TABLE OF CONTENTS

TABLE OF CONTENTS

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PART 1

FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED BALANCE SHEETS

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FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

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FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

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FIRST COMMUNITY CORPORATION

Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income

Six Months ended June 30, 2005 and June 30, 2004

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FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Note 4 – Recent Accounting Pronouncement

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R)”). SFAS No. 123(R) will require companies to measure all employee stock-based compensation awards using a fair value method and record such expense in its financial statements. In addition, the adoption of SFAS No. 123(R) requires additional accounting and disclosure related to the income tax and cash flow effects resulting from share-based payment arrangements. SFAS No. 123(R) is effective beginning as of the first interim or annual reporting period beginning after December 15, 2005. The company has evaluated the impact of this pronouncement on net income based on options granted through June 30, 2005. It is estimated that the compensation expense recognized will have a net of income tax effect of approximately $80,000 in 2006, $49,000 in 2007 and $30,000 in 2008. This does not include the impact of any future grants.

Note 5 – Significant Contract

On June 28, 2005 the Bank entered into a construction contract to have a 27,000 square foot administrative center built for approximately $3.4 million. The administrative center will provide the needed space for deposit and loan operations as well as other administrative functions.  The total cost including furniture and equipment is estimated to be $4.3 million.

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Item 2. Management’s Discussion and Analysis

This Report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and the Securities Exchange Act of 1934.  These statements are based on many assumptions and estimates and are not guarantees of future performance.  Our actual results may differ materially from those projected in the forward-looking statements, as they will depend on many factors, which are beyond our control.  The words “may,” “would,” “could,” “will,” “expect,” “anticipate,” “believe,” “intend,” “plan,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements.  Potential risk and uncertainties include but are not limited to:

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

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

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

•                  the level of allowance for loan loss;

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

•                  the rate of loan growth;

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

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

•                  changes occurring in business conditions and inflation;

•                  changes in technology;

•                  changes in monetary and tax policies;

•                  changes in securities markets; and

•                  other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission.

Overview

The following discussion describes the our results of operations for the quarter ended June 30, 2005 as compared to the quarter ended June 30, 2004 as well as results for the six months ended June 30, 2005 and 2004, and also analyzes our financial condition as of June 30, 2005 as compared to December 31, 2004.  Like most community banks, we derive most of our income from interest we receive on our loans and investments.  Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits.  Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.

Of course, there are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible.  We establish and maintain this allowance by charging a provision for loan losses against our operating earnings.  In the following section we have included a detailed discussion of this process.

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In addition to earning interest on our loans and investments, we earn income through fees and other expenses we charge to our customers.  We describe the various components of this noninterest income, as well as our noninterest expense, in the following discussion.

The following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements.  We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report.

Critical Accounting Policies

We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States and with general practices within the banking industry in the preparation of our financial statements. Our significant accounting policies are described in the footnotes to our audited consolidated financial statements as of December 31, 2004, as filed in our annual report on Form 10-KSB.

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

We believe the allowance for loan losses is the critical accounting policy that requires the most significant judgment and estimates used in preparation of our consolidated financial statements. Some of the more critical judgments supporting the amount of our allowance for loan losses include judgments about the credit worthiness of borrowers, the estimated value of the underlying collateral, the assumptions about cash flow, determination of loss factors for estimating credit losses, the impact of current events, and conditions, and other factors impacting the level of probable inherent losses. Under different conditions or using different assumptions, the actual amount of credit losses incurred by us may be different from management’s estimates provided in our consolidated financial statements. Refer to the portion of this discussion that addresses our allowance for loan losses for a more complete discussion of our processes and methodology for determining our allowance for loan losses.

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The yield on earning assets for the six months ended June 30, 2005 and 2004 was 5.27% and 5.18%, respectively.  The cost of interest-bearing liabilities during the first six months of 2005 was 2.12% as compared to 1.44% in the same period of 2004.  The increase in the cost of interest-bearing liabilities was a result of increasing interest rates during the first six months of 2005 as well as having larger percentage of borrowed funds as total of interest –bearing funding sources in the first quarter of 2005 as compared to the same period in 2004.  The net interest margin was 3.35% for the six months ended June 30, 2005 as compared to 4.04% during the six months ended June 30, 2004.  On a fully taxable equivalent basis the net interest margin was 3.50% and 4.10% for the six months ended June 30, 2005 and 2004, respectively.

Provision and Allowance for Loan Losses

At June 30, 2005 the allowance for loan losses amounted to $2.7 million, or 1.32% of total loans, as compared to $2.8 million, or 1.48% of total loans, at December 31, 2004.  The company’s provision for loan loss was $138,000 for the six months ended June 30, 2005 as compared to $130,000 for the six months ended June 30, 2004.  The provision was made based on management’s assessment of general loan loss risk and asset quality.  The objective of management is to maintain the allowance for loan losses at approximately 1.1% to 1.5% of total loans.  The allowance for loan losses represents an amount which we believe will be adequate to absorb probable losses on existing loans that may become uncollectible.  Our judgment as to the adequacy of the allowance for loan losses is based on a number of assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate.  Our determination of the allowance for loan losses is based on evaluations of the collectibility of loans, including consideration of factors such as the balance of impaired loans, the quality, mix, and size of our overall loan portfolio, economic conditions that may affect the borrower’s ability to repay, the amount and quality of collateral securing the loans, our historical loan loss experience, and a review of specific problem loans.  We also consider subjective issues such as changes in the lending policies and procedures, changes in the local/national economy, changes in volume or type of credits, changes in volume/severity of problem loans, quality of loan review and board of director oversight, concentrations of credit, and peer group comparisons.  Periodically, we adjust the amount of the allowance based on changing circumstances.  We charge recognized losses to the allowance and add subsequent recoveries back to the allowance for loan losses.  There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for loan losses as estimated at any point in time or that provisions for loan losses will not be significant to a particular accounting period.

At June 30, 2005 the company had $74,000 in loans delinquent more than 90 days, and loans totaling $650,000 that were delinquent more than 30 days.  The company had three loans in a nonaccrual status in the amount of $433,000 at June 30, 2005.

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Allowance for Loan Losses

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The following allocation of the allowance to specific components is not necessarily indicative of future losses or future allocations.  The entire allowance is available to absorb losses in the portfolio.

Composition of the Allowance for Loan Losses

Accrual of interest is discontinued on loans when management believes, after considering economic and business conditions and collection efforts that a borrower’s financial condition is such that the collection of interest is doubtful.  A delinquent loan is generally placed in nonaccrual status when it becomes 90 days or more past due.  At the time a loan is placed in nonaccrual status, all interest, which has been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income.  No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain.

Non-interest Income and Expense

Non-interest income during the first six months of 2005 was $1.4 million as compared to $801,000 during the same period in 2004.  The growth in non-interest income consisted of increases in deposit service charges of $190,000 and mortgage origination fees of $38,000.  The increase in deposit service charges resulted from organic growth in deposit accounts as well as the growth resulting from the DutchFork merger.  Mortgage origination fees increased due to the continued low rate environment as well as continued emphasis on this source of revenue.  During the first six months of 2005 the company realized gains on the sale of securities in the amount of $188,000 with $181,000 realized in the first quarter of 2005.  Subsequent to the merger with DutchFork, management began restructuring the combined investment portfolio.  This restructuring continued into the first quarter of 2005. Although the portfolio acquired from DutchFork had a large percentage of investments with variable interest rates, the investments did not provide significant cash flow.  The objective of the restructuring was to shorten the maturity and purchase investments that provide ongoing cash flow.  Management will continue to take advantage of opportunities to restructure portions of the portfolio, but it is not anticipated that the volume of sales that the company experienced in the fourth quarter of 2004 and the first quarter of 2005  will continue.  Other income increased $152,000

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during the first six months of 2005 as compared to the same period in 2004 primarily as a result of the merger with DutchFork in October 2004 and the inclusion of noninterest income for these three new offices.  Included in other income for the six months ended June 30, 2004 was a gain on the sale of equipment in the amount of $27,000.

Total non-interest expense increased by $2.2 million during the first six months of 2005 as compared to the same period of 2004.  The DutchFork acquisition added three new offices and approximately 32 additional employees.  In addition, the bank opened a new banking office in April 2004 and February 2005.  The increases in all non-interest expense categories are primarily a result of the merger as well as these de-novo branch expansions.  Salaries and employee benefits increased $1.2 million in the first six months of 2005 as compared to the same period in 2004.  At June 30, 2005 the company had approximately 120 full time equivalent employees as compared to 78 full time equivalent employees at June 30, 2004.  Occupancy expense increased $165,000 in the first six months of 2005 as compared to the same period in 2004.  The three offices acquired in the merger and the two de-novo office expansions account for this increase.  Equipment expense increased to $651,000 in the first six months of 2005 as compared to $445,000 in the first six months of 2004.  This increase resulted from the additional equipment acquired as a result of the additional branches as well as upgrades to certain item processing hardware and software needed to process the higher volume of activity subsequent to the DutchFork merger.  Expense related to amortization of intangibles increased from $89,000 in the first six months of 2004 to $297,000 in the comparable period in 2005.  The core deposit intangible acquired in the DutchFork acquisition amounted to $2.9 million and is being amortized on a straight-line basis over seven years.  The amortization in the first six months of 2004 relates to core deposit premium acquired in a branch acquisition in 2001.  Prior core deposit premium is also amortized on a straight-line basis over seven years.  There was a $447,000 increase in other expenses in the first six months of 2005 as compared to the same period in 2004.  All components of other expense increased due to the significant growth the company experienced as a result of the merger with DutchFork.

The following is a summary of the components of non-interest expense:

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Comparison of Results of Operations for Three Months Ended June 30, 2005 to the Three Months Ended June 30, 2004:

Net income for the second quarter of 2005 was $707,000 ($0.24 per diluted share), as compared to $431,000 ($0.26 per diluted share) during the comparable period in 2004. Net interest income increased by $1.3 million for the three months ended June 30, 2005 from $2.0 million in 2004 to $3.3 million in 2005 The increase in net interest income is primarily due to the addition of the former DutchFork Bancshares.  Average earning assets were $388.3 million during the second quarter of 2005 as compared to $207.3 million during the second quarter of 2004.  The table on page 22 shows yield and rate data for interest-bearing balance sheet components during the three month periods ended June 30, 2005 and 2004, along with average balances and the related interest income and interest expense amounts.  The yield on average earning assets increased to 5.42% in the second quarter of 2005 as compared to 5.01% in the second quarter of 2004. The cost of interest bearing liabilities was 2.27% in second quarter of 2005 as compared to 1.42% in the second quarter of 2004.

Non-interest income increased by $207,000 from $424,000 for the three months ended June 30, 2004 to $631,000 in the same period of 2005.  Deposit service charges increased by $97,000, mortgage loan fees increased by $18,000 and other income increased $85,000 in the three months ended June 30, 2005 as compared to the same period in 2005.  As previously discussed, the addition of the three former DutchFork branches and the two de-novo branch expansions are the significant contributors to the increases in each of these non-interest income categories.

Total non-interest expense increased by $1.2 million in the second quarter of 2005 as compared to the same quarter of 2004.  This increase is the result of a $623,000 increase in salary and benefits expense, a $80,000 increase in occupancy expense, a $100,000 increase in equipment expense, a $104,000 increase in amortization of intangibles and a $253,000 increase in other expenses.  All of these increases are primarily a result of the company’s merger with DutchFork Bancshares on October 1, 2004.

Financial Position

Assets totaled $462.1 million at June 30, 2005 as compared to $455.7 million at December 31, 2004, an increase of $6.4 million, or 1.4%.  At June 30, 2005, loans accounted for 51.3% of earning assets, as compared to 47.6% at December 31, 2004.  Loans grew by $15.7 million during the six months ended June 30, 2005 from $186.8 million at December 31, 2004 to $202.5 million at June 30, 2005.  The loan to deposit ratio at June 30, 2005 was 60.3% as compared to 55.4% at December 31, 2004.  In evaluating the merger with DutchFork, management considered the need to leverage the existing deposit base in the Newberry County market through quality growth of the loan portfolio.  The growth of the loan portfolio both in total dollars and as a percentage of total earning assets will continue to be a major focus throughout 2005 and thereafter.  It is anticipated that this ratio will continue to increase as management continues to emphasize investing more of its assets in the higher earning loan portfolio as compared to the investment portfolio.  Deposits decreased $1.1 million from $337.1 million at December 31, 2004 to $336.0 million at June 30, 2005.  Investments securities decreased $8.0 million from $196.0 million at December 31, 2004 to $188.0 million at June 30, 2005.  The decrease in the portfolio was used to fund loan growth and reflects additional unrealized losses in the available-for-sale portfolio resulting from rising interest rates.  As previously discussed, during the first quarter of 2005, the company continued restructuring portions of the combined investment portfolio.

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The following table shows the composition of the loan portfolio by category:

In the context of this discussion, a real estate mortgage loan is defined as any loan, other than loans for construction purposes and advances on home equity lines of credit, secured by real estate, regardless of the purpose of the loan.  Advances on home equity lines of credit are included in consumer loans.  The company follows the common practice of financial institutions in the company’s market area of obtaining a security interest in real estate whenever possible, in addition to any other available collateral.  This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan components.  Generally the company limits the loan-to-value ratio to 80%.

Market Risk Management

The effective management of market risk is essential to achieving the company’s strategic financial objectives.  The company’s most significant market risk is interest rate risk  The company has established an Asset/Liability Management Committee (“ALCO”) to monitor and manage interest rate risk.  The ALCO monitors and manages the pricing and maturity of its assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on its net interest income.  The ALCO has established policy guidelines and strategies with respect to interest rate risk exposure and liquidity.

A monitoring technique employed by the ALCO is the measurement of the company’s interest sensitivity “gap,” which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time.  Also, asset/liability simulation modeling is performed by the company to assess the impact varying interest rates and balance sheet mix assumptions will have on net interest income.  Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available-for-sale, replacing an asset or liability at maturity or by adjusting the interest rate during the life of an asset or liability.  Managing the amount of assets and liabilities repricing in the same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates.  Neither the “gap” analysis nor asset/liability modeling is a precise indicator of the interest sensitivity position of the company due to the many factors that affect net interest income, including changes in the volume and mix of earning assets and interest-bearing liabilities.  The company’s gap analysis indicates a slight liability sensitive position over the one year lives of the portfolio and a slightly asset sensitive position over two years.  For a twelve month period, the gap analysis indicates a liability sensitive position as of June 30, 2005 of $3.3 million. Based on our modeling, this indicates that if interest rates increase the company would realize a modest decrease in net interest income over a twelve month

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period and would benefit slightly over the following twelve to twenty-four month period.  The company’s gap analysis and simulation modeling are not precise indicators of its interest sensitivity position.  Net interest income is also impacted by other significant factors, including changes in the volume and mix of earning assets and interest-bearing liabilities.  Through simulation modeling, management monitors the effect that an immediate and sustained change in interest rates of 100 basis points and 200 basis points up and down will have on net-interest income over the next twelve months.

Based on the many factors and assumptions used in simulating the effect of changes in interest rates,the following table estimates the percentage change in net interest income at March 31, 2005, June 30, 2005 and December 31, 2004 over the next twelve months.

Net Interest Income Sensitivity

As a result of the size of the investment portfolio that was acquired in the DutchFork merger and the amount and type of fixed rate longer term investments that were in the portfolio, management has put a great deal of emphasis on restructuring the portfolio since October 1, 2004.  The purpose was to shorten the average life of the portfolio and acquire investments that provided cash flow and/or were adjustable rate instruments.  Although this resulted in a reduction in investment yield, management believes that the restructuring positions the bank more appropriately for interest rate volatility and provides a significant amount of additional cash flow to fund desired loan growth.

The company also performs a valuation analysis projecting future cash flows from assets and liabilities to determine the Present Value of Equity (PVE) over a range of changes in market interest rates.  The sensitivity of PVE to changes in interest rates is a measure of the sensitivity of earnings over a longer time horizon.  At June 30, 2005 the PVE exposure in a plus 200 basis point increase in market interest rates was estimated to be 8.64% as compared to 6.4% at March 31, 2005 and 6.5% at December 31, 2004.

Liquidity and Capital Resources

The company’s liquidity remains adequate to meet operating and loan funding requirements.  Federal funds sold and investment securities available-for-sale represented 40.4% of total assets at June 30, 2004.  Management believes that the company’s existing stable base of core deposits along with continued growth in this deposit base will enable the company to meet its long-term and short-term liquidity needs successfully.  These needs include the ability to respond to short-term demand for funds caused by the withdrawal of deposits, maturity of repurchase agreements, extensions of credit and for the payment of operating expenses. Sources of liquidity in addition to deposit gathering activities include maturing loans

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and investments, purchase of federal funds from other financial institutions and selling securities under agreements to repurchase.  The company monitors closely the level of large certificates of deposits in amounts of $100,000 or more as they tend to be more sensitive to interest rate levels, and thus less reliable sources of funding for liquidity purposes.  At June 30, 2005, the amount of certificates of deposits of $100,000 or more represented 17.2% of total deposits.  These deposits are issued to local customers, many of which have other product relationships with the bank and none are brokered deposits.  Through the operations of our bank, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. At June 30, 2005, we had issued commitments to extend credit of $43.5 million, including $18.0 million in unused home equity lines of credit, through various types of lending arrangements. We evaluate each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate.  We manage the credit risk on these commitments by subjecting them to normal underwriting and risk management processes.

Management is not aware of any trends, events or uncertainties that may result in a significant adverse effect on the company’s liquidity position.  However, no assurances can be given in this regard, as rapid growth, deterioration in loan quality, and poor earnings, or a combination of these factors, could change the company’s liquidity position in a relatively short period of time.

With the successful completion of the common stock offering in 1995, the secondary offering completed in 1998, the trust preferred offering completed in September 2004, our the acquisition of DutchFork in October 2004, the company has maintained a high level of liquidity and adequate capital, along with continued retained earnings, sufficient to fund the operations of the bank for at least the next 12 months.  The company’s management anticipates that the bank will remain a well capitalized institution for at least the next 12 months. Shareholders’ equity was 11.0% of total assets at June 30, 2005 and 11.1% at December 31, 2004.  The bank’s risked-based capital ratios of Tier 1, total capital and leverage ratio were 11.9%, 12.8% and 8.1%, respectively at June 30, 2005 as compared to 11.5%, 12.4% and 7.6%, respectively at December 31, 2004.  The company’s risked-based capital ratios of Tier 1, total capital and leverage ratio were 13.5%, 14.4% and 9.1% respectively at June 30, 2005 as compared to 12.9%, 13.9% and 8.5%, respectively at December 31, 2004.  This compares to required OCC and Federal Reserve regulatory capital guidelines for Tier 1 capital, total capital and leverage capital ratios of 4.0%, 8.0% and 4.0%, respectively.

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