##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 FORM 10-KSB/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year ended December 31, 2004 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
(Issuers telephone number, including area code) Securities registered under Section 12(g) of the Exchange Act:Common Stock, no par value
Common Stock Purchase Rights
(Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES þ     NO o Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB þ The issuers revenues for the fiscal year ending December 31, 2004: $12,585,000. The aggregate market value of the issuers voting and non-voting common stock held by
non-affiliates, computed by reference to the price at which the stock was sold as of March 4, 2005,
is $27,435,620 for 1,371,781 shares, at an estimated $20 per share. Shares of the issuers common stock outstanding as of March 30, 2005: 1,913,452 Transitional
Small Business Disclosure Format (check one): YES
o     NO
þ




---



##### Table of Contents



DOCUMENTS INCORPORATED BY REFERENCE None PURPOSE OF THIS AMENDMENT The registrant is filing this Amendment to Form 10-KSB (originally filed on March 31, 2005) in
response to a comment received from the staff of the Securities and Exchange Commission requesting
the registrant to file a revised report from the registrants independent registered public
accounting firm. The Securities and Exchange Commission staff requested that the revised report
filed herein refer to the standards of the Public Company Accounting Oversight Board (United
States) as is required by PCAOB Auditing Standard No. 1, rather than the auditing standards of
the Public Company Accounting Oversight Board (United States), which was the reference made in the
report originally filed. Except for the amendment to Item 7 to file the revised report, this
Amendment to Form 10-KSB does not otherwise change or update the consolidated financial statement
disclosures or any other disclosures set forth in the registrants Form 10-KSB as originally filed
and does not otherwise reflect events occurring after the filing of the registrants Form 10-KSB on
March 31, 2005.




---



FIRST COMMUNITY CORPORATION
FORM 10-KSB/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 INDEX ITEM 7. Financial Statements
    
    
    2ITEM 13. Exhibits
    
    
    3SIGNATURES
    
    
    4EXHIBITS
    
    
    6Ex-23.1  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



ITEM 7. Financial Statements The following financial statements and reports of independent auditors are included herein: Report of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets, December 31, 2004 and 2003
    
    
    F-2Consolidated Statements of Operations,
Years Ended December 31, 2004 and 2003
    
    
    F-3Consolidated Statements of Changes in Shareholders Equity,
Years Ended December 31, 2004 and 2003
    
    
    F-4Consolidated Statements of Cash Flows,
Years Ended December 31, 2004 and 2003
    
    
    F-5Notes to Consolidated Financial Statements, December 31, 2004 and 2003
    
    
    F-6




---



##### Table of Contents



FIRST COMMUNITY CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
Rogersville, Tennessee CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003 CONTENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    F-1CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS
    
    
    F-2CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    F-3CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
    
    
    F-4CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    F-5NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    F-6




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors
First Community Corporation
Rogersville, Tennessee We have audited the consolidated balance sheets of First Community Corporation as of December 31,
2004 and 2003, and the related consolidated statements of operations, changes in shareholders
equity, and cash flows for each of the two years in the period ended December 31, 2004. These
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these 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 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 First Community Corporation as of December 31, 2004
and 2003, and the results of its operations and its cash flows for each of the two years in the
period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Crowe Chizek and Company LLC
 Brentwood, Tennessee
February 25, 2005 F-1.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION 
 CONSOLIDATED BALANCE SHEETS
 December 31, 2004 and 2003
 2004
    
    
    2003ASSETSCash and due from banks
    
    $
    5,163,142
    
    
    $
    2,763,862Federal funds sold
    
    
    
    
    
    
    6,572,235Cash and cash equivalents
    
    
    5,163,142
    
    
    
    9,336,097Securities available for sale
    
    
    15,690,735
    
    
    
    14,515,480Loans, net (of allowance of $1,878,663 and $1,735,980)
    
    
    166,071,100
    
    
    
    151,576,009Premises and equipment
    
    
    7,161,826
    
    
    
    5,843,051Accrued interest receivable
    
    
    1,066,616
    
    
    
    1,154,997Restricted equity securities
    
    
    1,641,315
    
    
    
    1,578,615Company owned life insurance
    
    
    3,635,771
    
    
    
    3,473,943Computer software, net of amortization
    
    
    451,246
    
    
    
    449,170Other assets
    
    
    1,239,422
    
    
    
    826,978$
    202,121,173
    
    
    $
    188,754,340LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing
    
    $
    16,337,136
    
    
    $
    16,363,536Interest-bearing
    
    
    143,970,635
    
    
    
    141,861,832Total deposits
    
    
    160,307,771
    
    
    
    158,225,368Securities sold under agreement to repurchase
    
    
    1,433,909
    
    
    
    1,920,416Federal Home Loan Bank advances
    
    
    19,010,000
    
    
    
    12,000,000Subordinated debentures
    
    
    7,000,000
    
    
    
    4,000,000Note payable
    
    
    
    
    
    
    350,000Accrued interest payable
    
    
    598,897
    
    
    
    567,664Dividends payable
    
    
    133,823
    
    
    
    132,366Other liabilities
    
    
    1,319,035
    
    
    
    914,721Total liabilities
    
    
    189,803,435
    
    
    
    178,110,535Shareholders equityPreferred stock, no par value. Authorized 1,000,000
shares; none issued
    
    
    
    
    
    
    Common stock, no par value. Authorized 10,000,000
shares; issued 1,911,760 shares in 2004 and 1,890,945
shares in 2003
    
    
    7,388,328
    
    
    
    7,182,967Retained earnings
    
    
    5,002,184
    
    
    
    3,530,093Accumulated other comprehensive loss
    
    
    (72,774
    )
    
    
    (69,255
    )Total shareholders equity
    
    
    12,317,738
    
    
    
    10,643,805$
    202,121,173
    
    
    $
    188,754,340
 See accompanying notes to consolidated financial statements. F-2.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Years ended December 31, 2004 and 2003
 2004
    
    
    2003Interest incomeLoans, including fees
    
    $
    10,294,789
    
    
    $
    9,817,400SecuritiesTaxable
    
    
    519,900
    
    
    
    376,477Non-taxable
    
    
    72,618
    
    
    
    59,349Federal funds sold and other
    
    
    86,898
    
    
    
    122,504Total interest income
    
    
    10,974,205
    
    
    
    10,375,730Interest expenseDeposits
    
    
    2,871,253
    
    
    
    2,912,126Federal Home Loan Bank advances
    
    
    643,798
    
    
    
    591,708Subordinated debentures
    
    
    250,418
    
    
    
    201,595Other
    
    
    36,305
    
    
    
    43,321Total interest expense
    
    
    3,801,774
    
    
    
    3,748,750Net interest income
    
    
    7,172,431
    
    
    
    6,626,980Provision for loan losses
    
    
    256,625
    
    
    
    487,747Net interest income after provision for loan losses
    
    
    6,915,806
    
    
    
    6,139,233Noninterest incomeService charges on deposit accounts
    
    
    1,096,017
    
    
    
    1,134,055Mortgage banking activities
    
    
    56,452
    
    
    
    114,660Net gain (loss) on sale of securites
    
    
    (6,626
    )
    
    
    105,858Other
    
    
    457,802
    
    
    
    475,201Total noninterest income
    
    
    1,603,645
    
    
    
    1,829,774Noninterest expenseSalaries and employee benefits
    
    
    2,711,384
    
    
    
    2,572,392Occupancy
    
    
    552,575
    
    
    
    505,920Furniture and equipment
    
    
    392,074
    
    
    
    413,633Advertising and public relations
    
    
    102,466
    
    
    
    66,701Professional services
    
    
    207,407
    
    
    
    178,254Operating supplies
    
    
    120,996
    
    
    
    126,444Computer software depreciation
    
    
    148,656
    
    
    
    109,635Software maintenance
    
    
    121,385
    
    
    
    97,749Telephone and data communications
    
    
    110,436
    
    
    
    105,528Director and committee fees
    
    
    119,700
    
    
    
    120,600Other
    
    
    813,137
    
    
    
    662,220Total noninterest expense
    
    
    5,400,216
    
    
    
    4,959,076Income before income taxes
    
    
    3,119,235
    
    
    
    3,009,931Income tax expense
    
    
    1,112,523
    
    
    
    1,068,974Net income
    
    $
    2,006,712
    
    
    $
    1,940,957Earnings per common shareBasic
    
    $
    1.05
    
    
    $
    1.03Diluted
    
    
    1.05
    
    
    
    1.03Average common shares outstandingBasic
    
    
    1,905,616
    
    
    
    1,881,269Diluted
    
    
    1,918,112
    
    
    
    1,888,869
 See accompanying notes to consolidated financial statements. F-3.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 Years ended December 31, 2004 and 2003
 AccumulatedOther
    
    
    TotalCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Stock
    
    
    Earnings
    
    
    Loss
    
    
    EquityBalance, January 1, 2003
    
    
    1,871,755
    
    
    $
    6,984,371
    
    
    $
    2,116,734
    
    
    $
    136,093
    
    
    $
    9,237,198Issuance of 19,190 common stock in
connection with stock option plans
and stock grants
    
    
    19,190
    
    
    
    198,596
    
    
    
    
    
    
    
    
    
    
    
    198,596Dividends  $.28 per share
    
    
    
    
    
    
    
    
    
    
    (527,598
    )
    
    
    
    
    
    
    (527,598
    )Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    1,940,957
    
    
    
    
    
    
    
    1,940,957Other comprehensive incomeChange in unrealized losses on
Securities available for sale,
net of reclassification
and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (139,716
    )
    
    
    (139,716
    )Reclassification adjustment for
gains included in net income,
net of taxes of $40,226
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65,632
    )
    
    
    (65,632
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,735,609Balance, December 31, 2003
    
    
    1,890,945
    
    
    
    7,182,967
    
    
    
    3,530,093
    
    
    
    (69,255
    )
    
    
    10,643,805Issuance of 20,815 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
    )
    
    $
    12,317,738
 See accompanying notes to consolidated financial statements. F-4.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years ended December 31, 2004 and 2003
 2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    2,006,712
    
    
    $
    1,940,957Adjustments to reconcile net income to net
cash provided by operating activitiesDepreciation and amortization
    
    
    646,679
    
    
    
    611,109Net amortization (accretion) of securities
    
    
    183,935
    
    
    
    159,850Provision for loan losses
    
    
    256,625
    
    
    
    487,747FHLB stock dividends
    
    
    (62,700
    )
    
    
    (58,400
    )Net realized loss(gain) on sales of securities
    
    
    6,626
    
    
    
    (105,858
    )Loss on sale of real estate owned, net
    
    
    3,869
    
    
    
    490Deferred income taxes (benefits)
    
    
    (99,289
    )
    
    
    (211,000
    )Tax benefit of stock option exercise
    
    
    91,074
    
    
    
    125,375Change in accrued interest receivable and other assets
    
    
    (442,529
    )
    
    
    83,162Change in accrued interest payable and other liabilities
    
    
    433,485
    
    
    
    (181,102
    )Net cash from operating activities
    
    
    3,024,487
    
    
    
    2,852,330Cash flows from investing activities:Purchases of securities available for sale
    
    
    (13,994,706
    )
    
    
    (16,526,759
    )Proceeds from maturities and redemptions of
securities available for sale
    
    
    6,549,586
    
    
    
    7,671,522Proceeds from sales of securities available for sale
    
    
    6,085,930
    
    
    
    2,944,659Net increase in loans
    
    
    (14,751,716
    )
    
    
    (29,026,362
    )Proceeds from the sale of other real estate
    
    
    45,431
    
    
    
    144,374Purchases of fixed assets and computer software
    
    
    (1,967,530
    )
    
    
    (386,320
    )Net cash from investing activities
    
    
    (18,033,005
    )
    
    
    (35,178,886
    )Cash flows from financing activities:Cash dividends
    
    
    (534,621
    )
    
    
    (526,255
    )Repayments of note payable
    
    
    (350,000
    )
    
    
    (453,000
    )Proceeds from FHLB advances
    
    
    34,513,000
    
    
    
    13,170,000Repayments from FHLB advances
    
    
    (27,503,000
    )
    
    
    (13,170,000
    )Proceeds from subordinated debentures
    
    
    3,000,000
    
    
    
    Increase in deposits
    
    
    2,082,403
    
    
    
    22,052,039Decrease in securities sold under
agreement to repurchase
    
    
    (486,507
    )
    
    
    (452,397
    )Proceeds from issuance of common stock
    
    
    114,288
    
    
    
    73,221Net cash from financing activities
    
    
    10,835,563
    
    
    
    20,693,608Net change in cash and cash equivalents
    
    
    (4,172,955
    )
    
    
    (11,632,948
    )Cash and cash equivalents at beginning of period
    
    
    9,336,097
    
    
    
    20,969,045Cash and cash equivalents at end of period
    
    $
    5,163,142
    
    
    $
    9,336,097Supplemental disclosures of cash flow information:Cash paid during year for:Interest
    
    $
    3,770,541
    
    
    $
    3,507,498Income taxes
    
    
    1,373,425
    
    
    
    1,114,845Supplemental noncash disclosures:Transfers from loans to repossessed assets
    
    
    247,519
    
    
    
    128,918
 See accompanying notes to consolidated financial statements. F-5.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2004 and 2003
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General: First Community Corporation (the Company), through its subsidiary, First
Community Bank (the Bank), provides a variety of banking services to individuals and businesses
from its banking offices in Rogersville, Church Hill, and Kingsport, Tennessee. Its primary
deposit products are demand and savings deposits and certificates of deposit, and its primary
lending products are commercial, residential real estate and consumer loans. The accounting
principles followed and the methods of applying those principles conform with generally accepted
accounting principles and to general practices in the banking industry. The significant policies
are summarized as follows: Basis of Presentation: The accompanying consolidated financial statements include the
accounts of First Community Corporation, a one-bank holding company and its wholly-owned subsidiary
First Community Bank of East Tennessee, together referred to as the Company. All material
intercompany balances and transactions have been eliminated in consolidation. The Bank operates as
a single segment. Use of Estimates: To prepare financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates and assumptions
based on available information. These estimates and assumptions affect the amounts reported in the
financial statements and the disclosures provided, and future results could differ. The allowance
for loan losses, fair values of financial instruments, and deferred compensation in retirement plan
liabilities are particularly subject to change. Cash Flows: Cash and cash equivalents includes cash, deposits with other financial
institutions under 90 days, and federal funds sold. Net cash flows are reported for loan, deposit
and securities sold under agreements to repurchase transactions. Cash and Due From Banks: Included in cash and due from banks are legal reserve
requirements which must be maintained on an average basis in the form of cash and balances due from
the Federal Reserve and other banks. Cash on hand or on deposit with correspondent banks of
$767,000 and $637,000 was required to meet regulatory reserve and clearing requirements at year end
2004 and 2003. These balances do not earn interest. Securities: Securities are classified as held to maturity and carried at amortized cost
when management has the positive intent and ability to hold them to maturity. Securities are
classified as available for sale when they might be sold before maturity. Securities available for
sale are carried at fair value, with unrealized holding gains and losses reported in other
comprehensive income. Other securities such as Federal Home Loan Bank and Bankers Bank stock are
carried at cost. Interest income includes amortization of purchase premium or discount. Gains and losses on sales
are based on the amortized cost of the security sold. Securities are written down to fair value
when a decline in fair value is not temporary. Declines in the fair value of securities below their cost that are other than temporary are
reflected as realized losses. In estimating other-than-temporary losses, management considers: (1)
the length of time and extent that fair value has been less that cost, (2) the financial condition
and near term prospects of the issuer, and (3) the Companys ability and intent to hold the
security for a period sufficient to allow for any anticipated recovery in the fair value. (Continued) F-6.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) Loans: Loans that management has the intent and ability to hold for the foreseeable future
or until maturity or payoff are reported at the principal balance outstanding, net of an allowance
for loan losses. Interest income is reported on the interest method and includes amortization of net deferred loan
fees and costs over the loan term. Interest income on mortgage and commercial loans is
discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in
process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier
date if collection of principal or interest is considered doubtful. All interest accrued but not received for loans placed on nonaccrual is reversed against interest
income. Interest received on such loans is accounted for on the cash-basis or cost-recovery
method, until qualifying for return to accrual. Loans are returned to accrual status when all the
principal and interest amounts contractually due are brought current and future payments are
reasonably assured. Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for
probable incurred credit losses, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required using past loan
loss experience, the nature and volume of the portfolio, information about specific borrower
situations and estimated collateral values, economic conditions, and other factors. Allocations of
the allowance may be made for specific loans, but the entire allowance is available for any loan
that, in managements judgment, should be charged-off. Loan losses are charged against the
allowance when management believes the uncollectibility of a loan balance is confirmed. A loan is impaired when full payment under the loan terms is not expected. Commercial and
commercial real estate loans that meet certain size and performance characteristics are
individually evaluated for impairment. If a loan is impaired, a portion of the allowance is
allocated so that the loan is reported, net, at the present value of estimated future cash flows
using the loans existing rate or at the fair value of collateral if repayment is expected solely
from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and
residential real estate loans, are collectively evaluated for impairment, and accordingly, they are
not separately identified for impairment disclosures. Premises and Equipment: Premises and equipment are stated at cost, less accumulated
depreciation and amortization. The provision for depreciation is computed principally on the
straight-line method over the estimated useful lives of the assets, which range as follows:
building-40 years, equipment-5 to 7 years. Computer Software is amortized using the straight-line
method over the useful life of the asset and ranges from 3 to 5 years. Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially
recorded at fair value when acquired, establishing a new cost basis. If fair value declines in
subsequent to foreclosure, a valuation allowance is recorded through expense. Costs after
acquisition are expensed. Company Owned Life Insurance: The Company has purchased life insurance policies on certain
key executives. Company owned life insurance is recorded at its cash surrender value, or the
amount that can be realized. Long-term Assets: Premises and equipment and other long-term assets are reviewed for
impairment when events indicate their carrying amount may not be recoverable from future
undiscounted cash flows. If impaired, the assets are recorded at fair value. (Continued) F-7.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) Securities Sold Under Agreement To Repurchase: Substantially all repurchase agreement
liabilities represent amounts advanced by various customers. Securities are pledged to cover these
liabilities, which are not covered by federal deposit insurance. Stock-Based Compensation: Employee compensation expense under stock options is reported
using the intrinsic value method. No stock-based compensation cost is reflected in net income, as
all options granted had an exercise price equal to or greater than the market price of the
underlying common stock at date of grant. The following table illustrates the effect on net income
and earnings per share if expense was measured using the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation. 2004
    
    
    2003Net income as reported
    
    $
    2,006,712
    
    
    $
    1,940,957Deduct: Stock-based compensation expense determined
under fair value based method, net of tax
    
    
    49,055
    
    
    
    5,958Pro forma net income
    
    
    1,957,657
    
    
    
    1,934,999Basic earnings per share as reported
    
    
    1.05
    
    
    
    1.03Pro forma basic earnings per share
    
    
    1.03
    
    
    
    1.02Diluted earnings per share as reported
    
    
    1.05
    
    
    
    1.03Pro forma diluted earnings per share
    
    
    1.02
    
    
    
    1.02
 There were 32,000 options granted to senior management in 2004. No options were granted in 2003. The fair value of option granted and pro forma effects are computed using option pricing models,
using the following weighted-average assumptions as of grant date. 2004Riskfree interest rate
    
    
    3.52
    %Expected option life
    
    7 yearsDividend yield
    
    
    1.87
    %Weighted average fair value of options
granted during year
    
    $
    2.71
 Earnings Per Common Share: Basic earnings per common share is net income divided by the
weighted average number of common shares outstanding during the period. Diluted earnings per
common share includes the dilutive effect of additional potential common shares issuable under
stock options. Earnings and dividends per share are restated for all stock splits and dividends
through the date of issue of the financial statements. Income Taxes: Income tax expense is the total of the current year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax amounts for the temporary differences between carrying
amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation
allowance, if needed, reduces deferred tax assets to the amount expected to be realized. (Continued) F-8.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) Employee Benefits: The Bank maintains a 401(k) profit-sharing plan that covers
substantially all employees. The Bank matches a portion of the employees contribution and records
the expense in the period the employee contribution is withheld. The company has a non-qualified
deferred compensation arrangement with certain current and former officers. A present value based
charge is made each year based on future benefits to be paid under the arrangement. Comprehensive Income: Comprehensive income consists of net income and other comprehensive
income. Other comprehensive income includes unrealized gains and losses on securities available
for sale which are also recognized as separate components of equity. Fair Value of Financial Instruments: Fair values of financial instruments are estimated
using relevant market information and other assumptions, as more fully disclosed in a separate
note. Fair value estimates involve uncertainties and matters of significant judgment regarding
interest rates, credit risk, prepayments, and other factors, especially in the absence of broad
markets for particular items. Changes in assumptions or in market conditions could significantly
affect the estimates. Off-Balance Sheet Financial Instruments: Financial instruments include off-balance sheet
credit instruments, such as commitments to make loans and standby letters of credit, issued to meet
customer financing needs. The face amount for these items represents the exposure to loss, before
considering customer collateral or ability to repay. Such financial instruments are recorded when
they are funded. Newly Issued But Not Yet Effective Accounting Standards: At December 31, 2004, the
recently issued but not adopted standards are FASB Statement 123, Revised(FAS 123R), Share-based
Paymentand Statement of Position 03-3 (SOP 03-3), Accounting for Certain Loans or Debt Securities
Acquired in a Transfer. The effect of FAS123R will depend on the number and fair value of stock
options granted in the future. The effect of SOP 03-3 on the
Companys financial position and results of operations is not expected to be material upon and
after adoption. Reclassifications: Some items in the prior year financial statements were reclassified to
conform to the current presentation. NOTE 2  SECURITIES The fair values of securities available for sale and the related gross unrealized gains and losses
recognized in accumulated other comprehensive income were as follows: Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Loss2004U.S. Government agency securities
    
    $
    4,801,638
    
    
    $
    2,328
    
    
    $
    (20,076
    )Mortgage-backed securities
    
    
    9,104,182
    
    
    
    18,501
    
    
    
    (103,684
    )Tax exempt securities
    
    
    1,784,915
    
    
    
    13,572
    
    
    
    (28,571
    )Total
    
    $
    15,690,735
    
    
    $
    34,402
    
    
    $
    (152,331
    )
 (Continued) F-9.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003 NOTE 2  SECURITIES(Continued) 2003U.S. Government agency securities
    
    $
    999,500
    
    
    $
    
    
    
    $
    (313
    )Mortgage-backed securities
    
    
    11,371,186
    
    
    
    11,338
    
    
    
    (133,803
    )Tax exempt securities
    
    
    2,144,794
    
    
    
    27,380
    
    
    
    (16,828
    )Total
    
    $
    14,515,480
    
    
    $
    38,718
    
    
    $
    (150,944
    )
 The fair value of securities at December 31, 2004, by contractual maturity are shown below.
Expected maturities will differ from contractual maturities because borrowers may have the right to
call or prepay obligations. Fair ValueDue after one through five years
    
    $
    4,676,403Due after five through ten years
    
    
    981,470Due after ten years
    
    
    928,680Mortgage-backed securities
    
    
    9,104,182Total
    
    $
    15,690,735
 In 2004, the Company recognized $ 13,291 in gross gains and $ 19,917 in gross losses from the
sale of investment securities. In 2003, the Company recognized $ 105,858 in gross gains from the
sale of investment securities. Securities pledged at year-end 2004 and 2003 had a carrying amount of $15,630,000 and
$7,565,000 and were pledged to secure public deposits and repurchase agreements. The following table shows securities with unrealized losses and their fair value, aggregated by
investment category and length of time that individual securities have been in a continuous
unrealized loss position at December 31, 2004 and 2003: Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss2004U.S. Government
agency securities
    
    $
    3,999,924
    
    
    $
    (20,076
    )
    
    $
    
    
    
    $
    
    
    
    $
    3,994,924
    
    
    $
    (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
    
    
    $
    (54,436
    )
    
    $
    6,177,573
    
    
    $
    (97,895
    )
    
    $
    12,579,151
    
    
    $
    (152,331
    )2003U.S. Government
agency securities
    
    $
    999,500
    
    
    $
    (313
    )
    
    $
    
    
    
    $
    
    
    
    $
    999,500
    
    
    $
    (313
    )Mortgage-backed securities
    
    
    9,040,389
    
    
    
    (133,803
    )
    
    
    
    
    
    
    
    
    
    
    9,040,389
    
    
    
    (133,803
    )Tax exempt securities
    
    
    575,240
    
    
    
    (16,828
    )
    
    
    
    
    
    
    
    
    
    
    575,240
    
    
    
    (16,828
    )Total temporarily impaired
    
    $
    10,615,129
    
    
    $
    (150,944
    )
    
    $
    
    
    
    $
    
    
    
    $
    10,615,129
    
    
    $
    (150,944
    )
 (Continued) F-10.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003 NOTE 2  SECURITIES(Continued) Unrealized losses on securities have not been recognized into income because the issuer(s)
securities are of high credit quality (rated A3 or higher), management has the intent and ability
to hold for the foreseeable future, and the decline in fair value is largely due to increases in
market interest rates. The fair value is expected to recover as the security(s) approach their
maturity date and/or market rates decline. NOTE 3  LOANS A summary of loans outstanding by category at December 31, 2004 and 2003 follows: 2004
    
    
    2003Commercial, financial and agricultural
    
    $
    22,663,554
    
    
    $
    21,013,961Real estate
 construction
    
    
    20,190,814
    
    
    
    20,202,457Real estate
 1 to 4 family residential properties
    
    
    44,196,362
    
    
    
    46,104,920Real estate  other
    
    
    76,056,034
    
    
    
    59,955,073Consumer
    
    
    4,842,999
    
    
    
    6,035,579167,949,763
    
    
    
    153,311,989Less: Allowance for loan losses
    
    
    (1,878,663
    )
    
    
    (1,735,980
    )Loans, net
    
    $
    166,071,100
    
    
    $
    151,576,009
 Non performing loan were as follows: 2004
    
    
    2003Loans past due over 90 days still on accrual
    
    $
    45,000
    
    
    $
    33,000Non accrual loans
    
    
    17,000
    
    
    
    227,000
 At December 31, 2004 and 2003, the Bank had loans amounting to $17,000 and $227,000,
respectively that were specifically classified as impaired. The allowance for loan losses related
to impaired loans amounted to approximately $3,000 and $34,000 at December 31, 2004 and 2003,
respectively. The average
balance of these loans amounted to approximately $42,000 and $156,000 for the years ended
December 31, 2004 and 2003. The impact on interest income of these loans was not significant to
the Banks results of operations. NOTE 4  ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses are as follows: 2004
    
    
    2003Balance at beginning of period
    
    $
    1,735,980
    
    
    $
    1,350,662Provision for loan losses
    
    
    256,625
    
    
    
    487,747Loans charged off
    
    
    (154,528
    )
    
    
    (125,814
    )Recoveries
    
    
    40,586
    
    
    
    23,385Balance at end of period
    
    $
    1,878,663
    
    
    $
    1,735,980
 (Continued) F-11.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003 NOTE 5  PREMISES AND EQUIPMENT Following is a summary of premises and equipment at December 31: 2004
    
    
    2003Land
    
    $
    1,344,742
    
    
    $
    838,092Building
    
    
    6,237,769
    
    
    
    5,376,400Furniture and equipment
    
    
    2,803,797
    
    
    
    2,355,02610,386,308
    
    
    
    8,569,518Less: Accumulated depreciation
    
    
    3,224,482
    
    
    
    2,726,467$
    7,161,826
    
    
    $
    5,843,051
 Depreciation expense totaled $498,015 and $502,790 for 2004 and 2003. Following is a summary of computer software at December 31: 2004
    
    
    2003Computer software
    
    $
    1,195,426
    
    
    $
    1,045,245Less: Accumulated amortization
    
    
    744,180
    
    
    
    596,075$
    451,246
    
    
    $
    449,170
 Amortization expense totaled $148,105 and $109,635 for 2004 and 2003. The Bank leases space for one of its branches under an operating lease. Rental expense was $25,800
and $25,800 for 2004 and 2003. Annual rent commitments under the noncancelable operating lease are
$25,800. The lease expires in March 2006. NOTE 6  DEPOSITS A summary of deposits at December 31 follows: 2004
    
    
    2003Noninterest-bearing
    
    $
    16,337,136
    
    
    $
    16,363,536Interest-bearing demand
    
    
    30,042,544
    
    
    
    23,678,083Savings
    
    
    16,300,067
    
    
    
    15,863,335Certificates of deposit of $100,000 or more
    
    
    37,690,093
    
    
    
    44,648,410Other time
    
    
    59,937,931
    
    
    
    57,672,004$
    160,307,771
    
    
    $
    158,225,368
 Interest expense on deposits of $100,000 or more amounted to $989,439 in 2004 and $966,533 in
2003. (Continued) F-12.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003 NOTE 6  DEPOSITS(continued) Scheduled maturities of time deposits for the next five years were as follows: 2005
    
    $
    61,917,2952006
    
    
    23,032,6182007
    
    
    5,693,8052008
    
    
    2,439,1652009
    
    
    4,545,140Thereafter
    
    
    $
    97,628,024
 NOTE 7  SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Securities sold under agreements to repurchase are secured by securities with a carrying amount of
$4,050,000 and $5,296,000 at year-end 2004 and 2003. Securities sold under agreements to repurchase are financing arrangements that do not have a stated
maturity, but may be cancelled by either party with a five-day written notice. At termination, the
securities underlying the agreements are returned to the Company. Information concerning
securities sold under agreements to repurchase is summarized as follows: 2004
    
    
    2003Average daily balance during the year
    
    $
    2,102,000
    
    
    $
    2,497,000Average interest rate during the year
    
    
    .86
    %
    
    
    .95
    %Maximum month-end balance during the year
    
    
    2,700,000
    
    
    
    3,186,000Weighted average interest rate at year-end
    
    
    1.31
    %
    
    
    .66
    %
 NOTE 8  INCOME TAXES The components of income tax expense for the years ended December 31 were as follows: 2004
    
    
    2003CurrentFederal
    
    $
    1,007,321
    
    
    $
    1,066,293State
    
    
    222,202
    
    
    
    213,6811,229,523
    
    
    
    1,279,974DeferredFederal
    
    
    (87,733
    )
    
    
    (176,336
    )State
    
    
    (29,267
    )
    
    
    (34,664
    )(117,000
    )
    
    
    (211,000
    )$
    1,112,523
    
    
    $
    1,068,974
 (Continued) F-13.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003   NOTE 8  INCOME TAXES(continued) The reasons for the differences between the statutory federal income tax rate and the effective tax
rate for the years ended December 31 are summarized as follows: 2004
    
    
    2003Tax at statutory rate
    
    $
    1,060,540
    
    
    $
    1,023,377Increase (decrease) resulting fromState income tax, net of federal effect
    
    
    128,000
    
    
    
    118,000Tax-exempt interest
    
    
    (22,000
    )
    
    
    (20,000
    )Other, net
    
    
    (54,017
    )
    
    
    (52,403
    )$
    1,112,523
    
    
    $
    1,068,974
 The tax effect of each type of temporary difference that gives rise to deferred tax assets and
liabilities is as follows: 2004
    
    
    2003Deferred tax assets:Provision for loan losses
    
    $
    616,000
    
    
    $
    550,000Deferred compensation
    
    
    192,000
    
    
    
    98,000Unrealized losses on securities
    
    
    45,000
    
    
    
    Other
    
    
    138,000
    
    
    
    59,000$
    991,000
    
    
    $
    707,000Deferred tax liabilities:Fixed assets
    
    $
    (350,000
    )
    
    $
    (311,000
    )Federal Home Loan Bank stock dividend
    
    
    (216,000
    )
    
    
    (192,000
    )Unrealized gains on securities
    
    
    
    
    
    
    (43,000
    )Other
    
    
    (59,000
    )
    
    
    $
    (625,000
    )
    
    $
    (546,000
    )Net deferred tax asset
    
    $
    366,000
    
    
    $
    161,000
 NOTE 9  RELATED PARTY TRANSACTIONS Loans to principal officers, directors, and their affiliates in 2004 were as follows. Beginning balance
    
    $
    5,484,079New loans
    
    
    317,359Repayments
    
    
    (909,971
    )Ending balance
    
    $
    4,891,467
 Deposits from principal officers, directors, and their affiliates at year-end 2004 and 2003 were
$1,482,482 and $963,907, respectively.   (Continued) F-14.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003   NOTE 10  FEDERAL HOME LOAN BANK ADVANCES At year-end, advances from the Federal Home Loan Bank were as follows. 2004
    
    
    2003Maturities March 2010 through March 2011, primarily
fixed rates from 4.28% to 6.26%, averaging 4.78%
    
    $
    12,000,000
    
    
    $
    12,000,000Short term variable rate advances, rate at
December 31, 2004 was 2.48%
    
    
    7,010,000
    
    
    
    $
    19,010,000
    
    
    $
    12,000,000
 Each advance is payable at its maturity date. The long term fixed rate advances totaling
$12,000,000 have a prepayment penalty. The prepayment penalty would be based on the market rates
and the length of time remaining until maturity at the time of payoff. The advances were collateralized by $25,000,000 and $15,000,000 of first mortgage loans under a
blanket lien arrangement at year-end 2004 and 2003. NOTE 11  SUBORDINATED DEBENTURES AND OTHER DEBT On December 18, 2001, the Company borrowed $4,000,000 of floating rate mandatory redeemable
securities through a special purpose entity, Rogersville Statutory Trust I, as part of a private
offering. The rate which varies quarterly with LIBOR was 6.11% at December 31, 2004. The
securities mature on December 18, 2031, however, the maturity may be shortened to a date not
earlier than December 18, 2006. Debt issue costs of $121,000 have been capitalized and are being
amortized over the term of the securities. On September 21, 2004, the Company borrowed $3,000,000 of floating rate mandatory redeemable
securities through a special purpose entity, Rogersville Statutory Trust II, as part of a private
offering. The rate which varies quarterly with LIBOR was 4.80% at December 31, 2004. The
securities mature on September 21, 2034, however, the maturity may be shortened to a date not
earlier than September 21, 2009. No debt issue costs have been capitalized over the term of the
securities. These securities are presented in liabilities on the balance sheet and count as Tier 1 capital for
regulatory capital purposes. The Company has in effect a line of credit with a financial institution of $4,500,000, which is
secured by all the shares of the subsidiary bank. The interest rate floats with the 30-day LIBOR
rate and was 2.420% and 3.00% at December 31, 2004 and 2003. The line matures in 2005. The
balance outstanding on the line was $0 and $350,000 at year-end 2004 and 2003. The Bank also has available federal funds lines (or equivalent thereof) with correspondent banks
totaling $14,700,000. None of these lines were drawn as of December 31, 2004. No collateral was
pledged related to these lines as of December 31, 2004.   (Continued) F-15.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003   NOTE 12  SHAREHOLDERS EQUITY The Companys charter authorizes 1,000,000 shares of preferred stock, no par value. Shares of the
preferred stock may be issued from time to time in one or more series, each such series to be so
designated as to distinguish the shares thereof from the shares of all other series and classes.
The board of directors has the authority to divide any or all classes of preferred stock and to fix
and determine the relative rights and preferences of the shares of any series so established. NOTE 13  REGULATORY CAPITAL REQUIREMENTS Banks and bank holding companies are subject to regulatory capital requirements administered by
federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt
corrective action regulations involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators. Failure to meet capital
requirements can initiate regulatory action. Prompt corrective action regulations provide five classifications: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized,
although these terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized,
capital distributions are limited, as is asset growth and expansion, and capital restoration plans
are required. As of December 31, 2004 and 2003, the most recent regulatory notifications
categorized the Bank as well capitalized under the regulatory framework for prompt corrective
action. The banks capital amounts and ratios at December 31, 2004 and 2003, were as follows: To Be WellCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action Provisions($ amounts in thousands)
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio2004Total Capital to risk weighted assetsBank
    
    $
    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 assetsBank
    
    $
    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 assetsBank
    
    $
    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
    %2003Total Capital to risk weighted assetsBank
    
    $
    16,491
    
    
    
    10.3
    %
    
    $
    12,748
    
    
    
    8.00
    %
    
    $
    15,935
    
    
    
    10.00
    %Consolidated
    
    
    16,449
    
    
    
    10.3
    %
    
    
    12,767
    
    
    
    8.00
    %
    
    
    15,959
    
    
    
    10.00
    %Tier 1 (Core) Capital to risk weighted assetsBank
    
    $
    14,755
    
    
    
    9.3
    %
    
    $
    6,374
    
    
    
    4.00
    %
    
    $
    9,561
    
    
    
    6.00
    %Consolidated
    
    
    14,284
    
    
    
    9.0
    %
    
    
    6,384
    
    
    
    4.00
    %
    
    
    9,576
    
    
    
    6.00
    %Tier 1 (Core) Capital to average assetsBank
    
    $
    14,755
    
    
    
    7.9
    %
    
    $
    7,434
    
    
    
    4.00
    %
    
    $
    9,292
    
    
    
    5.00
    %Consolidated
    
    
    14,284
    
    
    
    7.7
    %
    
    
    7,434
    
    
    
    4.00
    %
    
    
    9,292
    
    
    
    5.00
    %
   (Continued) F-16.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003   NOTE 13  REGULATORY CAPITAL REQUIREMENTS(Continued) The Bank is also subject to state regulations restricting the amount of dividends payable to the
Company. At year-end 2004, the Bank had $3,600,000 of retained earnings available for dividends
under these regulations. NOTE 14  STOCK COMPENSATION PLANS The Company has two stock option plans, the 1994 Stock Option Plan (the employee plan), and the
Outside Directors Stock Option Plan (the directors plan), which are described below. Exercise
price is the market price at date of grant, so there is no compensation expense recognized in the
income statement. All options expire within ten years from the date of grant. 1994 Stock Option Plan  This plan provides for the granting of options to purchase up to 475,000
shares by officers and key employees of the Company. On January 22, 2004, options were granted to
key officers to purchase 32,000 shares of stock. These shares become exercisable over 1 to 10
years. No options were granted in 2003. Outside Directors Stock Option Plan  Adopted in 1994, this plan provides for the granting of
options to purchase up to 150,000 shares by non-employee directors of the Company. These options
become exercisable over 5 years. No options were granted in 2004 or 2003. A summary of the status of the Companys stock option plans for the two years ended December 31,
2004 and the changes during those years is presented below: Total Option
    
    
    Average
    
    
    ExercisableShares
    
    
    Exercise
    
    
    OptionsOutstanding
    
    
    Price
    
    
    OutstandingOptions outstanding at December 31, 2002
    
    

    55,740
    
    
    
    8.75
    
    
    
    53,940Options which became exercisable
    
    
    
    
    
    
    12.67
    
    
    
    1,800Options exercised
    
    
    (10,690
    )
    
    
    6.85
    
    
    
    (10,690
    )Options 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
    
    
    
    24,235
 The effect of these options on earnings per common share was to increase average shares outstanding
by 12,496 and 7,600 in 2004 and 2003. There were no antidilutive options as of December 31, 2004
and 2003.   (Continued) F-17.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003   NOTE 14  STOCK COMPENSATION PLANS(Continued) The following table summarizes information about the stock options outstanding under the Companys
plans at December 31, 2004: Exercise
    
    Number
    
    
    Average
    
    
    NumberPrice
    
    Outstanding
    
    
    Remaining Life
    
    
    Exercisable6.00
    
    
    3,000
    
    
    2 years
    
    
    3,0007.33
    
    
    3,000
    
    
    3 years
    
    
    3,0009.33
    
    
    4,735
    
    
    4 years
    
    
    4,73512.67
    
    
    7,500
    
    
    5 years
    
    
    7,50013.33
    
    
    6,000
    
    
    6 years
    
    
    6,00016.00
    
    
    32,000
    
    
    9 years
    
    
    32,000
 NOTE 15  EMPLOYEE BENEFITS The Bank maintains a 401(k) plan for all employees who have attained the age of 21 and have at
least one year of service. The plan provides for a discretionary employer matching contribution.
The Bank may also make additional discretionary contributions as determined by the Board of
Directors. Employees begin to vest in the second year and are fully vested after six years. The
Banks contribution to the 401K plan amounted to $35,439 in 2004 and $29,528 in 2003. The Company has a non-qualified deferred compensation arrangement with a former employee. A
present value based charge, which is included in non-interest expense, is made each year based on
the future benefits to be paid to the employee (or beneficiary) under the plan. Total amounts paid
or accrued under such arrangements amounted to $25,000 in 2004 and $23,000 in 2003. A discount
rate of 6.75% is used to compute the amount paid. The Company has a Supplemental Executive Retirement Plan for key officers and employees. A present
value based charge is made each year based on future benefits to be paid to the officers under the
plan. The plan contains certain financial goals which must be achieved annually before a
contribution is required. This plan offers retirement and death benefits to these officers.
Expense related to this plan using a discount rate of 7.5% was $255,000 in 2004 and $188,000 in
2003, and is included in salaries and employee benefits expense. During 2003, the Company granted 8,500 shares of stock to certain key officers as additional
compensation. The shares were valued at $14.75 per share, which represented the estimated fair
market value of the shares at the date of the grant. The grants contained no restrictions on the
disposal or
transfer of the shares by the officers. Compensation expense equal to the total market value of
$125,375 is included in salaries and employee benefits expense.   (Continued) F-18.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003   NOTE 16  OFF-BALANCE SHEET ACTIVITIES Some financial instruments, such as loan commitments, credit lines, letters of credit, and
overdraft protection, are issued to meet customer financing needs. These are agreements to provide
credit or to support the credit of others, as long as conditions established in the contract are
met, and usually have expiration dates. Commitments may expire without being used.
Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make such commitments as
are used for loans, including obtaining collateral at exercise of the commitment. The contractual amount of financial instruments with off-balance-sheet risk was as follows at year end. 2004
    
    
    2003Fixed
    
    
    Variable
    
    
    Fixed
    
    
    VariableRate
    
    
    Rate
    
    
    Rate
    
    
    RateCommitments to make loans
    
    $
    3,830,000
    
    
    $
    23,439,000
    
    
    $
    2,614,000
    
    
    $
    13,861,000Unused letters of credit
    
    
    
    
    
    
    2,751,955
    
    
    
    
    
    
    
    3,012,550
 Commitments to make loans are generally made for periods of 1 year or less. The fixed rate loan
commitments have interest rates ranging from 5.25% to 21.00% and maturities ranging from 1 year to
5 years. NOTE 17  FAIR VALUES OF FINANCIAL INSTRUMENTS Carrying amount and estimated fair values of financial instruments were as follows at year-end: 2004
    
    
    2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    5,163,142
    
    
    $
    5,163,000
    
    
    $
    9,336,097
    
    
    $
    9,336,000Securities
    
    
    15,690,735
    
    
    
    15,691,000
    
    
    
    14,515,480
    
    
    
    14,515,000Loans receivable, net
    
    
    166,071,100
    
    
    
    167,152,00
    
    
    
    151,576,009
    
    
    
    153,010,000Accrued interest receivable
    
    
    1,066,616
    
    
    
    1,067,000
    
    
    
    1,154,997
    
    
    
    1,155,000FHLB and Bankers Bank stock
    
    
    1,641,315
    
    
    
    1,641,000
    
    
    
    1,578,723
    
    
    
    1,579,000Financial liabilitiesDeposits
    
    $
    160,307,771
    
    
    $
    160,237,000
    
    
    $
    158,225,368
    
    
    $
    159,997,000Securities sold under
repurchase agreements
    
    
    1,433,909
    
    
    
    1,434,000
    
    
    
    1,920,416
    
    
    
    1,920,000Borrowings from FHLB
    
    
    19,010,000
    
    
    
    19,655,000
    
    
    
    12,000,000
    
    
    
    13,047,000Subordinated debentures
    
    
    7,000,000
    
    
    
    7,000,000
    
    
    
    4,000,000
    
    
    
    4,000,000Note payable
    
    
    
    
    
    
    
    
    
    
    350,000
    
    
    
    350,000Accrued interest payable
    
    
    598,897
    
    
    
    599,000
    
    
    
    567,664
    
    
    
    568,000
   (Continued) F-19.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003   NOTE 17  FAIR VALUES OF FINANCIAL INSTRUMENTS(Continued) The methods and assumptions used to estimate fair value are described as follows. Carrying amount is the estimated fair value for cash and cash equivalents, short-term borrowings,
Federal Home Loan Bank and Bankers Bank stock, accrued interest receivable and payable, demand
deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully.
Security fair values are based on market prices or dealer quotes, and if no such information is
available, on the rate and term of the security and information about the issuer. For fixed rate
loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing
limits, fair value is based on discounted cash flows using current market rates applied to the
estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash
flow analysis or underlying collateral values. Fair value of debt is based on current rates for
similar financing. The fair value of off-balance-sheet loan commitments is considered nominal.   (Continued) F-20.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003   NOTE 18  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION Condensed financial information of First Community Corporation follows. Condensed Balance Sheets,
December 31 2004
    
    
    2003ASSETSCash and cash equivalents
    
    $
    39,375
    
    
    $
    67,024Investment in banking subsidiary
    
    
    18,927,059
    
    
    
    14,686,149Investment in and advances to other subsidiaries
    
    
    217,000
    
    
    
    124,000Other assets
    
    
    499,432
    
    
    
    372,998Total assets
    
    $
    19,682,866
    
    
    $
    15,250,171LIABILITIES AND EQUITYSubordinated debentures
    
    $
    7,217,000
    
    
    $
    4,124,000Long-term debt
    
    
    
    
    
    
    350,000Accrued expenses and other liabilities
    
    
    148,128
    
    
    
    132,366Shareholders equity
    
    
    12,317,738
    
    
    
    10,643,805Total liabilities and shareholders equity
    
    $
    19,682,866
    
    
    $
    15,250,171
 Condensed Statements of Income
Years ended December 31 2004
    
    
    2003Dividends from subsidiary
    
    $
    669,621
    
    
    $
    807,599Other income
    
    
    7,320
    
    
    
    6,062Interest expense
    
    
    265,466
    
    
    
    218,362Other expense
    
    
    121,212
    
    
    
    120,401Income before income tax and
undistributed subsidiary income
    
    
    290,263
    
    
    
    474,898Income tax expense (benefit)
    
    
    (146,937
    )
    
    
    (128,730
    )Equity in undistributed subsidiary income
    
    
    1,569,512
    
    
    
    1,337,329Net income
    
    $
    2,006,712
    
    
    $
    1,940,957
   (Continued) F-21.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003   NOTE 18  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION(Continued) Condensed Statements of Cash Flows
Years ended December 31 2004
    
    
    2003Cash flows from operating activitiesNet income
    
    $
    2,006,712
    
    
    $
    1,940,957Adjustments:Equity in undistributed subsidiary income
    
    
    (1,569,512
    )
    
    
    (1,337,330
    )Non cash proceeds from issuance of common stock
    
    
    91,074
    
    
    
    125,375Change in other assets
    
    
    (126,435
    )
    
    
    188,145Change in other liabilities
    
    
    15,762
    
    
    
    1,342Net cash from operating activities
    
    
    417,601
    
    
    
    918,490Cash 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
    )
    
    
    (453,000
    )Proceeds from issuance of subordinated debentures
    
    
    3,093,000
    
    
    
    Proceeds from stock issuance
    
    
    114,288
    
    
    
    73,221Dividends paid
    
    
    (534,621
    )
    
    
    (527,598
    )Net cash from financing activities
    
    
    2,322,667
    
    
    
    (907,377
    )Net change in cash and cash equivalents
    
    
    (27,649
    )
    
    
    11,113Beginning cash and cash equivalents
    
    
    67,024
    
    
    
    55,911Ending cash and cash equivalents
    
    $
    39,375
    
    
    $
    67,024
   (Continued) F-22.




---



##### Table of Contents



FIRST COMMUNITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003   NOTE 19  EARNINGS PER SHARE The factors used in the earnings per share computation follow. 2004
    
    
    2003BasicNet income
    
    $
    2,006,712
    
    
    $
    1,940,957Weighted average common share outstanding
    
    
    1,905,616
    
    
    
    1,881,269Basic earnings per common share
    
    $
    1.05
    
    
    $
    1.03DilutedNet income
    
    $
    2,006,712
    
    
    $
    1,940,957Weighted average common shares outstanding
for basic earnings per common share
    
    
    1,905,616
    
    
    
    1,881,269Add: Dilutive effects of assumed exercises
of stock options
    
    
    12,496
    
    
    
    7,600Average share and dilutive potential common share
    
    
    1,918,112
    
    
    
    1,888,869Diluted earnings per common share
    
    $
    1.05
    
    
    $
    1.03
 No options were antidilutive for 2004 and 2003.   (Continued) F-23.




---



##### Table of Contents



ITEM 13. Exhibits Exhibit Number
    
    Description11*
    
    Statement Regarding Computation of Earnings Per Share (included in Item
7, Financial Statements and incorporated herein by reference).23*
    
    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 Principal Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2*
    
    Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
 
  3




---



##### Table of Contents



SIGNATURE In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST COMMUNITY CORPORATION(Registrant)By:
    
    /s/ Mark A. GambleMark A. Gamble, PresidentDate:
          July 25, 2005
 In accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated. By:
    
    /s/ William J. KrickbaumWilliam J. Krickbaum, Chairman of the BoardDate:          July 25, 2005By:
    
    /s/ Leland A. DavisLeland A. Davis, DirectorDate:          July 25, 2005By:
    
    /s/ Mark A. GambleMark A. Gamble, President and DirectorDate:          July 25, 2005By:
    
    /s/ Jerry C. GreeneJerry C. Greene, DirectorDate:          July 25, 2005By:
    
    /s/ Kenneth E. JenkinsKenneth E. Jenkins, DirectorDate:          July 25, 2005By:
    
    /s/ David R. JohnsonDr. David R. Johnson, DirectorDate:          July 25, 2005By:
    
    /s/ Sidney K. LawsonSidney K. Lawson, DirectorDate:          July 25, 2005By:
    
    /s/ A. Max RichardsonA. Max Richardson, DirectorDate:          July 25, 2005By:
    
    /s/ Tommy W. YoungTommy W. Young, DirectorDate:          July 25, 2005
 4