deposits of $100,000 or over		53,994,171	37.06			55,118,795	39.49
Other time deposits		38,559,542	26.46			32,902,440	23.57
Total deposits	$	145,713,985	100.00	%	$	139,594,312	100.00	%

20

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES (continued)

Core deposits, which exclude certificates of deposit of $100,000 or more, provide a relatively stable funding source for the Company’s loan portfolio and other earning assets. The Company’s core deposits were $91,719,814 and $84,475,517 at December 31, 2008 and 2007, respectively. A stable base of deposits is expected to be the Company’s primary source of funding to meet both its short-term and long-term liquidity needs in the future.

Maturities of Certificates of Deposit of $100,000 or More

The maturity distribution of the Company’s time deposits of $100,000 or more at December 31, 2008, is shown in the following table.

	Within Three Months		After Three Through Six Months		After Six Through Twelve Months		After Twelve Months		Total
Certificates of deposit of $100,000 or more	$	15,827,452	$	14,726,078	$	20,379,515	$	3,061,126	$	53,994,171

Large balance certificates of deposit customers tend to be extremely sensitive to interest rate levels, making these deposits less reliable sources of funding for liquidity planning purposes than core deposits. During 2008 and 2007, the Company did not have any certificates of deposits that were obtained through brokers.

Short-term Borrowings. At December 31, 2008 and 2007, the Company had securities sold under agreements to repurchase, which are classified as secured borrowings and generally mature within one to seven day periods. Either party may cancel the arrangement without penalty. Information concerning securities sold under agreements to repurchase is summarized as follows:

	Years ended December 31,
	2008			2007
Average balance during the year	$	308,449		$	249,074
Average interest rate during the year		1.81	%		4.29	%
Maximum month-end balance during the year	$	515,000		$	3,068,000
End of period average interest rate		0.25	%		4.72	%

CAPITAL

Total shareholders’ equity increased by $957,017 from $16,736,401 at December 31, 2007 to $17,693,418 at December 31, 2008. The increase is attributable to the sale of treasury stock of $24,000, the increase in other comprehensive income of $4,773 and net income of $1,491,661. The increase was offset by the purchase of treasury stock during the period of $310,880, and the payment of dividends of $252,537.

21

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

CAPITAL (continued)

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum ratios of Tier 1 and total capital as a percentage of assets and off-balance-sheet exposures, adjusted for risk weights ranging from 0% to 100%. Tier 1 capital consists of common shareholders’ equity, excluding the unrealized gain or loss on securities available for sale, minus certain intangible assets. Tier 2 capital consists of the allowance for loan losses subject to certain limitations. Total capital for purposes of computing the capital ratios consists of the sum of Tier 1 and Tier 2 capital. Total regulatory minimum requirements are 4% for Tier 1 and 8% for total risk-based capital.

As of December 31, 2008, management believes that the Bank is well capitalized under the regulatory framework for prompt-corrective action.

The following table summarizes the capital amounts and ratios of the Bank and the regulatory minimum requirements.

	Actual				For Capital Adequacy Purposes				To Be Well- Capitalized Under Prompt Corrective Action Provisions
					Minimum				Minimum
	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2008
Total capital (to risk-weighted assets)	$	19,125,823	15.31	%	$	9,995,920	8.00	%	$	12,494,900	10.00	%
Tier 1 capital (to risk-weighted assets)		17,563,961	14.06			4,997,960	4.00			7,496,940	6.00
Tier 1 capital (to average assets)		17,563,961	10.84			6,481,960	4.00			8,102,450	5.00
December 31, 2007
Total capital (to risk-weighted assets)	$	18,058,801	15.08	%	$	9,578,000	8.00	%	$	11,972,500	10.00	%
Tier 1 capital (to risk-weighted assets)		16,562,238	13.83			4,789,000	4.00			7,183,500	6.00
Tier 1 capital (to average assets)		16,562,238	10.19			6,499,360	4.00			8,124,200	5.00

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 with less than $500,000,000 in consolidated assets.

LIQUIDITY MANAGEMENT

Liquidity is the ability to meet current and future obligations through liquidation or maturity of existing assets or the acquisition of additional liabilities. Adequate liquidity is necessary to meet the requirements of customers for loans and deposit withdrawals in the most timely and economical manner. Some liquidity is ensured by maintaining assets, which may be immediately converted into cash at minimal cost (amounts due from banks and federal funds sold). However, the most manageable sources of liquidity are composed of liabilities, with the primary focus of

22

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

LIQUIDITY MANAGEMENT (continued)

liquidity management being on the ability to obtain deposits within the Company’s market area. Core deposits (total deposits, less time deposits of $100,000 and over) provide a relatively stable funding base. At December 31, 2008 and 2007 core deposits represented 62.95% and 60.52%, respectively of total deposits.

The Bank had available at the end of 2008 unused short-term lines of credit to purchase up to $6,300,000 of federal funds from unrelated correspondent institutions. The Bank also has a credit availability agreement with the Federal Home Loan Bank totaling 15 percent of the Bank’s qualifying assets as of any quarter end. As of December 31, 2008, the available credit totaled approximately $24,686,000 and there were no borrowings outstanding. Any borrowings from the FHLB 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.

Asset liquidity is provided from several sources, including amounts due from banks and federal funds sold. Available for sale securities, particularly those maturing within one year, provide a secondary source of liquidity. In addition, funds from maturing loans are a source of liquidity.

The Company’s ability to meet its cash obligations or to pay any possible future cash dividends to shareholders is dependent primarily on the successful operation of the Bank and its ability to pay cash dividends to the Company. Any of the Bank’s cash dividends in an amount exceeding current year-to-date earnings are subject to the prior approval of the South Carolina Commissioner of Banking and are generally allowable only from its undivided profits. In addition, dividends paid by the Bank to the Company would be prohibited if such payment would cause the Bank’s capital to be reduced below applicable minimum regulatory requirements. At December 31, 2008, the Bank’s available undivided profits totaled $14,332,252. Under Federal Reserve Board regulations, the amounts of loans or advances from the Bank to the Company are also restricted.

Management believes that the overall liquidity sources of both the Company the Bank are adequate to meet their operating needs in the ordinary course of business.

IMPACT OF OFF-BALANCE-SHEET INSTRUMENTS

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments consist of commitments to extend credit and standby letters of credit. Commitments to extend credit are legally binding agreements to lend to a customer at predetermined interest rates 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. Our exposure to credit loss in the event of nonperformance by the other party 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. 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. Standby letters of credit often expire without being used. Management believes that through various sources of liquidity, they have the necessary resources to meet obligations arising from these financial instruments.

We use the same credit underwriting procedures for commitments to extend credit and standby letters of credit as we do for our on-balance-sheet instruments. The credit worthiness of each borrower is evaluated and the amount of collateral, if deemed necessary, is based on the credit evaluation. 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.

There are no off-balance-sheet contractual relationships, other than those disclosed in this report, that could result in liquidity needs or other commitments or that could significantly impact earnings.

23

COMMUNITYCORP AND SUBSIDIARY

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

IMPACT OF OFF-BALANCE-SHEET INSTRUMENTS (continued)

Through its operations, the Bank has made contractual commitments to extend credit in the ordinary course of its business activities. These commitments are legally binding agreements to lend money to the Bank’s customers at predetermined interest rates for a specified period of time. At December 31, 2008, the Bank had issued commitments to extend credit of $10,580,736 and standby letters of credit of $1,112,932 through various types of commercial lending arrangements. Approximately $188,616 of these commitments to extend credit had variable rates.

The following table sets forth the length of time until maturity for unused commitments to extend credit and standby letters of credit at December 31, 2008.

	Within One Month		After One Through Three Months		After Three Through Twelve Months		Within One Year		Greater Than One Year		Total
Unused commitments to extend credit	$	286,184	$	1,842,435	$	6,094,508	$	8,223,127	$	2,357,609	$	10,580,736
Standby letters of credit		—		267,000		830,932		1,097,932		15,000		1,112,932
Totals	$	286,184	$	2,109,435	$	6,925,440	$	9,321,059	$	2,372,609	$	11,693,668

The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on its credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate.

IMPACT OF INFLATION

The consolidated financial statements and related financial data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than does the effect of inflation.

While the effect of inflation on a bank is normally not as significant as its influence on those businesses that have large investments in plant and inventories, it does have an effect. Interest rates generally increase as the rate of inflation increases, but the magnitude of the change in rates may not be the same. While interest rates have traditionally moved with inflation, the effect on income is diminished because both interest earned on assets and interest paid on liabilities vary directly with each other. Also, increases in the price of goods and services will generally result in increased operating expenses.

IMPACT OF RECENT ACCOUNTING CHANGES

For a summary of recent authoritative pronouncements that affect accounting, reporting, and disclosure of financial information by the Company see Note 1 to the consolidated financial statements.

24

MANAGEMENT’S ANNUAL REPORT ON INTERNAL

CONTROL OVER FINANCIAL REPORTING

Our Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, transactions are executed in accordance with appropriate management authorization and accounting records are reliable for the preparation of financial statements in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. Management based this assessment on criteria for effective internal control over financial reporting described in “Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.” Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the Board of Directors. Based on this assessment, management believes that Communitycorp maintained effective internal control over financial reporting as of December 31, 2008.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report

25

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

Communitycorp and subsidiary

Walterboro, South Carolina

We have audited the accompanying consolidated balance sheets of Communitycorp and subsidiary as of December 31, 2008 and 2007 and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income and cash flows for the years then ended. These consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Communitycorp and subsidiary as of December 31, 2008 and 2007 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to examine management’s assertion about the effectiveness of Communitycorp and subsidiary’s internal control over financial reporting as of December 31, 2008, included in the accompanying Management’s Report on Internal Controls Over Financial Reporting, and, accordingly, we do not express an opinion thereon.

/s/ Elliott Davis, LLC

Charleston, South Carolina

March 16, 2009

26

COMMUNITYCORP AND SUBSIDIARY

Consolidated Balance Sheets

	December 31,
	2008			2007
Assets:
Cash and cash equivalents:
Cash and due from banks	$	3,468,965		$	4,929,768
Federal funds sold		13,146,000			1,991,000
Total cash and cash equivalents		16,614,965			6,920,768
Time deposits with other banks		1,500,000			—
Investment securities:
Securities available-for-sale		27,815,275			34,585,073
Securities held-to-maturity (estimated fair value of $1,335,226 in 2008 and $1,836,967 in 2007)		1,319,596			1,819,481
Nonmarketable equity securities		508,435			347,257
Total investment securities		29,643,306			36,751,811
Loans receivable		113,704,520			114,597,378
Less allowance for loan losses		(1,981,637	)		(1,929,319	)
Loans receivable, net		111,722,883			112,668,059
Premises and equipment, net		3,028,604			2,989,119
Accrued interest receivable		1,125,714			1,297,946
Other real estate owned		75,000			—
Other assets		874,815			691,984
Total assets	$	164,585,287		$	161,319,687
Liabilities:
Deposits:
Noninterest-bearing transaction accounts	$	15,652,393		$	16,461,238
Interest-bearing transaction accounts		21,065,476			20,840,913
Money market savings accounts		3,251,083			2,437,697
Savings		13,191,320			11,833,229
Time deposits $100,000 and over		53,994,171			55,118,795
Other time deposits		38,559,542			32,902,440
Total deposits		145,713,985			139,594,312
Short-term borrowings		—			3,068,000
Accrued interest payable		953,278			1,767,670
Other liabilities		224,606			153,304
Total liabilities		146,891,869			144,583,286
Commitments and contingencies - Notes 4 and 10
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		1,728,328			1,723,196
Retained earnings		18,392,614			17,153,490
Accumulated other comprehensive income		75,701			70,928
Treasury stock (63,123 shares in 2008 and 59,537 shares in 2007)		(4,003,225	)		(3,711,213	)
Total shareholders’ equity		17,693,418			16,736,401
Total liabilities and shareholders’ equity	$	164,585,287		$	161,319,687

The accompanying notes are an integral part of the consolidated financial statements.

27

COMMUNITYCORP AND SUBSIDIARY

Consolidated Statements of Income

	Years Ended December 31,
	2008		2007
Interest income:
Loans, including fees	$	8,322,422	$	8,270,237
Investment securities:
Taxable		1,069,573		1,305,174
Tax-exempt		353,366		343,968
Nonmarketable equity securities		37,783		18,640
Federal funds sold		166,567		443,588
Time deposits with other banks		8,261		10,121
Total interest income		9,957,972		10,391,728
Interest expense:
Deposits		4,207,282		4,756,053
Short-term borrowings		5,593		11,027
Total interest expense		4,212,875		4,767,080
Net interest income		5,745,097		5,624,648
Provision for loan losses		400,000		202,000
Net interest income after provision for loan losses		5,345,097		5,422,648
Noninterest income:
Service charges on deposit accounts		540,457		478,403
Commissions on credit life insurance		5,121		10,289
Other charges, fees, and commissions		107,203		115,953
Other		38,006		61,776
Total noninterest income		690,787		666,421
Noninterest expenses:
Salaries and employee benefits		2,011.830		1,924,825
Net occupancy and equipment expense		601,965		571,313
Other operating		1,230,919		1,037,044
Total noninterest expenses		3,844,714		3,533,182
Income before income taxes		2,191,170		2,555,887
Income tax expense		699,509		793,973
Net income	$	1,491,661	$	1,761,914
Earnings per share:
Weighted-average common shares outstanding		239,634		240,708
Basic	$	6.22	$	7.32

The accompanying notes are an integral part of the consolidated financial statements.

28

COMMUNITYCORP AND SUBSIDIARY

Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income

For the years ended December 31, 2008 and 2007

	Common stock			Capital surplus		Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock, at cost			Total shareholders’ equity
	Shares	Amount
Balance, December 31, 2006	300,000	$	1,500,000	$	1,720,382	$	15,632,119		$	(95,015	)	$	(3,620,051	)	$	15,137,435
Net income							1,761,914									1,761,914
Other comprehensive income, net of tax expense of $84,196										165,943						165,943
Comprehensive income																1,927,857
Cash dividends paid ($1.00 per share)							(240,543	)								(240,543	)
Purchase of treasury stock													(119,900	)		(119,900	)
Sale of treasury stock					2,814								28,738			31,552
Balance, December 31, 2007	300,000		1,500,000		1,723,196		17,153,490			70,928			(3,711,213	)		16,736,401
Net income							1,491,661									1,491,661
Other comprehensive income, net of tax expense of $5,723										4,773						4,773
Comprehensive income																1,496,434
Cash dividends paid ($1.05 per share)							(252,537	)								(252,537	)
Purchase of treasury stock													(310,880	)		(310,880	)
Sale of treasury stock					5,132								18,868			24,000
Balance, December 31, 2008	300,000	$	1,500,000	$	1,728,328	$	18,392,614		$	75,701		$	(4,003,225	)	$	17,693,418

The accompanying notes are an integral part of the consolidated financial statements.

29

COMMUNITYCORP AND SUBSIDIARY

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2008			2007
Cash flows from operating activities:
Net income	$	1,491,661		$	1,761,914
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		400,000			202,000
Depreciation expense		229,227			225,292
Premium amortization less discount accretion on investment securities		32,014			(107,045	)
Deferred income tax expense (benefit)		56,838			(77,305	)
Amortization of loan fees and costs		(30,121	)		(2,956	)
(Increase) decrease in accrued interest receivable		172,232			(81,532	)
Increase (decrease) in accrued interest payable		(814,392	)		233,139
(Increase) decrease in other assets		(205,519	)		172,424
Increase (decrease) in other liabilities		31,429			(230,452	)
Net cash provided by operating activities		1,363,369			2,095,479
Cash flows from investing activities:
Proceeds from maturities of securities available-for-sale		26,279,054			30,824,513
Purchases of securities available-for-sale		(19,530,889	)		(32,584,170	)
Proceeds from maturities of securities held-to-maturity		500,000			55,000
Purchases of securities held-to-maturity		—			(300,000	)
Purchases of nonmarketable equity securities		(161,178	)		(4,400	)
(Increase) decrease in time deposits with other banks		(1,500,000	)		100,000
Net (increase) decrease in loans to customers		500,297			(8,883,631	)
Purchases of premises and equipment		(268,712	)		(83,497	)
Net cash provided (used) for investing activities		5,818,572			(10,876,185	)
Cash flows from financing activities:
Net increase (decrease) in demand deposits, interest-bearing transaction accounts and savings accounts		1,587,195			(8,718,112	)
Net increase in time deposits		4,532,478			7,526,160
Net increase (decrease) in short-term borrowings		(3,068,000	)		2,818,000
Cash dividends paid		(252,537	)		(240,543	)
Purchase of treasury stock		(310,880	)		(119,900	)
Sale of treasury stock		24,000			31,552
Net cash provided by financing activities		2,512,256			1,297,157
Net increase (decrease) in cash and cash equivalents		9,694,197			(7,483,549	)
Cash and cash equivalents, beginning of year		6,920,768			14,404,317
Cash and cash equivalents, end of year	$	16,614,965		$	6,920,768
Cash paid during the year for:
Income taxes	$	765,700		$	915,280
Interest		5,027,267			4,533,941
Supplemental non cash activities
Changes in unrealized gains (losses) on securities available-for-sale	$	4,773		$	165,943
Foreclosures on loans		75,000			—

The accompanying notes are an integral part of the consolidated financial statements.

30

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - Communitycorp, a bank holding company, (the “Company”), and its subsidiary, Bank of Walterboro (the Bank), provide commercial banking services to domestic markets principally in Colleton, Charleston, and Jasper counties South Carolina. The consolidated financial statements include the accounts of the parent company and its wholly-owned subsidiary after elimination of all significant intercompany balances and transactions.

Disclosure Regarding Segments - The Company reports as one operating segment, as the chief operating decision-maker reviews the results of operations of the Company as a single enterprise.

Management’s Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans, including valuation allowances for impaired loans, and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the value of foreclosed real estate, management obtains independent appraisals for significant properties. Management must also make estimates in determining the estimated useful lives and methods for depreciating premises and equipment.

While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for losses on loans. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Because of these factors, it is possible that the allowance for losses on loans and may change in the near term.

Securities Available-for-Sale - Investment securities available-for-sale are carried at amortized cost and adjusted to estimated fair value by recognizing the aggregate unrealized gains or losses in a valuation account. Aggregate market valuation adjustments are recorded in shareholders’ equity net of deferred income taxes. Reductions in fair value considered by management to be other than temporary are reported as a realized loss and a reduction in the cost basis of the security. The adjusted cost basis of securities available-for-sale is determined by specific identification and is used in computing the gain or loss upon sale.

Securities Held-to-Maturity - Investment securities held-to-maturity are stated at cost, adjusted for amortization of premium and accretion of discount computed by the straight-line method. The Company has the ability and management has the intent to hold designated investment securities to maturity. Reductions in market value considered by management to be other than temporary are reported as a realized loss and a reduction in the cost basis of the security.

Nonmarketable Equity Securities - At December 31, 2008 and 2007, non-marketable equity securities consist of the following:

	December 31,
	2008		2007
Federal Home Loan Bank	$	290,500	$	284,400
Silverton Financial Services, Inc.		211,935		56,857
Other Community Banks		6,000		6,000
Total	$	508,435	$	347,257

31

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Nonmarketable Equity Securities - continued

The stocks are carried at cost because they have no quoted market value and no ready market exists. Investment in Federal Home Loan Bank stock is a condition of borrowing from the Federal Home Loan Bank, and the stock is pledged to collateralize the borrowings. Dividends received on these stocks are included as a separate component of interest income.

Loans Receivable and Interest Income - Loans are stated at the amount of unpaid principal reduced by an allowance for loan losses. Interest income on all loans is computed based upon the unpaid principal balance. Interest income is computed using the simple interest method and is recorded in the period earned.

The Company determines a loan to be delinquent when payments have not been made according to contractual terms, typically evidenced by nonpayment of a monthly installment by the due date. The accrual of interest income is discontinued when a loan becomes 90 days past due as to principal or interest. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral exceeds the principal balance and accrued interest.

Loan origination and commitment fees and certain direct loan origination costs (principally salaries and employee benefits) are being deferred and amortized to income over the contractual life of the related loans or commitments, adjusted for prepayments, using the level yield method.

Allowance for Loan Losses (the “Allowance”) - The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charger to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

32

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Allowance for Loan Losses (the “Allowance”) - continued

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

All cash receipts on impaired loans are applied to principal until such time as the principal is brought current. After principal has been satisfied, future cash receipts are applied to interest income, to the extent that any interest has been foregone.

Loan Fees and Costs - Nonrefundable fees and certain direct costs associated with the origination of loans are deferred and recognized as a yield adjustment over the contractual life of the related loans, or if the related loan is held for resale, until such time that the loan is sold. At of December 31, 2008 and 2007 the Bank did not have any loans held for sale. Recognition of deferred fees and costs is discontinued on nonaccrual loans until they return to accrual status or are charged-off.

Concentrations of Credit Risk - Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of loans receivable, investment securities, federal funds sold and amounts due from banks.

The Company makes loans to individuals and small businesses for various personal and commercial purposes principally in Colleton, Charleston, and Jasper counties South Carolina. The Company’s loan portfolio is not concentrated in loans to any single borrower or a relatively small number of borrowers. Additionally, management is not aware of any concentrations of loans to classes of borrowers or industries that would be similarly affected by economic conditions.

In addition to monitoring potential concentrations of loans to particular borrowers or groups of borrowers, industries and geographic regions, management monitors exposure to credit risk from concentrations of lending products and practices such as loans that subject borrowers to substantial payment increases (e.g. principal deferral periods, loans with initial interest-only periods, etc), and loans with high loan-to-value ratios. Management has determined that there is no concentration of credit risk associated with its lending policies or practices. Additionally, there are industry practices that could subject the Company to increased credit risk should economic conditions change over the course of a loan’s life. For example, the Company makes variable rate loans and fixed rate principal-amortizing loans with maturities prior to the loan being fully paid (i.e. balloon payment loans). These loans are underwritten and monitored to manage the associated risks. Therefore, management believes that these particular practices do not subject the Company to unusual credit risk.

The Company’s investment portfolio consists principally of obligations of the United States, its agencies or its corporations and general obligation municipal securities. In the opinion of management, there is no concentration of credit risk in its investment portfolio. The Company places its deposits and correspondent accounts with and sells its federal funds to high quality institutions. Management believes credit risk associated with correspondent accounts is not significant.

33

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Premises and Equipment - Premises and equipment are stated at cost, less accumulated depreciation. The provision for depreciation is computed by the straight-line method. Rates of depreciation are generally based on the following estimated useful lives: buildings - 40 years; furniture and equipment - 5 to 10 years. The cost of assets sold or otherwise disposed of, and the related accumulated depreciation are eliminated from the accounts and the resulting gains or losses are reflected in the income statement. Maintenance and repairs are charged to current expense as incurred, and the costs of major renewals and improvements are capitalized.

Other Real Estate Owned - Other real estate owned includes real estate acquired through foreclosure. Other real estate owned is initially recorded at the lower of cost (principal balance of the former loan plus costs of improvements) or estimated fair value. Any write-downs at the dates of acquisition are charged to the allowance for loan losses. Expenses to maintain such assets, subsequent write-downs and gains and losses on disposal are included in other expenses.

Income and Expense Recognition - The accrual method of accounting is used for all significant categories of income and expense. Immaterial amounts of insurance commissions and other miscellaneous fees are reported when received.

Advertising - Advertising, promotional, and other business development costs generally are expensed as incurred. External costs incurred in producing media advertising are expensed the first time the advertising takes place. External costs relating to direct mailing costs are expensed in the period in which the direct mailings are sent. Expenses charged for advertising were $45,834 and $35,793 at December 31, 2008 and 2007, respectively.

Income Taxes - Deferred income taxes are computed using the asset and liability approach. The tax effects of differences between the tax and financial accounting bases of assets and liabilities are reflected in the balance sheet at the tax rates expected to be in effect when the differences reverse. A valuation allowance is provided against deferred tax assets when realization is deemed not to be likely. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

In July 2007, the FASB issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109”(“FIN 48”), which is a change in accounting for income taxes. FIN 48 specifies how tax benefits for uncertain tax positions are to be recognized, measured, and derecognized in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. FIN 48 is effective for fiscal years beginning after December 15, 2007 and as a result, was effective for the Company in the first quarter of fiscal 2008. The adoption of FIN 48 did not have any impact on the Company’s Consolidated Financial Statements.

Retirement and Deferred Compensation Plans - The Company has a trusteed noncontributory profit-sharing plan which provides retirement and other benefits to all full-time employees who have worked 1,000 or more hours during the calendar year and have put in one year of service. All eligible employees must be at least age 21. Contributions are determined annually by the Board of Directors. Expenses charged to earnings for the profit-sharing plan were $72,572 and $82,055 in 2008 and 2007, respectively. The Company’s policy is to fund contributions to the profit-sharing plan in the amount approved by the Board of Directors. In addition, the plan includes a “salary reduction” feature pursuant to Section 401(k) of the Internal Revenue Code. Under the plan and present policies, participants are permitted to make discretionary contributions up to 10% of annual compensation. The Company makes no matching contributions to this plan.

34

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Retirement and Deferred Compensation Plans - (continued)

Additionally, the Company has a nonqualified voluntary salary deferral plan for certain officers of the Company. Under the plan, these officers may defer up to 25% of their compensation and earn interest on the deferred amount. Upon retirement, the total amount deferred and interest earned is to be paid to each participant over a period not to exceed fifteen years. The total amount deferred and unpaid under this plan was $385,238 and $344,357 at December 31, 2008 and 2007, respectively. Expenses charged to earnings for the salary deferral plan were $30,295 and $27,000 in 2008 and 2007, respectively. The Company does not provide post employment benefits to employees beyond the plans described above.

Earnings Per Share - Earnings per share is calculated by dividing earnings by the weighted-average number of common shares outstanding during the year. The Company has no instruments which are considered common stock equivalents and therefore, dilutive earnings per share is not presented.

Statement of Cash Flows - For purposes of reporting cash flows, the Company considers certain highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents include amounts due from banks, federal funds sold, and securities purchased under agreements to resell.

Comprehensive Income - Accounting principles generally accepted in the United States of America require that recognized revenue, 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:

	Year Ended December 31,
	2008			2007
Net unrealized gains on available-for-sale securities	$	10,496		$	250,139
Reclassification adjustment for gains realized in net income		—			—
Net unrealized gains on securities		10,496			250,139
Tax effect		(5,723	)		(84,196	)
Net-of-tax amount	$	4,773		$	165,943

Off-Balance-Sheet Financial Instruments - In the ordinary course of business, the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit and standby letters of credit. These financial instruments are recorded in the financial statements when they become payable by the customer.

35

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” (“SFAS 161”). SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities, thereby improving the transparency of financial reporting. It is intended to enhance the current disclosure framework in SFAS 133 by requiring that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. This disclosure is intended to convey the purpose of derivative use in terms of the risks that the entity is intending to manage. SFAS 161 was effective for the Company on January 1, 2009 and will result in additional disclosures if the Company enters into any material derivative or hedging activities.

In February 2008, the FASB issued FASB Staff Position No. 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions,” (“FSP 140-3”). This FSP provides guidance on accounting for a transfer of a financial asset and the transferor’s repurchase financing of the asset. This FSP presumes that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement (linked transaction) under SFAS 140. However, if certain criteria are met, the initial transfer and repurchase financing are not evaluated as a linked transaction and are evaluated separately under SFAS 140. FSP 140-3 was effective for the Company on January 1, 2009. The adoption of FSP 140-3 had no impact on the Company’s financial position, results of operations or cash flows.

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities,” (“FSP EITF 03-6-1”). The Staff Position provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and must be included in the earnings per share computation. FSP EITF 03-6-1 was effective January 1, 2009 and had no effect on the Company’s financial position, results of operations, earnings per share or cash flows.

FSP SFAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161,” (“FSP SFAS 133-1 and FIN 45-4”) was issued September 2008, effective for reporting periods (annual or interim) ending after November 15, 2008. FSP SFAS 133-1 and FIN 45-4 amends SFAS 133 to require the seller of credit derivatives to disclose the nature of the credit derivative, the maximum potential amount of future payments, fair value of the derivative, and the nature of any recourse provisions. Disclosures must be made for entire hybrid instruments that have embedded credit derivatives.

The Staff Position also amends FASB Interpretation No. (“FIN”) 45 to require disclosure of the current status of the payment/performance risk of the credit derivative guarantee. If an entity utilizes internal groupings as a basis for the risk, how the groupings are determined must be disclosed as well as how the risk is managed.

The Staff Position encourages that the amendments be applied in periods earlier than the effective date to facilitate comparisons at initial adoption. After initial adoption, comparative disclosures are required only for subsequent periods.

FSP SFAS 133-1 and FIN 45-4 clarifies the effective date of SFAS 161 such that required disclosures should be provided for any reporting period (annual or quarterly interim) beginning after November 15, 2008. The adoption of this Staff Position had no material effect on the Company’s financial position, results of operations or cash flows.

The SEC’s Office of the Chief Accountant and the staff of the FASB issued press release 2008-234 on September 30, 2008 (“Press Release”) to provide clarifications on fair value accounting. The Press Release includes guidance on the use of management’s internal assumptions and the use of “market” quotes. It also reiterates the factors in SEC Staff Accounting Bulletin (“SAB”) Topic 5M which should be considered when determining other-than-temporary impairment: the length of time and extent to which the market value has been less than cost; financial condition and near-term prospects of the issuer; and the intent and ability of the holder to retain its investment for a period of time sufficient to allow for any anticipated recovery in market value.

36

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements - (continued)

On October 10, 2008, the FASB issued FSP SFAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP SFAS 157-3”). This FSP clarifies the application of SFAS No. 157, “Fair Value Measurements” (see Note 14) in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that asset is not active. The FSP is effective upon issuance, including prior periods for which financial statements have not been issued. For the Company, this FSP was effective for the quarter ended September 30, 2008.

The Company considered the guidance in the Press Release and in FSP SFAS 157-3 when conducting its review for other-than-temporary impairment as of December 31, 2008 as discussed in Note 14.

FSP SFAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities,” (“FSP SFAS 140-4 and FIN 46(R)-8”) was issued in December 2008 to require public entities to disclose additional information about transfers of financial assets and to require public enterprises to provide additional disclosures about their involvement with variable interest entities. The FSP also requires certain disclosures for public enterprises that are sponsors and servicers of qualifying special purpose entities. The FSP is effective for the first reporting period ending after December 15, 2008. This FSP had no material impact on the financial position of the Company.

FSP SFAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets,” (“FSP SFAS 132(R)-1”) issued in December 2008, provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan to provide the users of financial statements with an understanding of: (a) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies; (b) the major categories of plan assets; (c) the inputs and valuation techniques used to measure the fair value of plan assets; (d) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and (e) significant concentrations of risk within plan assets.

The Staff Position also requires a nonpublic entity, as defined in SFAS 132, to disclose net periodic benefit cost for each period for which a statement of income is presented. FSP SFAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. The Staff Position will require the Company to provide additional disclosures related it to its benefit plans.

FSP EITF 99-20-1, “Amendments to the Impairment Guidance of EIFT Issue No. 99-20,” (“FSP EITF 99-20-1”) was issued in January 2009. Prior to the Staff Position, other-than-temporary impairment was determined by using either EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets,” (“EITF 99-20”) or SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” (“SFAS 115”) depending on the type of security. EITF 99-20 required the use of market participant assumptions regarding future cash flows regarding the probability of collecting all cash flows previously projected. SFAS 115 determined impairment to be other than temporary if it was probable that the holder would be unable to collect all amounts due according to the contractual terms. To achieve a more consistent determination of other-than-temporary impairment, the Staff Position amends EITF 99-20 to determine any other-than-temporary impairment based on the guidance in SFAS 115, allowing management to use more judgment in determining any other-than-temporary impairment. The Staff Position is effective for interim and annual reporting periods ending after December 15, 2008 and shall be applied prospectively. Retroactive application is not permitted. Management has reviewed the Company’s security portfolio and evaluated the portfolio for any other-than-temporary impairments as discussed in Note 3.

37

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements - (continued)

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.

Reclassifications - Certain captions and amounts in the consolidated financial statements of 2007 were reclassified to conform with the 2008 presentation. These reclassifications had no effect on previously reported net income or shareholders’ equity.

NOTE 2 - CASH AND DUE FROM BANKS

The Company is required by regulation to maintain an average cash reserve balance based on a percentage of deposits. The average amounts of the cash reserve balances at December 31, 2008 and 2007 were approximately $756,000 and $702,000 respectively. These requirements were satisfied by vault cash.

NOTE 3 - INVESTMENT SECURITIES

Securities Available-for-Sale

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

	Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
December 31, 2008
Government-sponsored enterprises	$	18,786,403	$	260,935	$	8,883	$	19,038,455
Obligations of state and local governments		8,463,297		50,340		183,173		8,330,464
Other		450,000		—		3,644		446,356
Total	$	27,699,700	$	311,275	$	195,700	$	27,815,275
December 31, 2007
Government-sponsored enterprises	$	26,487,264	$	118,945	$	26,631	$	26,579,578
Obligations of state and local governments		7,792,731		37,713		27,109		7,803,335
Other		200,000		2,160		—		202,160
Total	$	34,479,995	$	158,818	$	53,740	$	34,585,073

38

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 3 - INVESTMENT SECURITIES (continued)

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 December 31, 2008 and 2007.

	Less Than 12 Months				12 Months Or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2008
Government-sponsored enterprises	$	505,611	$	8,883	$	—	$	—	$	505,611	$	8,883
Obligations of state and local governments		3,742,860		148,416		205,243		34,757		3,948,103		183,173
Other		196,356		3,644		—		—		196,356		3,644
Total	$	4,444,827	$	160,943	$	205,243	$	34,757	$	4,650,070	$	195,700
December 31, 2007
Government-sponsored enterprises	$	4,853,173	$	7,965	$	4,980,800	$	18,667	$	9,833,973	$	26,632
Obligations of state and local governments		1,861,500		23,121		1,405,575		3,987		3,267,075		27,108
Total	$	6,714,673	$	31,086	$	6,386,375	$	22,654	$	13,101,048	$	53,740

There were a total of twenty-four available-for-sale securities that were in a loss position at December 31, 2008. Of these securities, twenty-three were in a loss position of twelve months or more, which consisted of sixteen obligations of state and local governments, and six mortgage-backed securities, which are included in the government-sponsored enterprises, and one other security. The mortgage-backed securities are protected by mortgage insurance as well as the direct credit to the related agencies. The Company believes that the deterioration in value is attributable to changes in market interest rates and not in credit quality and considers these losses to be temporary. The Company has the ability and intent to hold these securities until such time as the value recovers. At December 31, 2008 and 2007, there were no held-to-maturity securities that were in a continuous loss position for twelve or more months.

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

	December 31, 2008
	Amortized Cost		Fair Value
Due in one year or less	$	3,425,651	$	3,447,641
Due after one year but within five years		9,237,898		9,328,693
Due after five years but within ten years		6,206,885		6,152,222
Due after ten years		1,511,343		1,402,974
		20,381,777		20,331,530
Mortgage-backed securities		7,317,923		7,483,745
Total	$	27,699,700	$	27,815,275

39

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 3 - INVESTMENT SECURITIES (continued)

Securities Held-To-Maturity

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

	Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
December 31, 2008 -
Obligations of state and local governments	$	1,319,596	$	15,630	$	—	$	1,335,226
December 31, 2007
Government-sponsored enterprises	$	300,000	$	189	$		$	300,189
Obligations of state and local governments		1,519,481		17,297		—		1,536,778
Total	$	1,819,481	$	17,486	$	—	$	1,836,967

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

	December 31, 2008
	Amortized Cost		Fair Value
Due in one year or less	$	255,000	$	255,507
Due after one year but within five years		764,784		771,831
Due after five years but within ten years		299,812		307,888
Total	$	1,319,596	$	1,335,226

At December 31, 2008 and 2007, investment securities with an amortized cost of $19,589,952 and $29,659,673, respectively, and a fair value of $19,682,825 and $30,250,496, respectively, were pledged as collateral to secure public deposits and short-term borrowings. There were no sales of investment securities for the years ended December 31, 2008 and 2007.

NOTE 4 - LOANS RECEIVABLE

Loans consisted of the following:

	December 31,
	2008		2007
Real estate - construction	$	4,564,879	$	4,791,125
Real estate - mortgage		31,204,675		32,249,064
Commercial and industrial		68,540,891		65,995,943
Consumer and other		9,394,075		11,561,246
Total gross loans	$	113,704,520	$	114,597,378

As of December 31, 2008 and 2007, management had placed loans totaling $1,975,835 and $814,874, respectively, in nonaccrual status, because the loans were not performing as originally contracted. For 2008 and 2007 the total amount of interest earned on nonaccrual loans was approximately $10,000 and $53,000, respectively. The gross interest income, which would have been recorded under the original terms of the nonaccrual loans, amounted to approximately $89,000 and $52,000 for 2008 and 2007, respectively.

40

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 4 - LOANS RECEIVABLE (continued)

Loans ninety days or more past due and still accruing interest were $2,951 and $3,433 at December 31, 2008 and 2007, respectively.

At December 31, 2008 and 2007 impaired totaled $4,712,038 and $814,874, respectively. Nonaccrual loans of $1,975,835 and $814,874 were included in impaired loans at December 31, 2008 and 2007, respectively. The impaired loans had specific valuation allowances of $275,548 and $122,146 at December 31, 2008 and 2007, respectively. The average balances of impaired loans during 2008 and 2007 were $3,940,498 and $808,868, respectively.

Transactions in the allowance for loan losses are summarized below:

	Years ended December 31,
	2008			2007
Balance, beginning of year	$	1,929,319		$	1,856,888
Provision charged to operations		400,000			202,000
Recoveries on loans previously charged-off		15,449			22,130
Loans charged-off		(363,131	)		(151,699	)
Balance, end of year	$	1,981,637		$	1,929,319

The Company is a party to 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 legally binding agreements to lend to a customer at predetermined interest rates 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 sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party 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. Standby 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. Standby letters of credit often expire without being used. The Company believes that through various sources of liquidity, it has the necessary resources to meet obligations arising from these financial instruments.

The Company uses the same credit underwriting procedures for commitments to extend credit and standby letters of credit as it does for on-balance sheet instruments. The credit worthiness of each borrower is evaluated and the amount of collateral, if deemed necessary, is based on the credit evaluation. 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.

The Company is not involved in off-balance-sheet contractual relationships, other than those disclosed in this report, that could result in liquidity needs or other commitments or could significantly impact earnings.

The following table summarizes the Company’s off-balance-sheet financial instruments whose contractual amounts represent credit risk:

	December 31,
	2008		2007
Commitments to extend credit	$	10,580,736	$	11,335,642
Standby letters of credit		1,112,932		978,332

41

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 4 - LOANS RECEIVABLE (continued)

Management is not aware of any significant concentrations of loans to classes of borrowers or industries that would be affected similarly by economic conditions. At December 31, 2008, the Company was not committed to lend additional funds to borrowers having loans in nonaccrual status.

NOTE 5 - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

	December 31,
	2008			2007
Land	$	710,605		$	710,605
Building and land improvements		2,568,105			2,611,083
Furniture and equipment		2,345,656			2,033,966
Total		5,624,366			5,355,654
Less, accumulated depreciation		(2,595,762	)		(2,366,535	)
Premises and equipment, net	$	3,028,604		$	2,989,119

Depreciation expense totaled $229,227 and $225,292 in 2008 and 2007, respectively.

NOTE 6 - DEPOSITS

At December 31, 2008, the scheduled maturities of time deposits were as follows:

Maturing in	Amount
2009	$	87,303,656
2010		797,954
2011		4,078,240
2012		163,282
2013		175,008
After five years		35,573
Total	$	92,553,713

Included in total time deposits at December 31, 2008 and 2007 were brokered time deposits of $3,305,000 and $0, respectively.

NOTE 7 - RELATED PARTY TRANSACTIONS

Certain parties (principally certain directors and officers of the Company, their immediate families and business interests) were loan customers of, and had other transactions in the normal course of business with the Company. Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectibility. The aggregate dollar amount of loans to related parties was $4,810,058 and $5,169,310 at December 31, 2008 and 2007, respectively. During 2008, $1,233,697 of new loans was made to related parties, and repayments totaled $1,592,949.

Legal services were provided to the Company in the ordinary course of business by a law firm in which two of the partners are directors of the Company. The amount paid to this law firm for services rendered during 2008 and 2007 was $3,019 and $431, respectively.

42

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 8 - SHORT-TERM BORROWINGS

At December 31, 2008 and 2007, the Company had securities sold under agreements to repurchase, which are classified as short-term borrowings and generally mature within one to seven day periods. Either party may cancel the arrangement without penalty. Information concerning securities sold under agreements to repurchase is summarized as follows:

	Years ended December 31,
	2008			2007
Average balance during the year	$	308,449		$	249,074
Average interest rate during the year		1.81	%		4.29	%
Maximum month-end balance during the year	$	515,000		$	3,068,000
End of period average interest rate		0.25	%		4.72	%

The Company has an agreement with its safekeeping agent (an independent third party) to pledge certain of the Company’s U.S. Government obligation securities as collateral for the agreements. As of December 31, 2008, the par value and fair value of the securities underlying the agreements were $630,000 and $623,783, respectively.

NOTE 9 - UNUSED LINES OF CREDIT

The Bank had available at the end of 2008 unused short-term lines of credit to purchase up to $6,300,000 of federal funds from unrelated correspondent institutions. The Bank also has a credit availability agreement with the Federal Home Loan Bank totaling 15 percent of the Bank’s qualifying assets as of any quarter end. As of December 31, 2008, the available credit totaled approximately $24,686,000 and there were no borrowings outstanding. Any borrowings from the FHLB 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.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

The Company is subject to claims and lawsuits which arise primarily in the ordinary course of business. At December 31, 2008, management is not aware of any pending or threatened litigation or unasserted claims that could result in losses, if any, that would be material to the financial statements and should be disclosed.

The Company makes loans to individuals and small businesses for various personal and commercial purposes. Although the Company’s loan portfolio is diversified, a substantial portion of its borrowers’ ability to honor the terms of their loans is dependent on business and economic conditions in Colleton, Charleston, and Jasper counties and surrounding areas. The Company’s loan portfolio is not concentrated in loans to any single borrower or in a relatively small number of borrowers. Additionally, management is not aware of any concentrations of loans to classes of borrowers or industries that would be similarly affected by economic conditions.

In addition to monitoring potential concentrations of loans to particular borrowers or groups of borrowers, industries and geographic regions, management monitors exposure to credit risk that could arise from potential concentrations of lending products and practices such as loans that subject borrowers to substantial payment increases (e.g. principal deferral periods, loans with initial interest-only periods, etc), and loans with high loan-to-value ratios. Additionally, there are industry practices that could subject the Company to increased credit risk should economic conditions change over the course of a loan’s life. For example, the Company makes variable rate loans and fixed rate principal-amortizing loans with maturities prior to the loan being fully paid (i.e. balloon payment loans). These loans are underwritten and monitored to manage the associated risks. Management has determined that there is no concentration of credit risk associated with its lending policies or practices.

43

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)

The Company’s investment portfolio consists principally of obligations of the United States, its agencies or its corporations and general obligation municipal securities.

The Company places its deposits and correspondent accounts with and sells its federal funds to high quality institutions. By policy, time deposits are limited to amounts insured by the Federal Deposit Insurance Corporation. Management believes credit risk associated with correspondent accounts is not significant.

NOTE 11 - SHAREHOLDERS’ EQUITY

At December 31, 2008 and 2007, the Company had 63,123 and 59,537 shares, respectively held in treasury stock. During 2008 and 2007, the Company purchased 3,886 and 1,750 shares respectively, and sold 300 and 464 shares respectively.

The ability of the Company to pay cash dividends is dependent upon receiving cash in the form of dividends from the Bank. However, certain restrictions exist regarding the ability of the Bank to transfer funds to Communitycorp in the form of cash dividends. Dividends to the Company are payable only from the undivided profits of the Bank. At December 31, 2008, the Bank’s undivided profits were $14,332,252. The Bank is authorized to pay cash dividends up to 100% of net income in any calendar year without obtaining the prior approval of the S.C. Commissioner of Banking provided that the Bank received a composite rating of one or two at the last Federal or State regulatory examination. Under Federal Reserve Board regulations, the amounts of loans or advances from the Bank to the parent company are also restricted.

NOTE 12 - OTHER OPERATING EXPENSES

Other operating expenses are summarized as follows:

	Years ended December 31,
	2008		2007
Stationary, printing, and postage	$	217,832	$	206,138
Advertising and promotion		45,834		35,793
Professional fees		287,514		226,119
Directors’ fees		66,500		65,800
Telephone expenses		73,531		65,910
ATM surcharges		63,000		31,628
ACH charges		35,035		41,600
Armored Car/Courier Services		58,644		54,565
Membership Dues/Subscriptions		30,257		30,069
Other		352,772		279,422
Total	$	1,230,919	$	1,037,044

44

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 13 - INCOME TAXES

Income tax expense included in the consolidated statements of operations is summarized as follows:

	Years ended December 31,
	2008		2007
Currently payable:
Federal	$	575,544	$	791,991
State		67,127		79,287
Total current		642,671		871,278
Deferred income tax expense (benefit)		56,838		(77,305	)
Income tax expense	$	699,509	$	793,973

The gross amounts of deferred tax assets and deferred tax liabilities were as follows:

	December 31,
	2008			2007
Deferred tax assets:
Allowance for loan losses	$	578,024		$	565,723
Deferred compensation		130,981			117,081
Nonaccrual loan interest income		26,711			16,513
Other		—			29,184
Total deferred tax assets		735,716			728,501
Deferred tax liabilities:
Securities available for sale		(39,873	)		(34,150	)
Accumulated depreciation		(162,657	)		(134,129	)
Other		(35,525	)		—
Total deferred tax liabilities		(216,351	)		(168,279	)
Net deferred tax asset	$	497,661		$	560,222

The net deferred tax assets are included in other assets in the consolidated balance sheets at December 31, 2008 and 2007.

A reconciliation between the income tax expense and the amount computed by applying the Federal statutory rate of 34% to income before income taxes follows:

	Years ended December 31
	2008			2007
Tax expense at statutory rate	$	744,998		$	869,002
State income tax, net of federal income tax benefit		44,304			52,329
Tax-exempt interest income		(122,621	)		(122,151	)
Disallowed interest expense		16,802			20,569
Other, net		16,026			(25,776	)
Total	$	699,509		$	793,973

The Company adopted the provisions of FASB Interpretation No. 48 (“FIN 48”). There was no material impact from the adoption of FIN 48. It is the Company’s policy to recognize interest and penalties associated with uncertain tax positions as components of income taxes. There were no interest or penalties accrued during the year. The Company’s federal and state tax returns are subject to examination for the years 2005, 2006 and 2007.

45

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 14 - FAIR VALUE MEASUREMENTS

Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. SFAS 157 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, 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).

SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 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 standard describes three levels of inputs that may be used to measure fair value:

Level 1	Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury, other U.S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.
Level 2	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain derivative contracts and impaired loans.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly-structured or long-term derivative contracts.

Available-for-sale investment securities ($27,815,275 and $34,585,073 at December 31,2008 and 2007, respectively) are the only assets whose fair values are measured on a recurring basis using Level 2 inputs (active market quotes). The Company has no liabilities carried at fair value or measured at fair value on a nonrecurring basis.

The Company is predominantly an asset based lender with real estate serving as collateral on a substantial majority of loans. Loans, which are deemed to be impaired, are primarily valued at the fair values of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be level 2 inputs. The aggregate carrying amount of impaired loans at December 31, 2008 and 2007 was $4,712,038 and $814,874, respectively.

46

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. Certain items are specifically excluded in accordance with SFAS No. 107, including premise and equipment, accrued interest receivable, other assets, accrued interest payable and other liabilities. The following methods and assumptions were used to estimate the fair value of significant financial instruments:

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

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

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

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

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

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

Short-term Borrowings - The carrying value of securities sold under agreements to repurchase is a reasonable estimate of fair value because these instruments typically have terms of one to seven days.

Off-Balance-Sheet Financial Instruments - The notional amount represents the amounts of loan commitments and letters of credit, which are off-balance-sheet financial instruments. The fair value of these instruments is not material.

47

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

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

	December 31,
	2008				2007
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Cash and due from banks	$	3,468,965	$	3,468,965	$	4,929,768	$	4,929,768
Federal funds sold		13,146,000		13,146,000		1,991,000		1,991,000
Time deposits with other banks		1,500,000		1,500,000		—		—
Securities available-for-sale		27,815,275		27,815,275		34,585,073		34,585,073
Securities held-to-maturity		1,319,596		1,335,226		1,819,481		1,836,967
Nonmarketable equity securities		508,435		508,435		347,257		347,257
Loans receivable, gross		113,704,520		115,087,126		114,597,378		113,009,843
Financial Liabilities:
Demand deposit, interest-bearing transaction, money market, and savings accounts	$	53,160,272	$	53,160,272	$	51,573,077	$	51,573,077
Time deposits		92,553,713		93,215,467		88,021,235		88,534,485
Short-term borrowings		—		—		3,068,000		3,068,000

NOTE 16 - REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum ratios of Tier 1 and total capital as a percentage of assets and off-balance-sheet exposures, adjusted for risk weights ranging from 0% to 100%. Tier 1 capital consists of common shareholders’ equity, excluding the unrealized gain or loss on securities available for sale, minus certain intangible assets. Tier 2 capital consists of the allowance for loan losses subject to certain limitations. Total capital for purposes of computing the capital ratios consists of the sum of Tier 1 and Tier 2 capital. Total regulatory minimum requirements are 4% for Tier 1 and 8% for total risk-based capital.

48

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 16 - REGULATORY MATTERS (continued)

As of December 31, 2008, management believes that the Bank is well capitalized under the regulatory framework for prompt-corrective action.

The following table summarizes the capital amounts and ratios of the Bank and the regulatory minimum requirements.

	Actual				For Capital Adequacy Purposes				To Be Well- Capitalized Under Prompt Corrective Action Provisions
					Minimum				Minimum
	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2008
Total capital (to risk-weighted assets)	$	19,125,823	15.31	%	$	9,995,920	8.00	%	$	12,494,900	10.00	%
Tier 1 capital (to risk-weighted assets)		17,563,961	14.06			4,997,960	4.00			7,496,940	6.00
Tier 1 capital (to average assets)		17,563,961	10.84			6,481,600	4.00			8,102,450	5.00
December 31, 2007
Total capital (to risk-weighted assets)	$	18,058,801	15.08	%	$	9,578,000	8.00	%	$	11,972,500	10.00	%
Tier 1 capital (to risk-weighted assets)		16,562,238	13.83			4,789,000	4.00			7,183,500	6.00
Tier 1 capital (to average assets)		16,562,238	10.19			6,499,360	4.00			8,124,200	5.00

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 with less than $500,000,000 in consolidated assets.

NOTE 17 - COMMUNITYCORP (PARENT COMPANY ONLY)

Presented below are the condensed financial statements for Communitycorp (Parent Company Only).

Condensed Balance Sheets

	December 31,
	2008		2007
Assets
Cash	$	44,089	$	93,614
Investment in banking subsidiary		17,639,662		16,633,166
Non-marketable equity securities		6,000		6,000
Other assets		3,667		3,621
Total assets	$	17,693,418	$	16,736,401
Shareholders’ equity	$	17,693,418	$	16,736,401

49

COMMUNITYCORP AND SUBSIDIARY

Notes to Consolidated Financial Statements

NOTE 17 - COMMUNITYCORP (PARENT COMPANY ONLY) (continued)

Condensed Statements of Income

	Years ended December 31,
	2008			2007
Income
Dividends from banking subsidiary	$	490,000		$	400,000
Other income		39			47
Total income		490,039			400,047
Expenses		145			95
Income before income taxes and equity in undistributed earnings of banking subsidiary		489,894			399,952
Income tax benefit		(45	)		(27	)
Equity in undistributed earnings of banking subsidiary		1,001,722			1,361,935
Net income	$	1,491,661		$	1,761,914

Condensed Statements of Cash Flows

	Years ended December 31,
	2008			2007
Cash flows from operating activities
Net income	$	1,491,661		$	1,761,914
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of banking subsidiary		(1,001,722	)		(1,361,935	)
Increase in other assets		(47	)		(27	)
Net cash provided by operating activities		489,892			399,952
Cash flows from financing activities
Cash dividends paid		(252,537	)		(240,543	)
Purchases of treasury stock		(310,880	)		(119,900	)
Sale of treasury stock		24,000			31,552
Net cash used by financing activities		(539,417	)		(328,891	)
Increase (decrease) in cash		(49,525	)		71,061
Cash, beginning of year		93,614			22,553
Cash, ending of year	$	44,089		$	93,614

50

COMMUNITYCORP AND SUBSIDIARY

BOARD OF DIRECTORS

George W. Cone

Attorney

McLeod, Fraser & Cone

Steven Murdaugh

Certified Public Accountant

Harold M. Robertson

Retired

John Reaves McLeod

Attorney

McLeod, Fraser & Cone

Harry L. Hill

Retired

J. Barnwell Fishburne

Owner, Fishburne & Co

Real Estate

W. Roger Crook

Chief Executive Officer and President

Bank of Walterboro

Peden B. McLeod

Chairman of the Board

Attorney

McLeod, Fraser & Cone

Calvert Huffines

President, Huffines Co

Real Estate Broker

OFFICERS

W. Roger Crook

Chief Executive Officer and President

Gwendolyn P. Bunton

Vice President and Cashier

Lynn H. Murdaugh

Assistant Vice President and Administrative Assistant

Bruce Tate

Loan Officer

Cynthia Mills

Branch Manager

M. Ellison Young

Vice President

James M. Bunton Jr.

Loan Officer

Lawton Huggins

Loan Officer

Joanne Herndon

Branch Manager

William Fowler

Loan Officer

STAFF MEMBERS

Annette Lyons

Melissa Connelly

Danielle Mock

Casey Beach

Carolyn Brant

Dorothy Brunson

Natalie Powers

Jennifer Crosby

Betty Ford

Melissa T. Smyly

Sarah Herndon

Sharon Hillier

Carolyn Rahn

Stephanie Kelly

Kathy Breland

Stephanie Strickland

Melissa McMillan

Pam Nelson

Brittany Adams

Dodd Hulsey

Sharon Milligan

Melanie Todd

Debra Bowers

Lynn Hiott

Lindsey Turner

Cathy Groves

Pam O’Quinn

Kelly Strickland

Jeanne Raven

Tracy Valentine

Candice Kubik

Rose Walker

Jessica Pahl

Bonnie Via

Louie Whidden

Joy Koth

Melinda Tanner

51

COMMUNITYCORP AND SUBSIDIARY

CORPORATE DATA

ANNUAL MEETING:

The Annual Meeting of Shareholders of Communitycorp will be held at 6 p.m. on Wednesday, April 29, 2009 at Bank of Walterboro, 1100 North Jefferies Boulevard, Walterboro, South Carolina.

CORPORATE OFFICE:	GENERAL COUNSEL:
P.O. Box 1707	McLeod, Fraser & Cone
1100 North Jefferies Blvd.	P.O. Box 230
Walterboro, S.C. 29488	Washington Street
(843) 549-2265	Walterboro, S.C. 29488
STOCK TRANSFER DEPARTMENT:	INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM:
Bank of Walterboro	Elliott Davis, LLC
P.O. Box 1707	200 East Broad Street
Walterboro, S.C. 29488	Greenville, SC 29601

STOCK INFORMATION:

The Common Stock of Communitycorp is not listed on any exchange, nor is there a recognized or established market. There is limited trading in the Company’s shares of Common Stock. Management believes that the Common Stock has traded for a price per share of $68.00 to $80.00 during the past two years. There were approximately 547 shareholders of record as of December 31, 2008.

The ability of Communitycorp to pay cash dividends is dependent upon receiving cash in the form of dividends from Bank of Walterboro. However, certain restrictions exist regarding the ability of the Bank to transfer funds to Communitycorp in the form of cash dividends. All of the Bank’s dividends to the Company are payable only from the undivided profits of the Bank.

FORM 10-K

The Company will furnish upon request, free of charge, copies of the Annual Report and the Company’s Report to the Securities and Exchange Commission (Form 10-K) by contacting Gwen P. Bunton, Vice President, Communitycorp, P.O. Box 1707, Walterboro, South Carolina 29488.

This Annual Report serves as the ANNUAL FINANCIAL DISCLOSURE STATEMENT furnished pursuant to Part 350 of the Federal Deposit Insurance Corporation’s Rules and Regulations. THIS STATEMENT HAS NOT BEEN REVIEWED, OR CONFIRMED FOR ACCURACY OR RELEVANCE BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.

52

COMMUNITYCORP AND SUBSIDIARY

SERVICES

All Day Banking

American Express Travelers Checks

ATM Service

Bank By Mail

Bond Coupon Redemption

Business Checking

Canceled Checks Returned with Statement

Cashiers Checks

Certificates of Deposit

Christmas Clubs

Collection Items

Commercial Loans

Direct Deposits

Discount Brokerage Service

Drive-In Service

Individual Retirement Accounts

Interest Checking

Internet Banking

Letters of Credit

Money Market Accounts

Money Orders

Mortgage Loans

Night Depository

Overdraft Protection

Personal Checking

Personal Lines of Credit

Personal Loans

Regular Savings

Safe Deposit Boxes

Senior Checking

Treasury, Tax & Loan Deposits

U.S. Savings Bonds

Visa and Master Card

Wire Transfers

§

110 Forest Hills Road, Walterboro, S.C. 29488

1100 North Jefferies Boulevard, Walterboro, S.C. 29488

6225 Savannah Highway, Ravenel, S.C. 29470

8058 East Main Street, Ridgeland, SC 29936

Member FDIC

53

EX-21.1

Exhibit 21.1

COMMUNITYCORP

Subsidiaries of the Company

Bank of Walterboro

EX-31.1

Exhibit 31.1

CERTIFICATION

I, W. Roger Crook, president and chief executive officer, certify that:

1. I have reviewed this annual report on Form 10-K of Communitycorp;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4. The small business issuer’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5. The small business issuer’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

Date: March 27, 2009	By:	/s/ W. Roger Crook
		W. Roger Crook
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Gwendolyn P. Bunton, Vice President and Cashier, certify that:

1. I have reviewed this annual report on Form 10-K of Communitycorp;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4. The small business issuer’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5. The small business issuer’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

Date: March 27, 2009	By:	/s/ Gwendolyn P. Bunton
		Gwendolyn P. Bunton
		Vice President and Cashier

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, the Chief Executive Officer and the Vice President and Cashier of Communitycorp (the “Company”), each certify that, to his or her knowledge on the date of this certification:

1. The annual report of the Company for the period ended December 31, 2008 as filed with the Securities and Exchange Commission on this date (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: March 27, 2009	By:	/s/ W. Roger Crook
		W. Roger Crook
		President and Chief Executive Officer
Date: March 27, 2009	By:	/s/ Gwendolyn P. Bunton
		Gwendolyn P. Bunton
		Vice President and Cashier