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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-KSB
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIESEXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Fiscal Year ended December 31, 2005
 Commission File Number 0-25972
 FIRST COMMUNITY CORPORATION
  Tennessee
(State or other jurisdiction of
incorporation or organization)
    
    62-1562541
(I.R.S. Employer
Identification No.)
 809 West Main Street, Rogersville, Tennessee
(Address of principal executive offices)
    
    37857
(Zip Code)
 (423) 272-5800
 None
 Common Stock, no par value
Common Stock Purchase Rights
 o
  YES þ
    
    NO o
 þ
 o þ
    o þ
 
 
 DOCUMENTS INCORPORATED BY REFERENCE




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RISKS, UNCERTAINTIES AND FORWARD-LOOKING STATEMENTS
   
    
    Our ability to manage growth depends on our ability to attract and retain
qualified personnel, monitor our operations, maintain increased earnings levels,
control costs, and maintain positive customer relations. If we fail to achieve
these objectives efficiently, we may experience interruptions and dislocation in
our business.
    
    Loss of our senior executive officers or other key employees could impair our
relationship with our customers and adversely affect our business.
    
    Although management believes that its allowance for loan losses is adequate,
there is no assurance that the allowance will prove sufficient to cover future loan
losses, and our estimated allowance may change from time to time based on our
financial projections.
    
    Our earnings are subject to interest rate risk, especially if rates fall, which
could reduce our margins or reduce the fair value of financial instruments.
    
    All of our lending involves underwriting risks, especially in a competitive
lending market, and our business is subject to the spending, borrowing, and savings
habits of both our commercial and consumer customers.
    
    Competition with other banking institutions could adversely affect our
profitability.
    
    Our business is dependent on technology, and an inability to invest in
technological improvements may adversely affect our results of operations and
financial condition. In addition malfunctions or external intrusions into our
technological infrastructure may adversely affect our results of operation and
financial condition.
    
    We are subject to the effects of changes in accounting policies and practices,
as may be adopted by the bank regulatory agencies and other regulatory and
accounting bodies, which could effect the reporting of our financial results.
    
    While our management does not expect to identify any material weaknesses in our
internal control over financial reporting during fiscal year 2006, we cannot make
any assurances that we will not discover material weaknesses in our internal
control over financial reporting in the future. If we discover any material
weaknesses in the future, we may be required to make material changes in our
internal control over financial reporting which could negatively impact our results
of operations.
    
    Trading in our common stock has not been extensive, and you may have difficulty
selling your shares in the future.
  1




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TABLE OF CONTENTS  PART IITEM 1. Description of BusinessITEM 2. Description of PropertyITEM 3. Legal ProceedingsITEM 4. Submission of Matters to a Vote of ShareholdersPART IIITEM 5. Market for Registrants Common Equity and Related Stockholder MattersITEM 6. Managements Discussion and Analysis of Financial Condition and Results of OperationsITEM 7. Financial StatementsITEM 8. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureITEM 8A. Controls and ProceduresITEM 8B. Other InformationPART IIIITEM 9. Directors and Executive Officers of the RegistrantITEM 10. Executive CompensationITEM 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersITEM 12. Certain Relationships and Related TransactionsITEM 13. Exhibits and Reports on Form 8-KITEM 14. Principal Accountant Fees and ServicesSIGNATURESEx-10.4 Stock Option AgreementEx-21  List of Subsidiaries of the RegistrantEx-23.1  Consent of Pugh and Company, P.C.Ex-23.2  Consent of Crowe Chizek and Company, LLCEx-31.1  Section 302 Certification of the CEOEx-31.2  Section 302 Certification of the CFOEx-32.1  Section 906 Certification of the CEOEx-32.2  Section 906 Certification of the CFO    Table of Contents  
 PART I
 
 ITEM 1. Description of Business
 Overview
   .
    
    
    the main office in Rogersville at 809 West Main Street;
    
    Rogersville at 1104 East Main Street;
    
    inside the Rogersville Super Wal-Mart Store at 4331 Highway 66;
 2




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
    
    the Church Hill office at 441 Richmond Street;
    
    the Downtown Kingsport office at 444 East Center Street; and
    
    the Kingsport office in Colonial Heights at 3865 Fort Henry Drive.
  Recent Developments
   Personnel
  Competition
  3




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Lending Services and Loan Review
    Investment Policy
  Monetary Policies
  Supervision and Regulation
 Overview
  4




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Organization.
   Capital
   Prompt Corrective Action
   5




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Payment of Dividends
   The Companys Support of the Bank
   6




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Restrictions on Transactions with Affiliates and Insiders.
    Acquisition and Expansion
  FDIC Insurance
  7




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General Effect of Federal Monetary Policy.
  Effect of Specific Legislation.
 Standards for Safety and Soundness
 Community Reinvestment Act
 Consumer Protection Provisions
 Additional Significant Matters
  8




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Gramm-Leach-Bliley Act
      9




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USA Patriot Act of 2001
 Sarbanes-Oxley Act of 2002 . ,
 Other Consumer Laws and Regulations
 
    
    The Soldiers and Sailors Civil Relief Act of 1940, which generally prohibits
lenders from charging an annual interest rate in excess of 6% on any obligations
for which the borrower is a person on active duty with the United States military
and which governs the repayment terms of, and property rights underlying, secured
obligations of persons in military service;
    
    Federal Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers;
    
    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;
    
    Equal Credit Opportunity Act, prohibiting discrimination on the basis of race,
creed or other prohibited factors in extending credit;
    
    Fair Credit Reporting Act of 1978, governing the use and provision of
information to credit reporting agencies;
    
    Fair Debt Collection Act, governing the manner in which consumer debts may be
collected by collection agencies;
 10




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
    
    Rules and regulations of the various federal agencies charged with the
responsibility of implementing the federal laws.
  
    
    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
    
    Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to
implement that act, which govern 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.
    
    The Check Clearing for the 21st Century Act, or  Check 21 as it is commonly
known (effective October 28, 2004), which facilitates check collection by creating
a new negotiable instrument called a substitute check, and permits, but does not
require, banks to replace original checks with substitute checks or information
from the original check and process check information electronically. Banks that do
use substitute checks must comply with certain notice and recredit rights. Check 21
is expected to cut the time and cost involved in physically transporting paper
items and reduce float, i.e., the time between the deposit of a check in a bank and
payment, especially when items were not already being delivered same-day or
overnight. The Bank is utilizing the Check 21 authority.
 Other Pending and Proposed Legislation
 
 ITEM 2. Description of Property
 Overview
  Owned Properties
 Main Office.
  Operations Center, Branch Sites and Undeveloped Property.
  11




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Leased Property
  Real Estate Investments
  
 ITEM 3. Legal Proceedings
  
 ITEM 4. Submission of Matters to a Vote of Shareholders
  12




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PART II
 
 ITEM 5. Market for Registrants Common Equity and Related Stockholder Matters
 Trading History
  2005
    
    High
    
    LowFirst quarter
    
    $
    20.00
    
    
    
    19.00Second quarter
    
    
    20.00
    
    
    
    19.75Third quarter
    
    
    20.00
    
    
    
    19.00Fourth quarter
    
    
    19.00
    
    
    
    18.00
 2004
    
    High
    
    LowFirst quarter
    
    $
    18.00
    
    
    
    16.00Second quarter
    
    
    19.00
    
    
    
    17.50Third quarter
    
    
    20.00
    
    
    
    16.00Fourth quarter
    
    
    20.00
    
    
    
    18.75
   Equity Holders
  Payment of Dividends
  Securities Authorized for Issuance under Equity Compensation Plans
  13




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NUMBER OF SECURITIESNUMBER OF SECURITIES
    
    
    
    
    
    
    REMAINING AVAILABLETO BE ISSUED UPON
    
    
    
    
    
    
    FOR FUTURE ISSUANCEEXERCISE OF
    
    
    WEIGHTED-AVERAGE
    
    
    (EXCLUDING SECURITIESOUTSTANDING OPTIONS,
    
    
    EXERCISE PRICE OF
    
    
    REFLECTED IN COLUMNWARRANTS AND RIGHTS
    
    
    OUTSTANDING OPTIONS
    
    
    (a))(a)
    
    
    (b)
    
    
    (c)EQUITY
COMPENSATION PLANS
APPROVED BY
SECURITY HOLDERS
    
    
    184,358
    
    
    $
    17.04
    
    
    
    118,750TOTAL
    
    
    184,358
    
    
    $
    17.04
    
    
    
    118,750
  
 ITEM 6.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
   Financial Condition
   14




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15




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Liquidity And Interest Rate Risk
   .
 16




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Interest Rate Sensitivity Analysis
 
 0-3
    
    
    3-12
    
    
    Total
    
    
    1-5
    
    
    OverMonths
    
    
    Months
    
    
    1 Yr.
    
    
    Years
    
    
    5 Yrs.
    
    
    TotalASSETSFederal funds sold
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Securities available for sale
    
    
    9,831
    
    
    
    686
    
    
    
    10,517
    
    
    
    3,491
    
    
    
    2,446
    
    
    
    16,454FHLB Stock
    
    
    1,643
    
    
    
    
    
    
    
    1,643
    
    
    
    
    
    
    
    
    
    
    
    1,643Loans
    
    
    82,846
    
    
    
    8,847
    
    
    
    91,693
    
    
    
    73,563
    
    
    
    17,961
    
    
    
    183,217Total interest-earning
assets
    
    $
    94,320
    
    
    $
    9,533
    
    
    $
    103,853
    
    
    $
    77,054
    
    
    $
    20,407
    
    
    $
    201,314LIABILITIESInterest-bearing deposits
    
    $
    50,916
    
    
    $
    37,759
    
    
    $
    88,675
    
    
    $
    26,779
    
    
    $
    43,906
    
    
    $
    159,360Other term borrowings
    
    
    1,000
    
    
    
    
    
    
    
    1,000
    
    
    
    2,000
    
    
    
    13,588
    
    
    
    16,588Total interest-bearing
liabilities
    
    $
    51,916
    
    
    $
    37,759
    
    
    $
    89,675
    
    
    $
    28,779
    
    
    $
    57,494
    
    
    $
    175,948Asset (liability) GAP
    
    
    42,404
    
    
    
    (28,226
    )
    
    
    14,178
    
    
    
    48,275
    
    
    
    (37,087
    )
    
    
    25,366Cumulative asset (liability)
GAP
    
    $
    42,404
    
    
    $
    14,178
    
    
    $
    14,178
    
    
    $
    62,453
    
    
    $
    25,366
    
    
    $
    25,366
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
  17




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Results Of Operations
 Comparison of Years Ended December 31, 2005, and 2004.
  Net Interest Income.
    Provision for Loan Losses.
  18




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Noninterest Income.
    Noninterest Expenses.
  Provision for Income Taxes.
  Distribution, Rate and Yield Analysis of Net Income
  19




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FIRST COMMUNITY CORPORATION
Consolidated Average Balance Sheets, Net Interest Revenue and
Changes in Interest Income and Interest Expense
 
 In Thousands of dollarsDecember 31, 2005
    
    
    December 31, 2004
    
    
    2005/2004 ChangeAverage
    
    
    Interest
    
    
    Revenue/
    
    
    Average
    
    
    Interest
    
    
    Revenue/
    
    
    Due to
    
    
    Due toBalance
    
    
    Rate
    
    
    Expense
    
    
    Balance
    
    
    Rate
    
    
    Expense
    
    
    Volume
    
    
    Rate
    
    
    TotalGross loans
    
    $
    175,224
    
    
    
    7.01
    %
    
    
    12,286
    
    
    
    159,406
    
    
    
    6.46
    %
    
    
    10,295
    
    
    
    1,022
    
    
    
    969
    
    
    
    1,991Investment securities
    
    
    15,246
    
    
    
    3.52
    %
    
    
    537
    
    
    
    18,520
    
    
    
    3.20
    %
    
    
    592
    
    
    
    (105
    )
    
    
    50
    
    
    
    (55
    )Federal funds sold and other
    
    
    3,734
    
    
    
    5.70
    %
    
    
    213
    
    
    
    4,234
    
    
    
    2.05
    %
    
    
    87
    
    
    
    (10
    )
    
    
    136
    
    
    
    126Total interest-earning assets
    
    
    194,204
    
    
    
    6.71
    %
    
    
    13,036
    
    
    
    182,160
    
    
    
    6.02
    %
    
    
    10,974
    
    
    
    907
    
    
    
    1,155
    
    
    
    2,062Cash and due from banks
    
    
    5,846
    
    
    
    
    
    
    
    
    
    
    
    4,771Other assets
    
    
    16,361
    
    
    
    
    
    
    
    
    
    
    
    12,460Allowance for loan losses
    
    
    (1,929
    )
    
    
    
    
    
    
    
    
    
    
    (1,767
    )Total assets
    
    $
    214,482
    
    
    
    
    
    
    
    
    
    
    
    197,624Deposits:NOW and money market investments
    
    $
    34,409
    
    
    
    1.49
    %
    
    
    511
    
    
    
    29,895
    
    
    
    0.93
    %
    
    
    279
    
    
    
    42
    
    
    
    190
    
    
    
    232Savings
    
    
    15,894
    
    
    
    0.99
    %
    
    
    158
    
    
    
    16,408
    
    
    
    0.80
    %
    
    
    132
    
    
    
    (4
    )
    
    
    30
    
    
    
    26Time depositis $100,000 and over
    
    
    45,717
    
    
    
    3.43
    %
    
    
    1,568
    
    
    
    40,498
    
    
    
    2.44
    %
    
    
    989
    
    
    
    127
    
    
    
    452
    
    
    
    579Other time deposits
    
    
    62,208
    
    
    
    3.19
    %
    
    
    1,983
    
    
    
    56,148
    
    
    
    2.62
    %
    
    
    1,471
    
    
    
    159
    
    
    
    353
    
    
    
    512Total interest-bearing deposits
    
    
    158,228
    
    
    
    2.67
    %
    
    
    4,220
    
    
    
    142,949
    
    
    
    2.01
    %
    
    
    2,871
    
    
    
    324
    
    
    
    1,025
    
    
    
    1,349Other borrowings
    
    
    21,963
    
    
    
    5.02
    %
    
    
    1,102
    
    
    
    23,802
    
    
    
    3.91
    %
    
    
    931
    
    
    
    (72
    )
    
    
    243
    
    
    
    171Total interest-bearing liabilities
    
    
    180,191
    
    
    
    2.95
    %
    
    
    5,322
    
    
    
    166,751
    
    
    
    2.28
    %
    
    
    3,802
    
    
    
    306
    
    
    
    1,214
    
    
    
    1,520Non interest-bearing liabilities
    
    
    21,100
    
    
    
    
    
    
    
    
    
    
    
    19,285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total liabilities
    
    
    201,291
    
    
    
    
    
    
    
    
    
    
    
    186,036Shareholders equity
    
    
    13,191
    
    
    
    
    
    
    
    
    
    
    
    11,588Total liabilities and
shareholders equity
    
    $
    214,482
    
    
    
    
    
    
    
    
    
    
    
    197,624Net interest income
    
    
    
    
    
    
    
    
    
    $
    7,714
    
    
    
    
    
    
    
    
    
    
    $
    7,172
    
    
    
    601
    
    
    
    (59
    )
    
    
    542Net interest margin
    
    
    
    
    
    
    3.97
    %
    
    
    
    
    
    
    
    
    
    
    3.94
    %
 20




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FIRST COMMUNITY CORPORATION
Consolidated Average Balance Sheets, Net Interest Revenue and
Changes in Interest Income and Interest Expense
 
 In Thousands of dollarsDecember 31, 2004
    
    
    December 31, 2003
    
    
    2004/2003 ChangeAverage
    
    
    Interest
    
    
    Revenue/
    
    
    Average
    
    
    Interest
    
    
    Revenue/
    
    
    Due to
    
    
    Due toBalance
    
    
    Rate
    
    
    Expense
    
    
    Balance
    
    
    Rate
    
    
    Expense
    
    
    Volume
    
    
    Rate (1)
    
    
    TotalGross loans (2,3 and 4)
    
    $
    159,406
    
    
    
    6.46
    %
    
    
    10,295
    
    
    
    143,796
    
    
    
    6.83
    %
    
    
    9,817
    
    
    
    1,066
    
    
    
    (589
    )
    
    
    477Investment securities (4)
    
    
    18,520
    
    
    
    3.20
    %
    
    
    592
    
    
    
    13,473
    
    
    
    3.67
    %
    
    
    494
    
    
    
    185
    
    
    
    (87
    )
    
    
    98Federal funds sold and other
    
    
    4,234
    
    
    
    2.05
    %
    
    
    87
    
    
    
    9,694
    
    
    
    0.66
    %
    
    
    64
    
    
    
    (36
    )
    
    
    59
    
    
    
    23Total interest-earning assets
    
    
    182,160
    
    
    
    6.02
    %
    
    
    10,974
    
    
    
    166,963
    
    
    
    6.21
    %
    
    
    10,375
    
    
    
    1,215
    
    
    
    (616
    )
    
    
    599Cash and due from banks
    
    
    4,771
    
    
    
    
    
    
    
    
    
    
    
    5,076Other assets
    
    
    12,460
    
    
    
    
    
    
    
    
    
    
    
    8,362Allowance for loan losses
    
    
    (1,767
    )
    
    
    
    
    
    
    
    
    
    
    (1,571
    )Total assets
    
    $
    197,624
    
    
    
    
    
    
    
    
    
    
    
    178,830Deposits:NOW and money market investments
    
    $
    29,895
    
    
    
    0.93
    %
    
    
    279
    
    
    
    25,025
    
    
    
    0.97
    %
    
    
    242
    
    
    
    47
    
    
    
    (10
    )
    
    
    37Savings
    
    
    16,408
    
    
    
    0.81
    %
    
    
    132
    
    
    
    16,981
    
    
    
    1.07
    %
    
    
    182
    
    
    
    (6
    )
    
    
    (44
    )
    
    
    (50
    )Time deposits $100,000 and over
    
    
    40,498
    
    
    
    2.44
    %
    
    
    989
    
    
    
    37,157
    
    
    
    2.60
    %
    
    
    967
    
    
    
    87
    
    
    
    (64
    )
    
    
    23Other time deposits
    
    
    56,148
    
    
    
    2.62
    %
    
    
    1,471
    
    
    
    51,542
    
    
    
    2.95
    %
    
    
    1,521
    
    
    
    136
    
    
    
    (186
    )
    
    
    (50
    )Total interest-bearing deposits
    
    
    142,949
    
    
    
    2.01
    %
    
    
    2,871
    
    
    
    130,705
    
    
    
    2.23
    %
    
    
    2,912
    
    
    
    264
    
    
    
    (304
    )
    
    
    (40
    )Other borrowings
    
    
    23,802
    
    
    
    3.91
    %
    
    
    931
    
    
    
    20,760
    
    
    
    4.03
    %
    
    
    837
    
    
    
    123
    
    
    
    (29
    )
    
    
    94Total interest-bearing liabilities
    
    
    166,751
    
    
    
    2.28
    %
    
    
    3,802
    
    
    
    151,465
    
    
    
    2.48
    %
    
    
    3,749
    
    
    
    387
    
    
    
    (334
    )
    
    
    53Non interest-bearing liabilities
    
    
    19,285
    
    
    
    
    
    
    
    
    
    
    
    17,358
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total liabilities
    
    
    186,036
    
    
    
    
    
    
    
    
    
    
    
    168,823Shareholders equity
    
    
    11,588
    
    
    
    
    
    
    
    
    
    
    
    10,007Total liabilities
and
shareholders equity
    
    $
    197,624
    
    
    
    
    
    
    
    
    
    
    
    178,830Net interest income
    
    
    
    
    
    
    
    
    
    $
    7,172
    
    
    
    
    
    
    
    
    
    
    $
    6,626
    
    
    
    828
    
    
    
    (282
    )
    
    
    546Net interest margin (5)
    
    
    
    
    
    
    3.94
    %
    
    
    
    
    
    
    
    
    
    
    3.97
    %
 
 1
    
    Changes in interest income and expense not due solely to balance or
rate changes are included in the rate category.2
    
    Interest income includes fees on loans of $653,000 in 2004 and
$668,000 in 2003.3
    
    Nonaccrual loans are included in average loan balances and the
associated income (recognized on a cash basis) is included in
interest.4
    
    Tax-exempt loans and securities are presented on a taxable equivalent
basis.5
    
    Net interest income to average earning assets. 21




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Investment Portfolio
   December 312005
    
    
    2004($ in thousands)Available for sale:U.S. Government securities
    
    $
    4,960
    
    
    $
    4,802Mortgage-backed
    
    
    6,783
    
    
    
    9,104Tax exempt
    
    
    4,711
    
    
    
    1,785Total
    
    $
    16,454
    
    
    $
    15,691
  Within
    
    
    1-5
    
    
    Beyond($ in thousands)
    
    1 Year
    
    
    Years
    
    
    5 Years
    
    
    TotalU.S. Government securities
    
    $
    743
    
    
    $
    3,844
    
    
    $
    373
    
    
    $
    4,960Tax exempt securities
    
    
    
    
    
    
    1,359
    
    
    
    3,352
    
    
    
    4,711$
    743
    
    
    $
    5,204
    
    
    $
    3,725
    
    
    $
    9,671Weighted average yield (tax equivalent)
    
    
    3.00
    %
    
    
    3.91
    %
    
    
    5.46
    %
    
    
    4.44
    %Mortgage-backed
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,783Weighted average yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.12
    %
 Loan Portfolio
  2005
    
    
    2004($ in thousands)Domestic:Commercial, financial and agricultural
    
    $
    23,906
    
    
    $
    22,664Real estate  construction
    
    
    34,555
    
    
    
    20,191Real estate  1 to 4 family residential
    
    
    42,061
    
    
    
    44,196Real estate  other
    
    
    78,528
    
    
    
    76,056Consumer loans
    
    
    4,167
    
    
    
    4,843Total loans
    
    $
    183,217
    
    
    $
    167,950Allowance for loan losses
    
    
    (1,917
    )
    
    
    (1,879
    )Total (net of allowance)
    
    $
    181,300
    
    
    $
    166,071
  Due in 1
    
    
    Due in 1
    
    
    Due afterType of Loan
    
    year or less
    
    
    to 5 years
    
    
    5 Years
    
    
    Total($ in thousands)Commercial, financial and agricultural
    
    $
    9,062
    
    
    $
    10,442
    
    
    $
    4,402
    
    
    $
    23,906Real estate-construction
    
    
    9,318
    
    
    
    11,799
    
    
    
    13,438
    
    
    
    34,555Total
    
    $
    18,380
    
    
    $
    22,241
    
    
    $
    17,840
    
    
    $
    58,461
 22




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##### Table of Contents



Loan Portfolio(Continued)
  Loans due after 1 year with predetermined interest rates
    
    $
    18,538Loans due after 1 year with floating interest rates
    
    $
    21,543
  December 31,2005
    
    2004Loans accounted for on a non-accrual basis:Number
    
    
    0
    
    
    
    1Amount
    
    $
    0
    
    
    $
    17,000Accruing loans (including consumer loans) which are
contractually past due 90 days or more as to principal
and interest payments:Number
    
    
    6
    
    
    
    1Amount
    
    $
    1,340,000
    
    
    $
    45,000Loans defined as troubled debt restructuringsNumber
    
    
    0
    
    
    
    0Amount
    
    $
    0
    
    
    $
    0
     23




---



##### Table of Contents



Summary of Loan Loss Experience
  Years
ended December 31,2005
    
    
    2004Balance at beginning of period
    
    $
    1,879
    
    
    $
    1,736Charge-offs: Real estate
    
    
    (53
    )
    
    
    (78
    )Consumer
    
    
    (21
    )
    
    
    (77
    )(74
    )
    
    
    (155
    )Recoveries
    
    
    10
    
    
    
    41Net Charge-offs
    
    
    (64
    )
    
    
    (114
    )Additions charged to operations
    
    
    102
    
    
    
    257Balance at end of period
    
    $
    1,917
    
    
    $
    1,879Ratio of net charge-offs during the period to
average loans outstanding during the period
    
    
    .004
    %
    
    
    .007
    %
 At December 31, 2005 and 2004 the allowance was
allocated as follows ($ in thousands):
 2005
    
    
    2004Percentage of
    
    
    
    
    
    
    Percentage ofloans in each
    
    
    
    
    
    
    loans in eachcategory to
    
    
    
    
    
    
    category toAmount
    
    
    total loans
    
    
    Amount
    
    
    total loansCommercial, financial and agricultural
    
    $
    80
    
    
    
    13
    %
    
    $
    78
    
    
    
    14
    %Real estate-construction
    
    
    319
    
    
    
    19
    %
    
    
    313
    
    
    
    12
    %Real estate-mortgage
    
    
    323
    
    
    
    23
    %
    
    
    317
    
    
    
    26
    %Real estate-other
    
    
    478
    
    
    
    43
    %
    
    
    469
    
    
    
    45
    %Consumer loans
    
    
    717
    
    
    
    2
    %
    
    
    702
    
    
    
    3
    %Total
    
    $
    1,917
    
    
    
    100
    %
    
    $
    1,879
    
    
    
    100
    %
 Allowance For Loan Losses
   24




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##### Table of Contents



Deposits
  Years Ended December 31,2005
    
    2004Average
    
    
    
    
    
    AverageAverage
    
    Rate
    
    Average
    
    RateAmount
    
    Paid
    
    Amount
    
    PaidNoninterest-bearing
    
    $
    17,657
    
    
    Not applicable
    
    $
    18,191
    
    
    Not applicableInterest-bearing demand
    
    
    34,409
    
    
    
    1.49
    %
    
    
    29,895
    
    
    
    0.93
    %Savings
    
    
    15,894
    
    
    
    0.99
    %
    
    
    16,408
    
    
    
    .81
    %Certificates of deposits
    
    
    107,925
    
    
    
    3.29
    %
    
    
    96,646
    
    
    
    2.55
    %
  Certificates of Deposit3 months or less
    
    $
    25,4683-12 months
    
    
    14,917over 12 months
    
    
    8,734Total
    
    $
    49,119
 Return on Equity and Assets
  Years ended December 31,2005
    
    2004Return on average assets
    
    
    1.05
    %
    
    
    1.02
    %Return on average equity
    
    
    17.1
    %
    
    
    17.3
    %Average equity to average assets ratio
    
    
    6.2
    %
    
    
    5.9
    %Dividend payout ratio
    
    
    23.8
    %
    
    
    26.7
    %
 25




---



##### Table of Contents



Short-Term Borrowings
  ($ in thousands)2005
    
    2004Amount outstanding at December 31
    
    $
    2,288
    
    
    $
    1,434Weighted average interest rate at year end
    
    
    3.50
    %
    
    
    1.31
    %Maximum month-end balance during the year
    
    
    3,277
    
    
    
    2,700Average amount outstanding during the year
    
    
    2,619
    
    
    
    2,102Weighted average interest rate during the year
    
    
    2.61
    %
    
    
    0.86
    %
 26




---



##### Table of Contents



ITEM 7. Financial Statements
  PageReports of Independent Registered Public Accounting Firms
    
    
    28Consolidated Balance Sheets, December 31, 2005 and 2004
    
    
    30Consolidated Statements of Operations, Years
Ended December 31, 2005 and 2004
    
    
    31Consolidated Statements of Changes in Shareholders Equity, Years
Ended December 31, 2005 and 2004
    
    
    32Consolidated Statements of Cash Flows, Years
Ended December 31, 2005 and 2004
    
    
    33Notes to Consolidated Financial Statements, December 31, 2005 and 2004
    
    
    35
 27




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/ Pugh & Company, P.C.Certified Public AccountantsKnoxville, TNJanuary 13, 2006
 28




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/ Crowe Chizek and Company LLC
 
 29




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004
 2005
    
    
    2004ASSETSCash and due from banks
    
    $
    5,601,722
    
    
    $
    5,163,142Securities available for sale
    
    
    16,453,644
    
    
    
    15,690,735Loans, net
    
    
    181,300,317
    
    
    
    166,071,100Premises and equipment
    
    
    7,193,351
    
    
    
    7,161,826Accrued interest receivable
    
    
    1,123,112
    
    
    
    1,066,616Restricted equity securities, at cost
    
    
    1,729,191
    
    
    
    1,641,315Company owned life insurance
    
    
    3,787,092
    
    
    
    3,635,771Computer software, net of amortization
    
    
    405,316
    
    
    
    451,246Other assets
    
    
    1,804,274
    
    
    
    1,456,422$
    219,398,019
    
    
    $
    202,338,173LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing
    
    $
    19,145,277
    
    
    $
    16,337,136Interest-bearing
    
    
    159,359,874
    
    
    
    143,970,635Total deposits
    
    
    178,505,151
    
    
    
    160,307,771Securities sold under agreement to repurchase
    
    
    2,288,444
    
    
    
    1,433,909Federal Home Loan Bank advances
    
    
    14,300,000
    
    
    
    19,010,000Subordinated debentures
    
    
    7,217,000
    
    
    
    7,217,000Accrued interest payable
    
    
    1,036,105
    
    
    
    598,897Dividends payable
    
    
    134,077
    
    
    
    133,823Other liabilities
    
    
    2,019,972
    
    
    
    1,319,035Total liabilities
    
    
    205,500,749
    
    
    
    190,020,435Shareholders equityPreferred stock, no par value. Authorized 1,000,000
shares; none issued
    
    
    
    
    
    
    Common stock, no par value. Authorized 10,000,000
shares; issued 1,915,387 shares in 2005 and 1,911,760
shares in 2004
    
    
    7,431,416
    
    
    
    7,388,328Retained earnings
    
    
    6,721,643
    
    
    
    5,002,184Accumulated other comprehensive loss
    
    
    (255,789
    )
    
    
    (72,774
    )Total shareholders equity
    
    
    13,897,270
    
    
    
    12,317,738$
    219,398,019
    
    
    $
    202,338,173
  30




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 2005 and 2004
 2005
    
    
    2004Interest incomeLoans, including fees
    
    $
    12,285,677
    
    
    $
    10,294,789SecuritiesTaxable
    
    
    447,223
    
    
    
    519,900Non-taxable
    
    
    90,148
    
    
    
    72,618Federal funds sold and other
    
    
    212,999
    
    
    
    86,898Total interest income
    
    
    13,036,047
    
    
    
    10,974,205Interest expenseDeposits
    
    
    4,220,464
    
    
    
    2,871,253Federal Home Loan Bank advances
    
    
    582,602
    
    
    
    643,798Subordinated debentures
    
    
    449,818
    
    
    
    250,418Other
    
    
    69,560
    
    
    
    36,305Total interest expense
    
    
    5,322,444
    
    
    
    3,801,774Net interest income
    
    
    7,713,603
    
    
    
    7,172,431Provision for loan losses
    
    
    102,109
    
    
    
    256,625Net interest income after provision for loan losses
    
    
    7,611,494
    
    
    
    6,915,806Noninterest incomeService charges on deposit accounts
    
    
    1,091,948
    
    
    
    1,096,017Mortgage banking activities
    
    
    68,595
    
    
    
    56,452Net gain (loss) on sale of securities
    
    
    
    
    
    
    (6,626
    )Other
    
    
    531,164
    
    
    
    457,802Total noninterest income
    
    
    1,691,707
    
    
    
    1,603,645Noninterest expenseSalaries and employee benefits
    
    
    3,005,898
    
    
    
    2,711,384Occupancy
    
    
    625,667
    
    
    
    552,575Furniture and equipment
    
    
    375,425
    
    
    
    392,074Advertising and public relations
    
    
    78,508
    
    
    
    102,466Professional services
    
    
    345,308
    
    
    
    207,407Operating supplies
    
    
    140,985
    
    
    
    120,996Computer software depreciation
    
    
    133,317
    
    
    
    148,656Software maintenance
    
    
    136,270
    
    
    
    121,385Telephone and data communications
    
    
    144,436
    
    
    
    110,436Director and committee fees
    
    
    120,125
    
    
    
    119,700Other
    
    
    760,790
    
    
    
    813,137Total noninterest expense
    
    
    5,866,729
    
    
    
    5,400,216Income before income taxes
    
    
    3,436,472
    
    
    
    3,119,235Income tax expense
    
    
    1,180,879
    
    
    
    1,112,523Net income
    
    $
    2,255,593
    
    
    $
    2,006,712Earnings per common shareBasic
    
    $
    1.18
    
    
    $
    1.05Diluted
    
    $
    1.17
    
    
    $
    1.05Average common shares outstandingBasic
    
    
    1,914,158
    
    
    
    1,905,616Diluted
    
    
    1,923,722
    
    
    
    1,918,112
  31




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##### Table of Contents



FIRST COMMUNITY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITYYears ended
December 31, 2005 and 2004
 AccumulatedOther
    
    
    TotalCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Stock
    
    
    Earnings
    
    
    Loss
    
    
    EquityBalance, January 1, 2004
    
    
    1,890,945
    
    
    $
    7,182,967
    
    
    $
    3,530,093
    
    
    $
    (69,255
    )
    
    $
    10,643,805Issuance of 20,815 shares of common stock
in connection with stock option plans
and stock grants
    
    
    20,815
    
    
    
    205,361
    
    
    
    
    
    
    
    
    
    
    
    205,361Dividends  $.28 per share
    
    
    
    
    
    
    
    
    
    
    (534,621
    )
    
    
    
    
    
    
    (534,621
    )Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    2,006,712
    
    
    
    
    
    
    
    2,006,712Other comprehensive incomeChange in unrealized losses on
securities available for sale,
net of reclassification
and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,627
    )
    
    
    (7,627
    )Reclassification adjustment for
losses included in net income,
net of taxes of $2,518
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,108
    
    
    
    4,108Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,003,193Balance, December 31, 2004
    
    
    1,911,760
    
    
    
    7,388,328
    
    
    
    5,002,184
    
    
    
    (72,774
    )
    
    
    12,317,738Issuance of 3,627 shares of common stock
in connection with stock option plans
and stock grants
    
    
    3,627
    
    
    
    25,159
    
    
    
    
    
    
    
    
    
    
    
    25,159Dividends  $.28 per share
    
    
    
    
    
    
    
    
    
    
    (536,134
    )
    
    
    
    
    
    
    (536,134
    )Increase to common stock for income
tax reduction related to stock options
exercised
    
    
    
    
    
    
    17,929
    
    
    
    
    
    
    
    
    
    
    
    17,929Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    2,255,593
    
    
    
    
    
    
    
    2,255,593Other comprehensive incomeChange in unrealized losses on
securities available for sale,
net of reclassification
and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (183,015
    )
    
    
    (183,015
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,072,578Balance, December 31, 2005
    
    
    1,915,387
    
    
    $
    7,431,416
    
    
    $
    6,721,643
    
    
    $
    (255,789
    )
    
    $
    13,897,270
  32




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##### Table of Contents



FIRST COMMUNITY CORPORATION
CONSOLIDATED  STATEMENTS OF CASH FLOWSYear ended
December 31, 2005 and 2004
 2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    2,255,593
    
    
    $
    2,006,712Adjustments to reconcile net income to net
cash provided by operating activitiesDepreciation and amortization
    
    
    647,297
    
    
    
    670,879Net amortization (accretion) of securities
    
    
    62,898
    
    
    
    183,935Provision for loan losses
    
    
    102,109
    
    
    
    256,625FHLB stock dividends
    
    
    (79,500
    )
    
    
    (62,700
    )Net realized loss(gain) on sales of
securities
    
    
    0
    
    
    
    6,626Loss on sale of real estate owned, net
    
    
    6,856
    
    
    
    3,869Deferred income taxes (benefits)
    
    
    (200,959
    )
    
    
    (99,289
    )Tax benefit of stock option exercise
    
    
    17,929
    
    
    
    91,074Increase in cash surrender value of Company owned
life insurance
    
    
    (151,321
    )
    
    
    (161,828
    )Change in accrued interest receivable and other assets
    
    
    (197,932
    )
    
    
    (304,901
    )Change in accrued interest payable and other liabilities
    
    
    1,138,399
    
    
    
    433,485Net cash from operating activities
    
    
    3,601,369
    
    
    
    3,024,487Cash flows from investing activities:Purchases of securities available for sale
    
    
    (3,254,480
    )
    
    
    (13,994,706
    )Proceeds from maturities and redemptions of
securities available for sale
    
    
    2,132,101
    
    
    
    6,549,586Proceeds from sales of securities available for sale
    
    
    0
    
    
    
    6,085,930Purchases of restricted equity securities
    
    
    (8,376
    )
    
    
    0Net increase in loans
    
    
    (15,860,176
    )
    
    
    (14,751,716
    )Proceeds from the sale of other real estate
    
    
    605,894
    
    
    
    45,431Purchases of fixed assets and computer software
    
    
    (608,692
    )
    
    
    (1,967,530
    )Net cash from investing activities
    
    
    (16,993,729
    )
    
    
    (18,033,005
    )Cash flows from financing activities:Cash dividends
    
    
    (536,134
    )
    
    
    (534,621
    )Repayments of note payable
    
    
    0
    
    
    
    (350,000
    )Proceeds from FHLB advances
    
    
    2,300,000
    
    
    
    34,513,000Repayments from FHLB advances
    
    
    (7,010,000
    )
    
    
    (27,503,000
    )Proceeds from subordinated debentures
    
    
    0
    
    
    
    3,000,000Increase in deposits
    
    
    18,197,380
    
    
    
    2,082,403Change in securities sold under
agreement to repurchase
    
    
    854,535
    
    
    
    (486,507
    )Proceeds from issuance of common stock
    
    
    25,159
    
    
    
    114,288Net cash from financing activities
    
    
    13,830,940
    
    
    
    10,835,563Net change in cash and cash equivalents
    
    
    438,580
    
    
    
    (4,172,955
    )Cash and cash equivalents at beginning of period
    
    
    5,163,142
    
    
    
    9,336,097Cash and cash equivalents at end of period
    
    $
    5,601,722
    
    
    $
    5,163,142Supplemental disclosures of cash flow information:Cash paid during year for:Interest
    
    $
    4,885,236
    
    
    $
    3,770,541Income taxes
    
    
    1,139,019
    
    
    
    1,373,425
   33




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##### Table of Contents



FIRST COMMUNITY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2005 and 2004
 2005
    
    
    2004Supplemental noncash disclosures:Transfers from loans to repossessed assets
    
    $
    596,850
    
    
    $
    247,519Sales of foreclosed real estate by origination
of loans
    
    
    68,000
    
    
    
    0Change in unrealized gain/loss on securities
available for sale
    
    
    (296,572
    )
    
    
    (5,703
    )Change in deferred income taxes associated
with unrealized gains/losses on securities
available for sale
    
    
    (113,557
    )
    
    
    (2,184
    )Change in net unrealized gain/loss on securities
available for sale
    
    
    (183,015
    )
    
    
    (3,519
    )
  34




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 General
 Basis of Presentation
 Use of Estimates
 Cash Flows
 Cash and Due From Banks
 Securities
    35




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Loans
   Allowance for Loan Losses
  Premises and Equipment
 Foreclosed Assets:
 Company Owned Life Insurance
 Long-term Assets
  36




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Securities Sold Under Agreement To Repurchase
 Stock-Based Compensation Accounting for Stock-Based Compensation
 2005
    
    
    2004Net income as reported
    
    $
    2,255,593
    
    
    $
    2,006,712Deduct: Stock-based compensation expense determined
under fair value based method, net of tax
    
    
    507,080
    
    
    
    49,055Pro forma net income
    
    $
    1,748,513
    
    
    $
    1,957,657Basic earnings per share as reported
    
    $
    1.18
    
    
    $
    1.05Pro forma basic earnings per share
    
    
    0.91
    
    
    
    1.03Diluted earnings per share as reported
    
    $
    1.17
    
    
    $
    1.05Pro forma diluted earnings per share
    
    
    0.91
    
    
    
    1.02
   2005
    
    2004Riskfree interest rate
    
    
    4.43
    %
    
    
    3.53
    %Expected option life
    
    7 years
    
    7 yearsDividend yield
    
    
    1.40
    %
    
    
    1.87
    %Weighted average fair value of options
granted during year
    
    $
    3.59
    
    
    $
    2.71
 Earnings Per Common Share
 Income Taxes
  37




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Employee Benefits
 Comprehensive Income
 Fair Value of Financial Instruments
 Off-Balance Sheet Financial Instruments
 Newly Issued But Not Yet Effective Accounting Standards Accounting for Loans or Certain Debt Securities Acquired in a Transfer
 Accounting for Stock-Based Compensation
 Concentration of Credit Risk SOP 94-6-1-Terms of
Loan Products That May Give Rise to a Concentration of Credit Risk
  38




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
  Reclassifications
 NOTE 2  SECURITIES
  Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Loss2005U.S. Government agency securities
    
    $
    4,960,286
    
    
    $
    313
    
    
    $
    (109,534
    )Mortgage-backed securities
    
    
    6,782,315
    
    
    
    
    
    
    
    (228,602
    )Tax exempt securities
    
    
    4,711,043
    
    
    
    14,386
    
    
    
    (91,064
    )Total
    
    $
    16,453,644
    
    
    $
    14,699
    
    
    $
    (429,200
    )2004U.S. Government agency securities
    
    $
    4,801,638
    
    
    $
    2,328
    
    
    $
    (20,076
    )Mortgage-backed securities
    
    
    9,104,182
    
    
    
    18,501
    
    
    
    (103,685
    )Tax exempt securities
    
    
    1,784,915
    
    
    
    13,572
    
    
    
    (28,571
    )Total
    
    $
    15,690,735
    
    
    $
    34,401
    
    
    $
    (152,332
    )
  Amortized Cost
    
    
    Fair ValueDue through one year
    
    $
    750,000
    
    
    $
    742,703Due after one through five years
    
    
    5,302,675
    
    
    
    5,203,707Due after five through ten years
    
    
    2,077,937
    
    
    
    2,026,093Due after ten years
    
    
    1,726,617
    
    
    
    1,698,826Mortgage-backed securities
    
    
    7,010,916
    
    
    
    6,782,315Total
    
    $
    16,868,145
    
    
    $
    16,453,644




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 2
 SECURITIES
   Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss2005U.S. Government
agency securities
    
    $
    781,651
    
    
    $
    (17,857
    )
    
    $
    3,928,323
    
    
    $
    (91,677
    )
    
    $
    4,709,974
    
    
    $
    (109,534
    )Mortgage-backed securities
    
    
    1,597,629
    
    
    
    (33,472
    )
    
    
    5,184,685
    
    
    
    (195,130
    )
    
    
    6,782,314
    
    
    
    (228,602
    )Tax exempt securities
    
    
    2,694,136
    
    
    
    (56,175
    )
    
    
    1,021,938
    
    
    
    (34,889
    )
    
    
    3,716,074
    
    
    
    (91,064
    )Total temporarily impaired
    
    $
    5,073,416
    
    
    $
    (107,504
    )
    
    $
    10,134,946
    
    
    $
    (321,696
    )
    
    $
    15,208,362
    
    
    $
    (429,200
    )2004U.S. Government
agency securities
    
    $
    3,999,924
    
    
    $
    (20,076
    )
    
    $
    
    
    
    $
    
    
    
    $
    3,999,924
    
    
    $
    (20,076
    )Mortgage-backed securities
    
    
    1,753,292
    
    
    
    (19,725
    )
    
    
    5,788,440
    
    
    
    (83,960
    )
    
    
    7,541,732
    
    
    
    (103,685
    )Tax exempt securities
    
    
    648,362
    
    
    
    (14,636
    )
    
    
    389,133
    
    
    
    (13,935
    )
    
    
    1,037,495
    
    
    
    (28,571
    )Total temporarily impaired
    
    $
    6,401,578
    
    
    $
    (54,437
    )
    
    $
    6,177,573
    
    
    $
    (97,895
    )
    
    $
    12,579,151
    
    
    $
    (152,332
    )
  NOTE 3  LOANS
  2005
    
    
    2004Commercial, financial and agricultural
    
    $
    23,906,192
    
    
    $
    22,663,554Real estate
 construction
    
    
    34,554,927
    
    
    
    20,190,814Real estate
 1 to 4 family residential properties
    
    
    42,061,086
    
    
    
    44,196,362Real estate  other
    
    
    78,527,957
    
    
    
    76,056,034Consumer
    
    
    4,166,855
    
    
    
    4,842,999183,217,017
    
    
    
    167,949,763Less: Allowance for loan losses
    
    
    (1,916,700
    )
    
    
    (1,878,663
    )Loans, net
    
    $
    181,300,317
    
    
    $
    166,071,100
  40




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 3
 LOANS
  2005
    
    2004Loans past due over 90 days still on accrual
    
    $
    1,340,000
    
    
    $
    45,000Non accrual loans
    
    
    0
    
    
    
    17,000
  NOTE 4
 ALLOWANCE FOR LOAN LOSSES
  2005
    
    
    2004Balance at beginning of period
    
    $
    1,878,663
    
    
    $
    1,735,980Provision for loan losses
    
    
    102,109
    
    
    
    256,625Loans charged off
    
    
    (73,943
    )
    
    
    (154,528
    )Recoveries
    
    
    9,871
    
    
    
    40,586Balance at end of period
    
    $
    1,916,700
    
    
    $
    1,878,663
 NOTE 5  PREMISES AND EQUIPMENT
  2005
    
    
    2004Land
    
    $
    1,344,742
    
    
    $
    1,344,742Building
    
    
    6,256,528
    
    
    
    6,237,769Furniture and equipment
    
    
    3,235,198
    
    
    
    2,803,79710,836,468
    
    
    
    10,386,308Less: Accumulated depreciation
    
    
    3,643,117
    
    
    
    3,224,482$
    7,193,351
    
    
    $
    7,161,826
   41




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 5  PREMISES AND EQUIPMENT
  2005
    
    
    2004Computer software
    
    $
    1,282,813
    
    
    $
    1,195,426Less: Accumulated amortization
    
    
    877,497
    
    
    
    744,180$
    405,316
    
    
    $
    451,246
   NOTE 6
 DEPOSITS
  2005
    
    
    2004Noninterest-bearing
    
    $
    19,145,277
    
    
    $
    16,337,136Interest-bearing demand
    
    
    34,701,190
    
    
    
    30,042,544Savings
    
    
    16,004,571
    
    
    
    16,300,067Certificates of deposit of $100,000 or more
    
    
    49,119,104
    
    
    
    37,690,093Other time
    
    
    59,535,009
    
    
    
    59,937,931$
    178,505,151
    
    
    $
    160,307,771
   2006
    
    $
    81,739,4282007
    
    
    18,159,8232008
    
    
    2,850,1322009
    
    
    4,263,9732010
    
    
    1,640,757Thereafter
    
    
    $
    108,654,113
  42




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 7
 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
   2005
    
    2004Average daily balance during the year
    
    $
    2,619,000
    
    
    $
    2,102,000Average interest rate during the year
    
    
    2.61
    %
    
    
    .86
    %Maximum month-end balance during the year
    
    $
    3,277,000
    
    
    $
    2,700,000Weighted average interest rate at year-end
    
    
    3.50
    %
    
    
    1.24
    %
 NOTE 8  INCOME TAXES
  2005
    
    
    2004CurrentFederal
    
    $
    1,137,457
    
    
    $
    1,007,321State
    
    
    244,381
    
    
    
    222,2021,381,838
    
    
    
    1,229,523DeferredFederal
    
    
    (176,042
    )
    
    
    (87,733
    )State
    
    
    (24,917
    )
    
    
    (29,267
    )(200,959
    )
    
    
    (117,000
    )$
    1,180,879
    
    
    $
    1,112,523
  2005
    
    
    2004Federal tax at statutory rate
    
    $
    1,168,400
    
    
    $
    1,060,540State income tax and other, net of federal effect
    
    
    82,639
    
    
    
    136,211Tax-exempt interest and dividends
    
    
    (70,160
    )
    
    
    (84,228
    )$
    1,180,879
    
    
    $
    1,112,523
  43




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 8  INCOME TAXES
  2005
    
    
    2004Deferred tax assets:Provision for loan losses
    
    $
    628,746
    
    
    $
    615,786Deferred compensation
    
    
    406,889
    
    
    
    192,263Unrealized losses on securities
    
    
    158,713
    
    
    
    45,155Other
    
    
    52,985
    
    
    
    137,8651,247,333
    
    
    
    991,069Deferred tax liabilities:Fixed assets
    
    
    (298,593
    )
    
    
    (349,683
    )Federal Home Loan Bank stock dividend
    
    
    (246,699
    )
    
    
    (216,258
    )Other
    
    
    (21,779
    )
    
    
    (59,383
    )(567,071
    )
    
    
    (625,324
    )Net deferred tax asset
    
    $
    680,262
    
    
    $
    365,745
 NOTE 9
 RELATED PARTY TRANSACTIONS
  Beginning balance
    
    $
    4,891,467New loans
    
    
    1,033,974Effect of change in related parties
    
    
    (2,327,773
    )Repayments
    
    
    (990,158
    )Ending balance
    
    $
    2,607,510
  NOTE 10  FEDERAL HOME LOAN BANK ADVANCES
  2005
    
    
    2004Maturities March 2010 through March 2011, primarily fixed
rates from 4.28% to 6.26%, averaging 4.82%
    
    $
    13,300,000
    
    
    $
    12,000,000Short term variable rate advances, rate at
December 31, 2005 was 4.33%
    
    
    1,000,000
    
    
    
    7,010,000$
    14,300,000
    
    
    $
    19,010,000
  44




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 10  FEDERAL HOME LOAN BANK ADVANCES
   NOTE
11  SUBORDINATED DEBENTURES AND OTHER DEBT
       NOTE 12  SHAREHOLDERS EQUITY
   45




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 13  REGULATORY CAPITAL REQUIREMENTS
    To Be Well($ amounts in thousands)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio2005Total Capital to risk weighted assets
Bank
    
    $
    22,442
    
    
    
    11.40
    %
    
    $
    15,746
    
    
    
    8.00
    %
    
    $
    19,683
    
    
    
    10.00
    %Consolidated
    
    
    23,070
    
    
    
    11.69
    %
    
    
    15,791
    
    
    
    8.00
    %
    
    
    19,739
    
    
    
    10.00
    %Tier 1 (Core) Capital to risk weighted assets
Bank
    
    $
    20,525
    
    
    
    10.43
    %
    
    $
    7,873
    
    
    
    4.00
    %
    
    $
    11,810
    
    
    
    6.00
    %Consolidated
    
    
    18,871
    
    
    
    9.56
    %
    
    
    7,896
    
    
    
    4.00
    %
    
    
    11,843
    
    
    
    6.00
    %Tier 1 (Core) Capital to average assets
Bank
    
    $
    20,525
    
    
    
    9.43
    %
    
    $
    8,707
    
    
    
    4.00
    %
    
    $
    10,883
    
    
    
    5.00
    %Consolidated
    
    
    18,871
    
    
    
    8.61
    %
    
    
    8,770
    
    
    
    4.00
    %
    
    
    10,962
    
    
    
    5.00
    %2004Total Capital to risk weighted assets
Bank
    
    $
    20,879
    
    
    
    11.49
    %
    
    $
    14,533
    
    
    
    8.00
    %
    
    $
    18,167
    
    
    
    10.00
    %Consolidated
    
    
    21,270
    
    
    
    11.68
    %
    
    
    14,570
    
    
    
    8.00
    %
    
    
    18,212
    
    
    
    10.00
    %Tier 1 (Core) Capital to risk weighted assets
Bank
    
    $
    19,000
    
    
    
    10.46
    %
    
    $
    7,267
    
    
    
    4.00
    %
    
    $
    10,900
    
    
    
    6.00
    %Consolidated
    
    
    16,521
    
    
    
    9.07
    %
    
    
    7,285
    
    
    
    4.00
    %
    
    
    10,927
    
    
    
    6.00
    %Tier 1 (Core) Capital to average assets
Bank
    
    $
    19,000
    
    
    
    9.41
    %
    
    $
    8,080
    
    
    
    4.00
    %
    
    $
    10,099
    
    
    
    5.00
    %Consolidated
    
    
    16,521
    
    
    
    8.15
    %
    
    
    8,104
    
    
    
    4.00
    %
    
    
    10,130
    
    
    
    5.00
    %
   46




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 14  STOCK COMPENSATION PLANS
     Total Option
    
    
    Average
    
    
    ExercisableShares
    
    
    Exercise
    
    
    OptionsOutstanding
    
    
    Price
    
    
    OutstandingOptions outstanding at December 31, 2003
    
    
    45,050
    
    
    $
    8.75
    
    
    
    45,050Options granted
    
    
    32,000
    
    
    
    16.00
    
    
    
    Options which became exercisable
    
    
    
    
    
    
    
    
    
    
    Options exercised
    
    
    (20,815
    )
    
    
    5.49
    
    
    
    (20,815
    )Options outstanding at December 31, 2004
    
    
    56,235
    
    
    
    13.71
    
    
    
    24,235Options granted
    
    
    141,250
    
    
    
    18.04
    
    
    
    Options which became exercisable
    
    
    
    
    
    
    
    
    
    
    32,000Options expired or rescinded
    
    
    (9,500
    )
    
    
    16.00
    
    
    
    (9,500
    )Options exercised
    
    
    (3,627
    )
    
    
    6.94
    
    
    
    (3,627
    )Options outstanding at December 31, 2005
    
    
    184,358
    
    
    
    17.04
    
    
    
    43,108
   47




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 14  STOCK COMPENSATION PLANS
  Exercise
    
    Number
    
    
    Average
    
    
    NumberPrice
    
    Outstanding
    
    
    Remaining Life
    
    
    Exercisable7.33
    
    
    3,000
    
    
    2 years
    
    
    3,0009.33
    
    
    4,500
    
    
    3 years
    
    
    4,50012.67
    
    
    7,108
    
    
    4 years
    
    
    7,10813.33
    
    
    6,000
    
    
    5 years
    
    
    6,00016.00
    
    
    22,500
    
    
    8 years
    
    
    22,50020.00
    
    
    2,500
    
    
    10 years
    
    
    18.00
    
    
    138,750
    
    
    10 years
    
    
    
 NOTE 15  EMPLOYEE BENEFITS
    NOTE 16  OFF-BALANCE SHEET ACTIVITIES
   48




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 16  OFF-BALANCE SHEET ACTIVITIES
  2005
    
    
    2004Fixed
    
    
    Variable
    
    
    Fixed
    
    
    VariableRate
    
    
    Rate
    
    
    Rate
    
    
    RateCommitments to make loans
    
    $
    4,726,000
    
    
    $
    17,876,000
    
    
    $
    3,830,000
    
    
    $
    23,439,000Unused letters of credit
    
    
    
    
    
    
    2,479,580
    
    
    
    
    
    
    
    2,751,955
  NOTE 17  FAIR VALUES OF FINANCIAL INSTRUMENTS
  2005
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    5,601,722
    
    
    $
    5,602,000
    
    
    $
    5,163,142
    
    
    $
    5,163,000Securities
    
    
    16,453,644
    
    
    
    16,454,000
    
    
    
    15,690,735
    
    
    
    15,691,000Loans receivable, net
    
    
    181,300,317
    
    
    
    178,403,000
    
    
    
    166,071,100
    
    
    
    167,152,000Accrued interest receivable
    
    
    1,123,112
    
    
    
    1,123,000
    
    
    
    1,066,616
    
    
    
    1,067,000Financial liabilitiesDeposits
    
    $
    178,505,151
    
    
    $
    178,849,000
    
    
    $
    160,307,771
    
    
    $
    160,237,000Securities sold under repurchase agreements
    
    
    2,288,444
    
    
    
    2,288,000
    
    
    
    1,433,909
    
    
    
    1,434,000Federal Home Loan Bank advances
    
    
    14,300,000
    
    
    
    14,492,000
    
    
    
    19,010,000
    
    
    
    19,655,000Subordinated debentures
    
    
    7,217,000
    
    
    
    7,217,000
    
    
    
    7,217,000
    
    
    
    7,217,000Accrued interest payable
    
    
    1,036,105
    
    
    
    1,036,000
    
    
    
    598,897
    
    
    
    599,000
    49




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 18  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
  Condensed Balance Sheets,December 312005
    
    
    2004ASSETSCash and cash equivalents
    
    $
    120,396
    
    
    $
    39,375Investment in banking subsidiary
    
    
    20,269,145
    
    
    
    18,927,059Investment in and advances to other subsidiaries
    
    
    217,000
    
    
    
    217,000Other assets
    
    
    694,789
    
    
    
    499,432Total assets
    
    $
    21,301,330
    
    
    $
    19,682,866LIABILITIES AND EQUITYSubordinated debentures
    
    $
    7,217,000
    
    
    $
    7,217,000Long-term debt
    
    
    
    
    
    
    Accrued expenses and other liabilities
    
    
    187,060
    
    
    
    148,128Shareholders equity
    
    
    13,897,270
    
    
    
    12,317,738Total liabilities and shareholders equity
    
    $
    21,301,330
    
    
    $
    19,682,866
 Condensed Statements of IncomeYears ended December 312005
    
    
    2004Dividends from subsidiary
    
    $
    1,135,995
    
    
    $
    669,621Other income
    
    
    13,768
    
    
    
    7,320Interest expense
    
    
    463,586
    
    
    
    265,466Other expense
    
    
    207,397
    
    
    
    121,212Income before income tax and
undistributed subsidiary income
    
    
    478,780
    
    
    
    290,263Income tax expense (benefit)
    
    
    (251,712
    )
    
    
    (146,937
    )Equity in undistributed subsidiary income
    
    
    1,525,101
    
    
    
    1,569,512Net income
    
    $
    2,255,593
    
    
    $
    2,006,712
  50




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 18  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
 Condensed Statements of Cash Flows
Years ended December 31
 2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    2,255,593
    
    
    $
    2,006,712Adjustments:Equity in undistributed subsidiary income
    
    
    (1,525,101
    )
    
    
    (1,569,512
    )Increase to common stock for portion of income
tax reduction related to stock options exercised
    
    
    17,929
    
    
    
    91,074Change in other assets
    
    
    (195,357
    )
    
    
    (126,435
    )Change in other liabilities
    
    
    38,932
    
    
    
    15,762Net cash from operating activities
    
    
    591,996
    
    
    
    417,601Cash flows from investing activitiesInvestments in and advances to bank subsidiary
    
    
    
    
    
    
    (2,674,917
    )Investments in and advances to other subsidiary
    
    
    
    
    
    
    (93,000
    )Net cash from investing activities
    
    
    
    
    
    
    (2,767,917
    )Cash flows from financing activitiesRepayments of borrowings
    
    
    
    
    
    
    (350,000
    )Proceeds from issuance of subordinated debentures
    
    
    
    
    
    
    3,093,000Proceeds from stock issuance
    
    
    25,159
    
    
    
    114,288Dividends paid
    
    
    (536,134
    )
    
    
    (534,621
    )Net cash from financing activities
    
    
    (510,975
    )
    
    
    2,322,667Net change in cash and cash equivalents
    
    
    81,021
    
    
    
    (27,649
    )Beginning cash and cash equivalents
    
    
    39,375
    
    
    
    67,024Ending cash and cash equivalents
    
    $
    120,396
    
    
    $
    39,375




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##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 NOTE 19  EARNINGS PER SHARE
  2005
    
    
    2004BasicNet income
    
    $
    2,255,593
    
    
    $
    2,006,712Weighted average common share outstanding
    
    
    1,914,158
    
    
    
    1,905,616Basic earnings per common share
    
    $
    1.18
    
    
    $
    1.05DilutedNet income
    
    $
    2,255,593
    
    
    $
    2,006,712Weighted average common shares outstanding
for basic earnings per common share
    
    
    1,914,158
    
    
    
    1,905,616Add: Dilutive effects of assumed exercises
of stock options
    
    
    9,564
    
    
    
    12,496Average share and dilutive potential common share
    
    
    1,923,722
    
    
    
    1,918,112Diluted earnings per common share
    
    $
    1.17
    
    
    $
    1.05




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##### Table of Contents



ITEM 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
        53




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##### Table of Contents



ITEM 8A. Controls and Procedures
  
 ITEM 8B. Other Information.
  
    
    Mark Gamble was elected chairman and chief executive officer of First Community
Bank (and continues as president of First Community Corporation);
    
    Jerry Greene was elected president and chief operating officer First Community
Bank and vice president of First Community Corporation;
    
    Tyler Clinch was elected treasurer of First Community Corporation; and
    
    Mary Boehms was elected assistant secretary to the board of directors of both
First Community Corporation and to First Community Bank.
 
 PART III
 
 ITEM 9. Directors and Executive Officers of the Registrant
   
 ITEM 10. Executive Compensation
  
 ITEM 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
   54




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##### Table of Contents



ITEM 12. Certain Relationships and Related Transactions
  
 ITEM 13. Exhibits and Reports on Form 8-K
 (a)
    
    List of Exhibits Filed
 Exhibit Number
    

Description3.1
    
    
    Charter of Registrant, filed as Exhibit 3(a) as part of the
Registration Statement No. 33-75848 on Form S-4, filed March 1, 1994, and
incorporated herein by reference.3.2
    
    
    Bylaws of Registrant, filed as Exhibit 3(b) as part of the
Registration Statement No. 33-75848 on Form S-4, filed March 1, 1994, and as
revised, filed as Exhibit 3.1 on Form 10-QSB, filed May 16,2005, and
incorporated herein by reference.4.1
    
    
    Rights Agreement, dated April 26, 2000,between First Community
Corporation and First Union National Bank, including Form of Rights
Certificate, Form of Summary of Rights, and Articles of Amendment to the
Charter of First Community Corporation, filed as Exhibit 1 to the Current
Report on Form 8-K, filed May 23, 2000, and incorporated herein by reference.10.1
    
    
    First Community Corporation 1994 Stock Option Plan, filed as
Appendix C to Registration Statement No. 33-75848 on Form S-4, filed March 1,
1994, and incorporated herein by reference. (represents a management contract
or compensatory plan or arrangement required to be filed as an exhibit)10.2
    
    
    First Community Corporation Outside Directors Stock Option
Plan, filed as Appendix D to Registration Statement No. 33-75848 on Form S-4,
filed March 1, 1994, and incorporated herein by reference. (represents a
management contract or compensatory plan or arrangement required to be filed as
an exhibit)10.3
    
    
    Lease Agreement effective November 1, 2002, between A. Max
Richardson (a director of the registrant) as lessee and First Community Bank of
East Tennessee as lessor, filed as exhibit 10.3 to the Annual Report on Form
10-K, filed March 31, 2003, and incorporated herein by this reference.10.4
    *
    
    Form of Option Agreement under First Community Corporation
1994 Stock Option Plan (represents a management contract or compensatory plan
or arrangement required to be filed as an exhibit)11
    *
    
    Statement Regarding Computation of Earnings Per Share (included
in Item 7, Financial Statements and incorporated herein by reference).14
    
    
    Conflict of Interest/Code of Ethics Policy, filed as Appendix B
to the Notice of Annual Meeting of Shareholders and Proxy Statement on Schedule
14(a) filed April 21, 2004, and incorporated herein by this reference16.1
    
    
    Letter dated May 13, 2005, from Crowe Chizek and Company LLC to
Securities and Exchange Commission, filed as Exhibit 16.1 on Form 8-K, filed
May 16, 2005, and incorporated herein by reference.16.2
    
    
    Letter dated March 8, 2004, from Pugh & Company, P.C. to the
Board of Directors of First Community Bank of East Tennessee, filed as Exhibit
16.2 on Form 8-K, filed May 16, 2005, and incorporated herein by reference.21
    *
    
    List of Subsidiaries of the Registrant
 55




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##### Table of Contents



Exhibit Number
    

Description23.1*
    
    
    Consent of Pugh and Company, P.C.23.2*
    
    
    Consent of Crowe Chizek and Company, LLC31.1*
    
    
    Certification of Principal Executive Officer pursuant to Rule 13a-14(a)31.2*
    
    
    Certification of Principal Financial Officer pursuant to Rule 13a-14(a)32.1*
    
    
    Certification of the Principal Executive Officer Under Section
906 of the Sarbanes Oxley Act of 200232.2*
    
    
    Certification of the Principal Financial Officer Under Section
906 of the Sarbanes Oxley Act of 2002
 
 *
    
    filed herewith 
 ITEM 14. Principal Accountant Fees and Services
  56




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SIGNATURES
  FIRST COMMUNITY CORPORATION(Registrant)By:
    
    /s/ Mark A. GambleMark A. Gamble, PresidentDate:
    
    March 27, 2006
  By:
    
    /s/ William J. KrickbaumWilliam J. Krickbaum, Chairman of the BoardDate:
    
    March 27, 2006By:
    
    /s/ Mark A. GambleMark A. Gamble, President and DirectorDate:
    
    March 27, 2006By:
    
    /s/ Leland A. DavisLeland A. Davis, DirectorDate:
    
    March 27, 2006By:
    
    /s/ Jerry C. GreeneJerry C. Greene, DirectorDate:
    
    March 27, 2006By:
    
    /s/ Kenneth E. JenkinsKenneth E. Jenkins, DirectorDate:
    
    March 27, 2006By:
    
    /s/ David R. JohnsonDr. David R. Johnson, DirectorDate:
    
    March 27, 2006
 57




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##### Table of Contents



By:
    
    /s/ Sidney K. LawsonSidney K. Lawson, DirectorDate:
    
    March 27, 2006By:
    
    /s/ A. Max RichardsonA. Max Richardson, DirectorDate:
    
    March 27, 2006By:
    
    /s/ Tommy W. YoungTommy W. Young, DirectorDate:
    
    March 27, 2006
 58