U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-QSB

[X]	QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period Ended: June 30, 2004
	OR
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-25972

FIRST COMMUNITY CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)

Tennessee	62-1562541
(State of Incorporation)	(I.R.S. Employer
	Identification No.)
809 West Main Street Rogersville, Tennessee	37857
(Address of Principal Executive Offices)	(Zip Code)

(423) 272-5800

(Issuer’s Telephone Number, Including Area Code)

None

(Former Name, Address and Fiscal Year, if Changed Since Last Report)

1,911,560

(Outstanding shares of the issuer’s common stock as of June 30, 2004)

Transitional Small Business Disclosure Format (check one):

Yes o                     No þ

FIRST COMMUNITY CORPORATION

INDEX

PART I.	FINANCIAL INFORMATION
EX-11 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
EX-31.1 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
EX-31.2 CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
EX-32.1 SECTION 906 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
EX-32.2 SECTION 906 CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

Number		Page
Item 1.	Financial Statements
	Consolidated Balance Sheets		3
	June 30, 2004 (Unaudited) and December 31, 2003
	Consolidated Statements of Income and Comprehensive Income		4
	Six months ended June 30, 2004 (Unaudited)
	Consolidated Statements of Income and Comprehensive Income		5
	Three months ended June 30, 2004 (Unaudited)
	Consolidated Statements of Cash Flows		6
	Six months ended June 30, 2004 and 2003 (Unaudited)
	Notes to Consolidated Financial Statements (Unaudited)		7
Item 2.	Management’s Discussion and Analysis or Plan of Operations		10
Item 3.	Controls and Procedures		15
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		16
Item 2.	Changes in Securities		16
Item 3.	Default Upon Senior Securities		16
Item 4.	Submission of Matters to a Vote of Security Holders		16
Item 5.	Other Information		16
Item 6.	Exhibits and Reports on Form 8-K		16
SIGNATURES			17
CERTIFICATIONS

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FIRST COMMUNITY CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)

($ amounts in thousands)

	June 30,			December 31,
	2004			2003
Assets
Cash and due from banks	$	4,223			2,764
Federal funds sold		—			6,572
Cash and cash equivalents		4,223			9,336
Securities available-for-sale		21,816			14,515
Loans		157,222			153,312
Allowance for loan losses		(1,733	)		(1,736	)
Loans, net		155,489			151,576
Premises and equipment		6,345			5,843
Accrued income receivable		1,070			1,155
Federal Home Loan Bank stock and Bankers Bank Stock		1,608			1,579
Cash surrender value of life insurance		3,556			3,474
Computer software, net of amortization		479			449
Other assets		818			827
	$	195,404			188,754
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	17,306			16,363
Interest-bearing		140,668			141,862
Total deposits		157,974			158,225
Securities sold under agreements to repurchase		2,116			1,920
Advances from FHLB		18,450			12,000
Subordinated Debentures		4,000			4,000
Note payable		350			350
Accrued interest payable		568			568
Dividend payable		134			132
Other liabilities		512			915
Total liabilities		184,104			178,110
Shareholders’ equity:
Common stock, no par value. Authorized 10,000,000 shares; issued and outstanding 1,911,560 in 2004 and 1,890,945 in 2003		7,295			7,183
Accumulated other comprehensive income, net		(288	)		(69	)
Retained earnings		4,293			3,530
Total shareholders’ equity		11,300			10,644
	$	195,404			188,754

FIRST COMMUNITY CORPORATION AND SUBSIDIARY
Consolidated Statements of Income and Comprehensive Income
(Unaudited)

($ amounts in thousands except earnings per share)

	Six Months Ended June 30, 2004
	2004			2003
Interest income:
Loans, including fees	$	4,916			4,761
Securities:
Taxable		244			191
Tax exempt		38			25
Federal funds sold		24			62
Total interest income		5,222			5,039
Interest expense:
Deposits		1,425			1,503
Other borrowings		397			411
Total interest expense		1,822			1,914
Net interest income		3,400			3,125
Provision for loan losses		82			311
Net interest income after provision for loan losses		3,318			2,814
Other income:
Service charges on deposit accounts		503			574
Gain (loss) on sale of securities		(3	)		98
Gain on sale of other real estate		—			20
Other service charges, commissions and fees		289			301
Total other income		789			993
Other expenses:
Salaries, directors’ fees and employee benefits		1,303			1,330
Occupancy expense		449			457
Other operating expenses		753			706
Total other expenses		2,505			2,493
Income before income taxes		1,602			1,314
Income taxes		572			489
Net income	$	1,030			825
Other comprehensive income:
Unrealized gains/(losses) on securities, net		(219	)		(79	)
Comprehensive income	$	811			746
Basic earnings per share	$	0.54			0.44
Basic average shares outstanding		1,899,504			1,876,210
Diluted earnings per share	$	0.54			0.43
Diluted average shares outstanding		1,917,939			1,913,470

FIRST COMMUNITY CORPORATION AND SUBSIDIARY
Consolidated Statements of Income and Comprehensive Income
(Unaudited)

($ amounts in thousands except earnings per share)

	Three Months Ended June 30, 2004
	2004			2003
Interest income:
Loans, including fees	$	2,465			2,461
Securities:
Taxable		142			73
Tax exempt		19			13
Federal funds sold		8			28
Total interest income		2,634			2,575
Interest expense:
Deposits		694			760
Other borrowings		200			206
Total interest expense		894			966
Net interest income		1,740			1,609
Provision for loan losses		0			162
Net interest income after provision for loan losses		1,740			1,447
Other income:
Service charges on deposit accounts		262			324
Gain on sale of securities		0			98
Other service charges, commissions and fees		121			135
Total other income		383			557
Other expenses:
Salaries, directors’ fees and employee benefits		645			623
Occupancy expense		224			230
Other operating expenses		400			355
Total other expenses		1,269			1,208
Income before income taxes		854			796
Income taxes		307			298
Net income	$	547			498
Other comprehensive income:
Unrealized gains/(losses) on securities, net		(270	)		(53	)
Comprehensive income	$	277		$	445
Basic earnings per share	$	0.29			0.27
Basic average shares outstanding		1,905,428			1,878,141
Diluted earnings per share	$	0.28			0.26
Diluted average shares outstanding		1,923,863			1,915,401

FIRST COMMUNITY CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)

	(In Thousands)
	Six Months Ended June 30,
Increase (decrease) in cash and due from banks	2004			2003
Cash flows from operating activities:
Net income	$	1,030			825
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		323			303
Provision for loan losses		82			311
Decrease in accrued income receivable		85			2
Change in Other Comprehensive Income		(219	)		(79	)
Increase in accrued interest payable		—			189
Other, net		(503	)		(287	)
Net cash from operating activities		798			1,264
Cash flows from investing activities:
Increase in FHLB Advances		6,450			—
Maturities and redemptions of securities available for sale		6,375			8,447
Purchases of securities available-for-sale		(13,676	)		(15,512	)
Increase in loans		(3,995	)		(25,186	)
Purchases of premises and equipment		(855	)		(218	)
Net cash from investing activities		(5,701	)		(32,469	)
Cash flows from financing activities:
Cash dividends paid		(267	)		(262	)
Issuance of common stock		112			44
Repayments of Notes Payable		—			(353	)
Increase (decrease) in securities sold under agreements to repurchase		196			(175	)
Increase (decrease) in deposits		(251	)		17,650
Net cash from financing activities		(210	)		16,904
Net increase (decrease) in cash		(5,113	)		(14,301	)
Cash and cash equivalents at beginning of period		9,336			20,969
Cash and cash equivalents at end of period	$	4,223			6,668
Cash payments for interest	$	1,822			1,725
Cash payments for income taxes	$	840			625

FIRST COMMUNITY CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements (Unaudited)

GENERAL

First Community Corporation (the “Company”), through its subsidiary, First Community Bank (the “Bank”), provides banking services to individuals and businesses from its five banking offices in Rogersville, Church Hill, and Kingsport, Tennessee. Its primary deposit products are demand, savings and certificates of deposit, and its primary lending products are commercial, real estate mortgage and installment loans. The significant policies are summarized as follows:

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2004, are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.

USE OF ESTIMATES

The preparation of financial statements in accordance with accounting principles generally accepted requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

STATEMENTS OF CASH FLOWS

Cash and cash equivalents includes cash, deposits with other financial institutions under 90 days, and federal funds sold.

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.

SECURITIES

Securities are classified into three categories: held to maturity, available for sale, and trading. Securities classified as held to maturity, which are those the Company has the positive intent and ability to hold to maturity, are reported at amortized cost. Securities classified as available for sale may be sold in response to changes in interest rates, liquidity needs, and for other purposes. These securities are reported at fair value and include securities not classified as held to maturity or trading. Trading securities are those held principally for the purpose of selling in the near future and are carried at fair value. The Company currently has no held to maturity or trading securities.

Unrealized holding gains and losses for available for sale securities are reported in other comprehensive income. Realized gains (losses) on securities available for sale are included in other income (expense) and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income. Gains and losses on sales of securities are determined on the specific-identification method.

LOANS

Loans which management has the intent and ability to hold for the foreseeable future are reported at their outstanding principal balance. Interest on loans is computed daily based on the principal amount outstanding.

A loan is considered impaired when it is probable that the Company will be unable to collect the scheduled payments of principal and interest due under the contractual terms of the loan agreement. Impaired loans are

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measured at the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price, or at the fair value of the collateral if the loan is collateral dependent. If the measure of the impaired loan is less than the recorded investment in the loan, the Company recognizes an impairment by creating or adjusting a valuation allowance with a corresponding charge or credit to the provision for loan losses.

The Company considers all loans on non-accrual status to be impaired. Interest accrual on loans is discontinued when, in the opinion of management, it is not reasonable to expect that such interest will be collected, or generally, when collection of principal or interest becomes 90 days or more past due. Management may make exceptions to this policy when the estimated net realizable value of the collateral is sufficient to recover the principal and interest balance. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is established by charges to operations based on management’s evaluation of the assets, economic conditions and other factors considered necessary to maintain the allowance at an adequate level. In evaluating the adequacy of the allowance, management makes certain estimates and assumptions that are susceptible to change in the near term. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. Uncollectible loans are charged to the allowance account in the period such determination is made. Recoveries on loans previously charged off are credited to the allowance account in the period received. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows, as discussed above.

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.

OTHER REAL ESTATE

Other real estate, which consists of properties acquired through foreclosure, is recorded at the lower of the outstanding loan amount or fair value, determined by appraisal, at the date of foreclosure. Declines in value resulting from reappraisals, as well as losses resulting from disposition are charged to operations.

STOCK-BASED COMPENSATION

SFAS No. 123, “Accounting for Stock-Based Compensation”, defines a fair value-based method of measuring employee stock options or similar equity instruments. Under this method, compensation cost is measured at the option grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. In lieu of recording the value of such options, the Company has elected to continue to measure compensation cost using APB Opinion 25 and to provide pro forma disclosures quantifying the difference between compensation cost included in reported net income and the related cost measured by such fair value-based method. The following table illustrates the effect on net income and earning per share if expense was measured using the fair value recognition provision of FASB Statement No. 123:

	For the six months ended June 30,
	2004		2003
Net Income as reported	$	1,030	$	825
Deduct: Stock-based compensation expense
Determined under fair value based method, net of tax		1		3
Pro forma net income		1,029		822

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	For the six months ended June 30,
	2004		2003
Basic Earnings per share as reported		.54		.44
Pro forma basic earnings per share		.54		.44
Diluted earnings per share as reported		.54		.43
Pro forma diluted earning per share		.53		.43

No options were granted in 2004 and 2003.

PER SHARE AMOUNTS

Earnings per share (EPS) is calculated in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, issued in February 1997. The statement requires the dual presentation of basic and diluted EPS on the income statement. Basic EPS excludes dilution, and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or contracts to issue common stock were exercised or converted into common stock that then shared in the earnings of the entity.

INCOME TAXES

The Company files a consolidated tax return with its subsidiary. Income taxes are allocated to members of the consolidated group on a separate return basis. Income taxes have been provided using the liability method as prescribed by SFAS No. 109, “Accounting for Income Taxes”.

EMPLOYEE BENEFITS

The Bank maintains a 401(k) profit-sharing plan, which covers substantially all employees.

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ITEM NO. 2 MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

The accounting principles we follow and our methods of applying these principles conform with accounting principles generally accepted in the United States and with general practices within the banking industry. In connection with the application of those principles, we have made judgments and estimates which, in the case of the determination of our allowance for loan losses (ALL), have been critical to the determination of our financial position, results of operations and cash flows.

Allowance for Loan Losses. Our management assesses the adequacy of the ALL prior to the end of each calendar quarter. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The ALL consists of two portions: (1) an amount representative of specifically identified credit exposure and exposures; and (2) an amount representative of incurred loss which is based in part on the consideration of historic loss histories which management believes is representative of the probable loss. Even though the allowance for loan losses is composed of two components, the entire allowance is available to absorb any credit losses.

We establish the amount separately for two different risk groups: (1) unique loans (commercial loans, including those loans considered impaired); and (2) homogeneous loans (generally consumer loans). We base the amount for unique loans primarily on risk rating grades assigned to each of these loans as a result of our loan management and review processes.

FINANCIAL CONDITION

First Community Corporation (the “Company”) is a registered bank holding company that was incorporated under Tennessee law in 1994. The Company’s activities are conducted through its wholly owned subsidiary, First Community Bank of East Tennessee (the “Bank”), which was acquired by the Company in 1994. The Bank, a state bank chartered under the laws of Tennessee, was organized in late 1992 shortly after the last locally owned bank in Hawkins County was acquired by a regional bank holding company. Since its opening in April 1993 through June 30, 2004, the Bank has grown to total assets of approximately $195 million.

Operating as a full service commercial bank, the Bank provides a range of financial services that include checking accounts, NOW accounts, money market and savings accounts, certificates of deposit, individual retirement accounts, money transfers, and safe deposit facilities. Lending services include loans for business, agriculture, real estate, personal use, home improvements, and automobiles. The Bank is not authorized to provide trust services.

The Bank is subject to the regulatory authority of the Department of Financial Institutions of the State of Tennessee and the Federal Deposit Insurance Corporation (the “FDIC”), which currently insures the depositors of each member bank to a maximum of $100,000 per depositor. For this protection, the Bank pays a quarterly statutory assessment and is subject to the rules and regulations of the FDIC.

The Bank considers its primary market for loans and deposits to be individuals, small-to-medium size businesses and professionals in Hawkins County and Sullivan County, Tennessee. The Bank is actively soliciting business in this target market and considers the potential growth opportunities to be favorable. No material portion of the Bank’s deposits has been obtained from any single person or group of persons, with the exception of a $12 million certificate of deposit from a local government entity.

The result of operations of the Bank and the Company are affected by credit policies of monetary authorities, particularly the Federal Reserve Board. The instruments of monetary policy employed by the Federal Reserve Board include open market operations in U.S. government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits. In view of changing conditions in the national economy and in the money markets, as well as the effects of actions by monetary and fiscal authorities, including the Federal Reserve Board, no prediction can be made as to possible future changes in

10

interest rates, deposit levels, loan demand or the effect of such matters on the business and earnings of the Company.

Securities available for sale increased $7.3 million or 50.0% during the first six months of 2004. This increase reflects the purchase of $13.7 million of securities (primarily agency securities) and maturities and redemptions of $6.4 million during the first two quarters of 2004. These purchases were funded primarily from federal funds sold which decreased $6.6 million or 100.0% in the first and second quarter.

Loans have increased $3.9 million or 2.6% during the first six months of 2004. Commercial real estate loans comprise the majority of this increase. Since 1999, the mix of loans in the Bank’s portfolio has reflected an increasing level of commercial real estate loans with a flat or declining proportion of loans in the residential mortgage or consumer loan areas, respectively. The Bank competes generally with insurance companies, credit unions and other financial institutions that have expanded into the quasi-financial market. Some of these competitors are much larger than the Bank and have greater resources by which to offer lower rates on consumer lending.

Deposits have decreased $.3 million or 0.2% as of June 30, 2004 from December 31, 2003. Due to the limited deposit growth year-to-date in 2004, new loans were funded from Federal Home Loan Bank advances of $6.5 million obtained during the first six months of the year.

The Bank continually reviews its loan portfolio to determine deficiencies and the corrective actions to be taken. The review process is handled internally independent of loan origination responsibilities. A minimum of 30% of total loans is reviewed annually along with 100% of those borrowers with aggregate indebtedness in excess of $200,000. Past due loans are reviewed by an internal loan officer committee, and a summary report of such loans is reviewed monthly by the Board of Directors. A report of loan review findings is presented quarterly to the Bank’s Board of Directors.

NONPERFORMING ASSETS AND RISK ELEMENTS

Nonperforming assets consist of (1) nonaccrual loans for which the recognition of interest was discontinued, (2) loans past due 90 days or more and still accruing interest, (3) loans which have been restructured to provide for a reduction or deferral of interest or principal because the borrower’s financial condition deteriorated, and (4) foreclosed and repossessed assets. Accrual of interest is discontinued on any loan when principal and/or interest has not been paid for 90 days, unless the loan is well secured and in the process of collection. “In the process of collection” means that a definitive source is expected to pay the loan in full within 30 days. Nonperforming loans at June 30, 2004 amounted to $169,000 or 0.11% of total loans, a decrease from $260,000 or 0.17% of total loans at December 31, 2003. Diversification within the loan portfolio is an important means of reducing inherent lending risks. At June 30, 2004, the Bank had no concentrations of 10% or more of total loans in any single industry or in any geographical area outside the immediate market area of the Bank.

Other real estate owned is carried at fair value, determined by an appraisal. The Bank has $232,000 of other real estate owned as of June 30, 2004.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is adequate with cash and due from banks of $4.2 million. In addition, loans and securities repricing or maturing within one year or less exceed $61.9 million at June 30, 2004. The Bank has approximately $21.7 million in loan commitments that are expected to be funded within the next six months and other commitments, primarily standby letters of credit, of approximately $2.7 million at June 30, 2004. In addition to the Federal Home Loan Bank membership from which the Bank has unused borrowing capacity of $14.1 million, the Bank has established federal funds lines of credit with three correspondent banks totaling $14.7 million to meet unexpected liquidity demands. With the exception of unfunded loan commitments, there are no known trends or any known commitments or uncertainties that will result in the Bank’s liquidity increasing or decreasing in a material way. In addition, the Company is not aware of any recommendations by any

11

regulatory authorities that would have a material effect on the Company’s liquidity, capital resources or results of operations.

Total equity capital of the bank at June 30, 2004, is $15.3 million or approximately 7.8% of total assets. The Bank’s capital position is adequate to meet the minimum capital requirements for all regulatory agencies. The Bank’s capital ratios as of June 30, 2004, are as follows:

Tier 1 leverage	7.99	%
Tier 1 risk-based	9.21	%
Total risk-based	10.24	%

Total equity capital of the corporation at June 30, 2004, is $11.3 million or approximately 5.8% of total assets. The Corporation’s capital position is adequate to meet the minimum capital requirements for all regulatory agencies. The Corporation’s capital ratios as of June 30, 2004, are as follows:

Tier 1 leverage	7.90	%
Tier 1 risk-based	9.10	%
Total risk-based	10.21	%

Effective December 18, 2001, the Company, through a placement agent, sold to institutional investors $4,000,000 in trust preferred securities. The interest rate, which varies quarterly with LIBOR, was 5.13% at June 30, 2004. As of June 30, 2004, $3.9 million of trust preferred securities qualified as Tier 1 capital.

Capital adequacy in the banking industry is evaluated primarily by the use of ratios measuring capital against assets that are weighted based on risk characteristics. The Corporation and Bank were classified as “well capitalized” for regulatory purposes as of June 30, 2004.

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 quarter end.

	June 30, 2004				December 31, 2003
	Fixed		Variable		Fixed		Variable
	Rate		Rate		Rate		Rate
Commitments to make loans	$	3,283,000	$	18,453,000	$	2,614,000	$	13,861,000
Unused letters of credit		—		2,747,000		—		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 up to 21.00% and maturities ranging from 1 year to 5 years.

RESULTS OF OPERATIONS

YEAR TO DATE

The Company had net income of $1,030,000 for the six months ending June 30, 2004, compared with $825,000 for the same period last year, resulting in an increase of 24.8%. Between June 30, 2003 and June 30, 2004, average earning assets grew approximately $21.5 million or 13.7% while the average yield on the

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assets declined from 6.45% at June 30, 2003 to 5.89% at June 30, 2004. During this same time period average interest bearing liabilities grew approximately $17.2 million or 11.7% while the cost of these funds decreased from 2.60% at June 30, 2003 to 2.22% at June 30, 2004. Consequently, net interest margin declined from 4.13% at June 30, 2003 to 3.85% at June 30, 2004. Although net interest margin declined, net interest income increased in 2004 due to the growth in average earning assets exceeding the growth in average interest bearing liabilities by approximately $4.3 million. This resulted in net interest income increasing $275,000 or 8.8% as of the six months ending June 30, 2004, compared to the same period in 2003. Earning asset yield has been affected by the shift in the Company’s loan portfolio away from higher yielding consumer loans to commercial real estate loans. Additional factors affecting earning asset yield included the decline in yield of loans tied to prime as well as the redemption in 2003 of U.S. agency securities that had rates above the current market. The yield has also been impacted by the current record low interest rates as customers refinanced their adjustable rate mortgages on the secondary market to lock in low fixed rates.

Noninterest income for the six months ending June 30, 2004 was $789,000 compared to $993,000 for the same period in 2003, reflecting a decrease of $204,000 or 20.5%. Noninterest income consists mainly of service charges on deposit accounts, credit life insurance commissions, bank owned life insurance income and secondary mortgage processing fees. Service charges on deposit accounts for the six months ending June 30, 2004 were $503,000 compared with $574,000 for the same period in 2003, reflecting a decrease of $71,000 or 12.4%. This decrease resulted from a decrease in usage by customers of overdraft privileges offered by the Company, as well as a reduction taken in June 2003 of $50,000 in the allowance for uncollectible overdraft charges. Charge-offs related to the program had been lower than originally estimated. The six-months ending June 30, 2003 included $20,000 from gains on the sale of foreclosed property and a $98,000 gain on the sale of securities. A $3,000 loss on the sale of securities was incurred in 2004. In 2003, the Company held securities that earned higher than market yields, yet had relatively short remaining lives. The Company determined that it was more advantageous to sell the securities and take the gains rather than hold them to maturity. In 2004, due to changes in the bond market, no additional opportunities to sell at gains have occurred. The Company has sold certain securities in 2004 at a small loss in an effort to better position the portfolio for a rising rate environment.

The provision for loan losses was $82,000 during the six months ending June 30, 2004 compared with $311,000 for the same period in 2003. The provision for loan losses decreased in 2004 primarily due to lower loan growth during the six months ending June 30, 2004 as compared to the same period in 2003. Loans increased $3.9 million and $25.1 million during the six months ending June 30, 2004 and June 30, 2003, respectively. Loan growth is one of several significant components taken into consideration by management in the determination of the adequacy of the allowance for loan losses. Other factors which resulted in a lower provision in 2004 includes an improvement in the level of past due loans, as well as the continuing trend of loan growth in the commercial real estate area as opposed to higher risk consumer lending. The allowance for loan losses of $1,733,000 at June 30, 2004 (approximately 1.10% of loans) is considered by management to be adequate to cover losses inherent in the loan portfolio. Management evaluates the adequacy of the allowance for loan losses monthly and makes provisions for loan losses based on this evaluation.

Non-interest expenses for the six months ending June 30, 2004 were $2,505,000 compared to $2,493,000 for the same period in 2003 reflecting an increase of $12,000 or 0.5%. Non-interest expenses consist primarily of salaries and benefits, facilities operation expenses, advertising, legal fees, office supplies, software maintenance, FDIC and state banking assessments, financial institution bond insurance, and education. The Company continues to closely monitor expenses to control growth in this area.

The Company records a provision for income taxes currently payable and for taxes payable in the future because of differences in the timing of recognition of certain items for financial statement and income tax purposes. The major difference between the effective tax rate applied to the Company’s financial statement income and the federal statutory rate is caused by state income taxes, net of federal tax benefit. The Company’s effective tax rate was 35.7% in 2004, and 37.2% in 2003.

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QUARTER TO DATE

The Company had net income of $547,000 for the three months ending June 30, 2004, compared with $498,000 for the same period last year, resulting in an increase of 9.8%.

Net interest income for the three months ending June 30, 2004 was $1,740,000 compared to $1,609,000 for the same period in 2003, reflecting an increase of $131,000 or 8.1%.

No provision for loan losses was recorded during the three months ending June 30, 2004 compared with $162,000 for the same period in 2003. Loan growth is one of several significant components taken into consideration by management in the determination of the adequacy of the allowance for loan losses. In addition, the Company’s past due percentage for loans has averaged .49% during 2004 as compared to 1.64% for 2003.

Noninterest income for the three months ending June 30, 2004 was $383,000 compared to $557,000 for the same period in 2003, reflecting a decrease of $174,000 or 31.2%. Noninterest income consists mainly of service charges on deposit accounts, credit life insurance commissions, bank owned life insurance income and secondary mortgage processing fees. Service charges on deposit accounts for the three months ending June 30, 2004 were $262,000 compared with $324,000 for the same period in 2003, reflecting a decrease of $62,000 or 19.1%. This decrease is due primarily to a reduction of $50,000 in the allowance for uncollectible overdraft charges in June 2003. The three-months ending June 30, 2003 included $98,000 from gains on the sale of securities.

Non-interest expenses for the three months ending June 30, 2004 were $1,269,000 compared to $1,208,000 for the same period in 2003 reflecting an increase of $61,000 or 5.1%.

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Item 3   Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including Mark A. Gamble, the principal executive officer, and Elizabeth O. Lollar, the principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Company’s management, including the principal executive officer and principal financial officer, concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report. The Company has also evaluated its internal control over financial reporting (as defined in Rule 13a-15(e) under the Exchange Act), and there have been no changes in the Company’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time the Company and the Bank is each a party to claims and legal proceedings arising from normal and ordinary business operations. After taking into consideration the factors underlying these claims and the information provided by legal counsel regarding the current status of such claims or proceedings, in the opinion of management, the ultimate aggregate liability represented thereby will not have a material adverse effect on the Bank’s or the Company’s financial condition or results of operations.

Item 2.	Changes in Securities
	None

Item 3.	Default Upon Senior Securities
	None

Item 4.	Submission of Matters to a Vote of Security Holders
	None

Item 5.	Other Information
	None

Item 6.   Exhibits and Reports on Form 8-K

a) The following exhibits are filed herewith:

Exhibit Number	Description
11	Statement Regarding Computation of Earnings Per Share
31.1	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 2002
32.2	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

There are no other matters required to be reported under this item.

b) The company did not file any reports on Form 8-K during the quarter ended June 30, 2004.

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SIGNATURES

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

	FIRST COMMUNITY CORPORATION (Registrant)
August 9, 2004Date	Mark A. Gamble President & Principal Executive Officer
August 9, 2004Date	Elizabeth O. Lollar Chief Financial Officer & Principal Financial Officer

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