10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended September 30, 2012

oTransition report pursuant to Section 13 or 15(d) of the Exchange Act

for the transition period from          to        

Commission File No. 000-28344

FIRST COMMUNITY CORPORATION

(Exact name of registrant as specified in its charter)

South Carolina	57-1010751
(State of Incorporation)	(I.R.S. Employer Identification No.)

5455 Sunset Boulevard, Lexington, South Carolina 29072

(Address of Principal Executive Offices)

(803) 951-2265

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x  Yes  o  No

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:  On November 13, 2012, 5,224,282 shares of the issuer’s common stock, par value $1.00 per share, were issued and outstanding.

TABLE OF CONTENTS

EX-31.1 RULE 13A-14(A) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

EX-31.2 RULE 13A-14(A) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

EX-32 SECTION 1350 CERTIFICATIONS

2

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED BALANCE SHEETS

	September 30,
	2012			December 31,
(Dollars in thousands, except par value)	(Unaudited)			2011
ASSETS
Cash and due from banks	$	10,485		$	10,599
Interest-bearing bank balances	9,284			5,512
Federal funds sold and securities purchased under agreements to resell	610			381
Investment securities - available for sale	210,734			201,032
Other investments, at cost	4,540			5,637
Loans held for sale	8,685			3,725
Loans	323,534			324,311
Less, allowance for loan losses	4,695			4,699
Net loans	318,839			319,612
Property, furniture and equipment - net	17,297			17,483
Bank owned life insurance	10,779			10,974
Other real estate owned	5,570			7,351
Intangible assets	211			365
Goodwill	571			571
Other assets	8,734			10,645
Total assets	$	606,339		$	593,887
LIABILITIES
Deposits:
Non-interest bearing demand	$	92,738		$	83,572
NOW and money market accounts	147,655			136,483
Savings	41,358			34,048
Time deposits less than $100,000	117,149			128,616
Time deposits $100,000 and over	75,565			81,866
Total deposits	474,465			464,585
Securities sold under agreements to repurchase	15,651			13,616
Federal Home Loan Bank advances	38,491			43,862
Junior subordinated debt	17,917			17,913
Other liabilities	5,537			6,015
Total liabilities	552,061			545,991
SHAREHOLDERS’ EQUITY
Preferred stock, par value $1.00 per share, 10,000,000 shares authorized; issued and outstanding 750 at September 30, 2012 11,350 at December 31, 2011	750			11,137
Common stock, par value $1.00 per share; 10,000,000 shares authorized; issued and outstanding 5,224,282 at September 30,2012 3,307,531 at December 31, 2011	5,224			3,308
Common stock warrants issued	560			560
Additional paid in capital	61,381			49,165
Restricted stock	(197		)	—
Accumulated deficit	(15,729		)	(17,603		)
Accumulated other comprehensive income	2,289			1,329
Total shareholders’ equity	54,278			47,896
Total liabilities and shareholders’ equity	$	606,339		$	593,887

See Notes to Consolidated Financial Statements

3

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

	Nine			Nine
	Months Ended			Months Ended
	September 30,			September 30,
	2012			2011
(Dollars in thousands, except per share data)	(Unaudited)			(Unaudited)
Interest income:
Loans, including fees	$	13,804		$	14,376
Taxable securities	3,194			4,803
Non taxable securities	475			51
Federal funds sold and securities purchased under resale agreements	30			28
Other	31			30
Total interest income	17,534			19,288
Interest expense:
Deposits	2,473			3,557
Federal funds sold and securities sold under agreement to repurchase	26			29
Other borrowed money	1,746			2,001
Total interest expense	4,245			5,587
Net interest income	13,289			13,701
Provision for loan losses	416			1,110
Net interest income after provision for loan losses	12,873			12,591
Non-interest income:
Deposit service charges	1,159			1,376
Mortgage origination fees	2,993			1,152
Investment advisory fees and non-deposit commissions	492			531
Gain (loss) on sale of securities	(62		)	274
Loss on sale of other assets	(8		)	(109		)
Fair value loss adjustments	(57		)	(185		)
Other-than-temporary-impairment write-down on securities	(200		)	(54		)
Loss on early extinguishment of debt	(121		)	(74		)
Other	1,524			1,480
Total non-interest income	5,720			4,391
Non-interest expense:
Salaries and employee benefits	8,179			7,002
Occupancy	1,032			953
Equipment	877			858
Marketing and public relations	367			361
FDIC assessments	497			681
Other real estate expense	559			638
Amortization of intangibles	153			466
Other	2,679			2,807
Total non-interest expense	14,343			13,766
Net income before tax	4,250			3,216
Income taxes	1,303			963
Net income	$	2,947		$	2,253
Preferred stock dividends and accretion	557			502
Preferred stock redemption costs	119			—
Net income available to common shareholders	$	2,271		$	1,751
Basic earnings per common share	$	0.60		$	0.53
Diluted earnings per common share	$	0.60		$	0.53

See Notes to Consolidated Financial Statements

4

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

	Three			Three
	Months Ended			Months Ended
	September 30,			September 30,
	2012			2011
(Dollars in thousands, except per share data)	(Unaudited)			(Unaudited)
Interest income:
Loans, including fees	$	4,548		$	4,747
Taxable securities	853			1,600
Non taxable securities	226			18
Federal funds sold and securities purchased under resale agreements	13			7
Other	10			10
Total interest income	5,650			6,382
Interest expense:
Deposits	738			1,114
Federal funds sold and securities sold under agreement to repurchase	8			11
Other borrowed money	575			629
Total interest expense	1,321			1,754
Net interest income	4,329			4,628
Provision for loan losses	115			360
Net interest income after provision for loan losses	4,214			4,268
Non-interest income:
Deposit service charges	395			440
Mortgage origination fees	1,393			698
Investment advisory fees and non-deposit commissions	183			218
Gain (loss) on sale of securities	(35		)	133
Loss on sale of other assets	(22		)	(18		)
Fair value loss adjustments	(20		)	(60		)
Other-than-temporary-impairment write-down on securities	—			(50		)
Loss on early extinguishment of debt	—			(74		)
Other	508			401
Total non-interest income	2,402			1,688
Non-interest expense:
Salaries and employee benefits	2,874			2,493
Occupancy	352			336
Equipment	307			287
Marketing and public relations	73			64
FDIC assessment	117			176
Other real estate expense	173			134
Amortization of intangibles	51			156
Other	876			912
Total non-interest expense	4,823			4,558
Net income before tax	1,793			1,398
Income taxes	573			441
Net income	$	1,220		$	957
Preferred stock dividends and accretion	220			167
Preferred stock redemption costs	119			—
Net income available to shareholders	$	881		$	790
Basic earnings per common share	$	0.19		$	0.24
Diluted earnings per common share	$	0.19		$	0.24

See Notes to Consolidated Financial Statements

5

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Nine months ended September 30,
(Dollars in thousands)	2012		2011
Net income	$	2,947	$	2,253
Other comprehensive income:
Unrealized gain during the period on available-for-sale securities, net of tax expense of $418 and $1,806, respectively	787		3,427
Less: Reclassification adjustment for (gain)loss included in net income, net of tax (expense)benefit of $21 and $96, respectively	41		(178		)
Reclassification adjustment for other-than-temporary-impairment on securities net of tax benefit of $68 and $19, respectively	132		35
Other comprehensive income	960		3,284
Comprehensive income	$	3,907	$	5,537

	Three months ended September 30,
(Dollars in thousands)	2012		2011
Net income	$	1,220	$	957
Other comprehensive income:
Unrealized gain during the period on available-for-sale securities, net of tax expense of $420 and $1,035, respectively.	791		2,007
Less: Reclassification adjustment for (gain)loss included in net income, net of tax (expense)benefit of $12 and $47, respectively.	23		(86		)
Reclassification adjustment for other-than-temporary-impairment on securities net of tax benefit of $0 and $18, respectively.	—		32
Other comprehensive income	814		1,953
Comprehensive income	$	2,034	$	2,910

See Notes to Consolidated Financial Statements

6

FIRST COMMUNITY CORPORATION

Consolidated Statements of Changes in Shareholders’ Equity

Nine Months ended September 30, 2012 and September 30, 2011

(Unaudited)

																	Accumulated
				Common			Common		Additional		Nonvested						Other
	Preferred			Shares	Common		Stock		Paid-in		Restricted			Accumulated			Comprehensive
(Dollars and shares in thousands)	Stock			Issued	Stock		Warrants		Capital		Stock			Deficit			Income (Loss)			Total
Balance, December 31, 2010	$	11,035		3,270	$	3,270	$	509	$	48,956	$	—		$	(19,732	)	$	(2,241	)	$	41,797
Net income														2,253						2,253
Other comprehensive income net of tax expense of $1,883																	3,284			3,284
Issuance of restricted stock				23	23				133		(65		)							91
Amortization of compensation on restricted stock											26									26
Dividends: Common ($0.12 per share)														(393		)				(393		)
Preferred														(426		)				(426		)
Accretion	76													(76		)				—
Dividend reinvestment plan				11	11				57											68
Balance, September 30, 2011	$	11,111		3,304	$	3,304	$	509	$	49,146	$	(39	)	$	(18,374	)	$	1,043		$	46,700
Balance, December 31, 2011	$	11,137		3,308	$	3,308	$	560	$	49,165	$	—		$	(17,603	)	$	1,329		$	47,896
Net income														2,947						2,947
Other comprehensive income net of tax expense of $329																	960			960
Issuance of restricted stock				33	33				239		(272		)							—
Amortization compensation restricted stock											75									75
Issuance of common stock				1,875	1,875				11,917											13,792
Dividends: Common ($0.12 per share)														(397		)				(397		)
Preferred														(475		)				(475		)
Redemption of preferred stock	(10,535		)																	(10,535		)
Accretion and redemption costs	148													(201		)				(53		)
Dividend reinvestment plan				8	8				60											68
Balance, September 30, 2012	$	750		5,224	$	5,224	$	560	$	61,381	$	(197	)	$	(15,729	)	$	2,289		$	54,278

See Notes to Consolidated Financial Statements

7

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended September 30,
(Dollars in thousands)	2012			2011
Cash flows from operating activities:
Net income	$	2,947		$	2,253
Adjustments to reconcile net income to net cash provided in operating activities:
Depreciation	639			634
Premium amortization	2,096			1,369
Provision for loan losses	416			1,110
Writedowns of other real estate owned	266			243
Loss on sale of other real estate owned	8			109
Amortization of intangibles	153			466
Gain (loss) on sale of securities	62			(274		)
Loss on early extinguishment of debt	121			74
Other-than-temporary-impairment on securities	200			54
Net decrease in fair value option instruments and derivatives	57			185
Decrease in other assets	1,628			520
Increase (decrease) in other liabilities	(529		)	292
Net cash provided in operating activities	8,064			7,035
Cash flows from investing activities:
Purchase of investment securities available-for-sale and other investments	(89,195		)	(91,464		)
Maturity of investment securities available-for-sale	29,017			28,919
Proceeds from sale of securities available-for-sale and other investments	50,748			47,792
Increase in loans	(6,658		)	(4,535		)
Proceeds from sale of other real estate owned	3,487			2,141
Purchase of property and equipment	(452		)	(211		)
Proceeds from sale of land	—			9
Net cash used in investing activities	(13,053		)	(17,349		)
Cash flows from financing activities:
Increase in deposit accounts	9,879			17,815
Increase in securities sold under agreements to repurchase	2,036			4,241
Decrease in other borrowings	—			(20		)
Advances from the FHLB	1,500			1,500
Repayment of advances FHLB	(6,992		)	(20,945		)
Proceeds from sale Common Stock	13,792			—
Redemption of Preferred Stock	(10,535		)	—
Dividends paid: Common Stock	(397		)	(393		)
Preferred Stock	(475		)	(426		)
Dividend reinvestment plan	68			68
Net cash provided from financing activities	8,876			1,840
Net increase (decrease) in cash and cash equivalents	3,887			(8,474		)
Cash and cash equivalents at beginning of period	16,492			26,461
Cash and cash equivalents at end of period	$	20,379		$	17,987
Supplemental disclosure:
Cash paid during the period for:
Interest	$	4,645		$	5,967
Income taxes	$	—		$	—
Non-cash investing and financing activities:
Unrealized gain on securities	$	960		$	3,284
Transfer of loans to foreclosed property	$	1,980		$	3,694

See Notes to Consolidated Financial Statements

8

Notes to Consolidated Financial Statements (unaudited)

Note 1 - Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated balance sheets, and the consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows of First Community Corporation (“the Company”), present fairly in all material respects the Company’s financial position at September 30, 2012 and December 31, 2011, the Company’s results of operations for the nine months and three months ended September 30, 2012, and the Company’s cash flows for the nine months ended September 30, 2012 and 2011. The results of operations for the nine months and three months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

In the opinion of management, all adjustments necessary to fairly present the consolidated financial position and consolidated results of operations have been made. All such adjustments are of a normal, recurring nature.  All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements and notes thereto are presented in accordance with the instructions for Form 10-Q.  The information included in the Company’s 2011 Annual Report on Form 10-K should be referred to in connection with these unaudited interim financial statements.

Note 2 — Earnings Per Common Share

The following reconciles the numerator and denominator of the basic and diluted earnings per common share computation:

	Nine months				Three months
	Ended September 30,				Ended September 30,
(In thousands, except price per share)	2012		2011		2012		2011
Numerator (Net income available to common shareholders)	$	2,271	$	1,751	$	881	$	790
Denominator
Weighted average common shares outstanding for:
Basic earnings per share	3,780		3,280		4,693		3,294
Dilutive securities:
Deferred compensation	—		—		2		—
Warrants – Treasury stock method	27		—		31		—
Diluted earnings per share	3,807		3,280		4,726		3,294
The average market price used in calculating assumed number of shares	$	7.84	$	6.45	$	8.27	$	6.19

At September 30, 2012, there were 75,022 outstanding options at an average exercise price of $19.69 and warrants for 196,000 shares at $8.69.  None of these options or warrants has an exercise price below the average market price for the three-month and nine-month periods ended September 30, 2012, therefore they are not deemed to be dilutive.  In the fourth quarter of 2011, we issued $2.5 million in 8.75% subordinated notes maturing December 16, 2019.  Interest is payable quarterly and the notes may be prepaid at anytime without penalty.  Warrants for 107,500 shares of common stock at $5.90 per share were issued in connection with the issuance of the subordinated debt.  These warrants expire December 16, 2019 and are included in dilutive securities in the table above.

On July 27, 2012, the Company closed its public offering of common stock.  This offering resulted in the issuance of a total of 1,875,000 shares of common stock at $8.00 per share, including 244,565 shares granted to the underwriters to cover overallotments.

9

Note 3—Investment Securities

The amortized cost and estimated fair values of investment securities are summarized below:

AVAILABLE-FOR-SALE:

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2012:
Government sponsored enterprises	$	1,525	$	19	$	—	$	1,544
Mortgage-backed securities	121,162		1,813		509		122,466
Small Business Administration pools	50,170		850		89		50,931
State and local government	32,531		1,303		7		33,827
Corporate and other securities	1,932		35		1		1,966
	$	207,320	$	4,020	$	606	$	210,734
December 31, 2011:
Government sponsored enterprises	$	31	$	3	$	—	$	34
Mortgage-backed securities	141,103		2,876		2,348		141,631
Small Business Administration pools	35,889		634		44		36,479
State and local government	19,617		871		—		20,488
Corporate and other securities	2,432		54		86		2,400
	$	199,072	$	4,438	$	2,478	$	201,032

During the nine months ended September 30, 2012 and September 30, 2011, the Company received proceeds of $49.5 million and $47.8 million, respectively, from the sale of investment securities available-for-sale.  Gross realized gains amounted to $2.0 million and gross realized losses amounted to $2.1 million for the nine months ended September 30, 2012.  For the nine months ended September 30, 2011, gross realized gains amounted to $2.3 million and gross realized losses amounted to $2.0 million.  During the three months ended September 30, 2012 and September 30, 2011, the Company received proceeds of $470 thousand and $10.7 million, respectively, from the sale of investment securities available-for-sale.  Gross realized losses amounted to $35 thousand for the three months ended September 30, 2012.  There were no realized gains for the three months ended September 30, 2012.  For the three months ended September 30, 2011, gross realized gains amounted to $588 thousand and gross realized losses amounted to $455 thousand.

At September 30, 2012, corporate and other securities available-for-sale included the following at fair value: corporate bonds at $1.0 million, mutual funds at $897.2 thousand, foreign debt of $59.6 thousand and Federal Home Loan Mortgage Corporation (the “FHLMC” or “Freddie Mac”) preferred stock of $9.2 thousand.  At December 31 2011, corporate and other securities available-for-sale included the following at fair value: corporate bonds at $1.4 million, mutual funds at $904.9 thousand foreign debt of $59.0 thousand and FHLMC preferred stock of $20.9 thousand.

10

Note 3—Investment Securities — continued

During the nine and three months ended September 30, 2012 and 2011, the Company recorded other-than-temporary-impairment (OTTI) losses on available-for-sale securities as follows:

	Nine months ended September 30, 2012		Three months ended September 30, 2012
(Dollars in thousands)	Available-for- sale securities		Available-for- sale securities
Total OTTI charge realized and unrealized	$	415	$	—
OTTI recognized in other comprehensive income (non-credit component)	215		—
Net impairment losses recognized in earnings (credit component)	$	200	$	—

	Nine months ended September 30, 2011		Three months ended September 30, 2011
(Dollars in thousands)	Available-for- sale securities		Available-for- sale securities
Total OTTI charge realized and unrealized	$	262	$	191
OTTI recognized in other comprehensive income (non-credit component)	208		141
Net impairment losses recognized in earnings (credit component)	$	54	$	50

During 2012 and 2011, OTTIs occurred for which only a portion was attributed to credit loss and recognized in earnings.  The remainder was reported in other comprehensive income.  The following is an analysis of amounts relating to credit losses on debt securities recognized in earnings during the nine months ended September 30, 2012 and 2011.

	2012			2011
	Available for			Available for
(Dollars in thousands)	Sale			Sale
Balance at beginning of period	$	930		$	2,143
Other-than-temporary-impairment not previously recognized	173			50
Additional increase for which an other-than-temporary impairment was previously recognized related to credit losses	27			4
Other-than-temporary-impairment previously recognized on securities sold	(679		)	—
Realized losses during the period	(159		)	(1,284		)
Balance related to credit losses on debt securities at end of period	$	292		$	736

11

Note 3—Investment Securities — continued

For the nine months ended September 30, 2012, there were two non-agency mortgage backed securities with OTTI in which $200 thousand of OTTI representing credit losses was recognized in earnings.  For the nine months ended September 30, 2011, there was one trust preferred security and one non-agency mortgage backed security in which $54 thousand of OTTI representing credit losses was recognized in earnings.  There was no OTTI recognized in earnings for the three months ended September 30, 2012.  For the three months ended September 30, 2011, there was $50 thousand of OTTI recognized in earnings for one non-agency mortgage backed security.  During the third quarter of 2011, the trust preferred security was sold and an additional $455 thousand loss was recorded in earnings.  In evaluating the non-agency mortgage backed securities, relevant assumptions such as prepayment rate, default rate and loss severity on a loan level basis are used in determining the expected recovery of the contractual cash flows. The assumptions are that all loans greater than 60 days delinquent will be resolved across a two-year period at loss severities based on location and category. The balance of the underlying portfolio cash flows are evaluated using ongoing assumptions for loss severities, prepayment rates and default rates. The ongoing assumptions for average prepayment rate, default rate and severity used in the valuations were approximately 5.4%, 3.3%, and 52.4%, respectively. The underlying collateral on substantially all of these securities is fixed rate residential first mortgages located throughout the United States. The underlying collateral includes various percentages of owner-occupied, as well as, investment related single-family, 1-4 family and condominium residential properties. The securities were purchased at various discounts to par value. Based on the assumptions used in valuing the securities, the Company believes the existing discount and remaining subordinated collateral provide coverage against future credit losses on the downgraded securities for which no OTTI has been recognized.

12

Note 3—Investment Securities — continued

The following table shows gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous loss position at September 30, 2012 and December 31, 2011.

September 30, 2012

	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available-for-sale securities:
Small Business Administration Pools	$	7,297	$	80	$	2,692	$	9	$	9,989	$	89
Government Sponsored Enterprise mortgage-backed securities	15,470		148		6,157		55		21,627		203
Non-agency mortgage-backed securities	805		131		1,939		175		2,744		306
Corporate bonds and other	—		—		49		1		49		1
State and local government	1,335		7		—		—		1,335		7
Total	$	24,907	$	366	$	10,837	$	240	$	35,744	$	606

December 31, 2011

	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available-for-sale securities:
Government Sponsored Enterprise mortgage-backed securities	$	25,113	$	163	$	3,269	$	24	$	28,382	$	187
Small Business Administration pools	6,108		38		2,203		6		8,311		44
Non-agency mortgage-backed securities	574		3		13,275		2,158		13,849		2,161
Corporate bonds and other	940		60		524		26		1,464		86
Total	$	32,735	$	264	$	19,271	$	2,214	$	52,006	$	2,478

Government Sponsored Enterprise, Mortgage-Backed Securities: Beginning in 2008 and continuing through 2012, the bond markets and many institutional holders of bonds have come under a great deal of stress partially as a result of increasing delinquencies in the sub-prime mortgage lending market. At September 30, 2012, the Company’s wholly-owned subsidiary, First Community Bank (the “Bank”), owns mortgage-backed securities (“MBSs”) including collateralized mortgage obligations (“CMOs”) with a book value of $117.8 million and approximate fair value of $119.6 million issued by government sponsored entities (“GSEs”). Current economic conditions have impacted MBSs issued by GSEs such as the FHLMC and the Federal National Mortgage Association (the “FNMA” or “Fannie Mae”). These entities have experienced increasing delinquencies in the underlying loans that make up the MBSs and CMOs. As of September 30, 2012 and December 31, 2011, all of the MBSs issued by GSEs are classified as “Available for Sale”. Unrealized losses on these investments are not considered to be “other than temporary” and we have the intent and ability to hold these until they mature or recover the current book value. The contractual cash flows of the investments are guaranteed by the GSE. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider the investments to be OTTI at September 30, 2012.

13

Note 3—Investment Securities — continued

Non-agency mortgage —backed securities: The Company also holds private label mortgage-backed securities (“PLMBSs”), including CMOs, at September 30, 2012 with an amortized cost of $3.4 million and approximate fair value of $2.9 million.  Management monitors each of these securities on a quarterly basis to identify any deterioration in the credit quality, collateral values and credit support underlying the investments.

During the nine months ended September 30, 2012, the Company identified two PLMBS with a fair value of $2.5 million that it considered other-than-temporarily-impaired.  As prescribed by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10-65, the Company has recognized an impairment charge in earnings of $199.8 thousand (credit component) during the nine months ended September 30, 2012.  The $199.8 thousand represents the estimated credit losses on these securities for the nine months ended September 30, 2012. One of the securities identified as other-than-temporarily-impaired during the nine months ended September 30, 2012 was subsequently sold after the impairment was recognized.  During the three months ended September 30, 2012, no OTTI charges were recorded in earnings for the PLMBS portfolio.  For the three and nine months ended September 30, 2011, $50 thousand and $54 thousand in OTTI charges were recorded in earnings for the PLMBS portfolio, respectively.

The following table summarizes as of September 30, 2012 the number of CUSIPs, par value, carrying value and fair value of the non-agency MBSs/CMOs by credit rating. The credit rating reflects the lowest credit rating by any major rating agency.

(Dollars in thousands)

Credit Rating	Number of CUSIPs	Par Value		Amortized Cost		Fair Value
AAA	3	$	189	$	189	$	188
AA	2	309		309		314
A1	1	384		384		376
A3	1	329		329		320
BBB	1	255		255		254
Baa1	1	77		76		76
Baa2	1	130		130		129
Below Investment Grade	4	2,070		1,698		1,281
Total	14	$	3,743	$	3,370	$	2,938

During the nine months ended September 30, 2012, the Company sold eight below investment grade non-agency MBSs with a total book value of approximately $11.2 million. The loss on the sale of these securities was approximately $2.1 million and has been offset by gains of the approximate same amount from the sale of certain agency MBSs and municipal securities. These sales served to significantly reduce the level of below investment grade securities held in the portfolio.

14

Note 3—Investment Securities — continued

Corporate Bonds: All of the corporate bonds held by the Company are reviewed on a quarterly basis to identify downgrades by rating agencies as well as deterioration of the underlying collateral or the issuer’s ability to service the debt obligation.  The Company owns one corporate bond as of September 30, 2012 which is rated above investment grade.  The Company does not consider this investment to be OTTI at September 30, 2012.

Small Business Administration Pools: These pools are guaranteed pass-thru with the full faith and credit of the United States government.  Because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider the investments to be OTTI at September 30, 2012.

State and Local Governments and Other: The unrealized losses on these investments are attributable to increases in interest rates, rather than credit quality. Because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider the investments to be OTTI at September 30, 2012.

The amortized cost and fair value of investment securities at September 30, 2012 by contractual maturity are as follows. Expected maturities differ from contractual maturities because borrowers may have the right to call or prepay the obligations with or without prepayment penalties.  MBSs are based on average life at estimated prepayment speeds.

	Available-for-sale
(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	22,623	$	22,675
Due after one year through five years	97,789		99,385
Due after five years through ten years	59,240		60,872
Due after ten years	27,668		27,802
	$	207,320	$	210,734

15

Note 4—Loans

Loans summarized by category as of September 30, 2012 and December 31, 2011 are as follows:

	September 30,		December 31,
(Dollars in thousands)	2012		2011
Commercial, financial and agricultural	$	19,469	$	20,608
Real estate:
Construction	11,739		11,767
Mortgage-residential	36,861		38,337
Mortgage-commercial	223,595		220,288
Consumer:
Home equity	26,778		27,976
Other	5,092		5,335
Total	$	323,534	$	324,311

At September 30, 2012 and December 31, 2011, there were $8.7 million and $3.7 million, respectively, of residential mortgage loans held for sale at fair value.  These loans are originated with firm purchase commitments from various investors at the time the loans are closed.  Generally, funds are received and the loans transferred to the investors within three to fourteen business days.

Activity in the allowance for loan losses for the nine months and three months ended September 30, 2012 and 2011 was as follows:

	Nine months ended
	September 30,			September 30,
(Dollars in thousands)	2012			2011
Balance at the beginning of period	$	4,699		$	4,911
Provision for loan losses	416			1,110
Charged off loans	(496		)	(1,368		)
Recoveries	76			55
Balance at end of period	$	4,695		$	4,708

	Three months ended
	September 30,			September 30,
(Dollars in thousands)	2012			2011
Balance at the beginning of period	$	4,742		$	4,716
Provision for loan losses	115			360
Charged off loans	(189		)	(388		)
Recoveries	27			20
Balance at end of period	$	4,695		$	4,708

16

Note 4—Loans-continued

The detailed activity in the allowance for loan losses and the recorded investment in loans receivable as of and for the nine months ended September 30, 2012 and the year ended December 31, 2011 is as follows:

					Real estate		Real estate
			Real estate		Mortgage		Mortgage			Consumer			Consumer
(Dollars in thousands)	Commercial		Construction		Residential		Commercial			Home equity			Other		Unallocated		Total
2012
Allowance for loan losses:
Beginning balance December 31, 2011	$	331	$	—	$	514	$	1,475		$	521		$	57	$	1,801	$	4,699
Charge-offs	88		—		112		245			—			51		—		496
Recoveries	32		—		10		—			3			31		—		76
Provisions	67		—		80		(146		)	(147		)	16		546		416
Ending balance September 30, 2012	$	342	$	—	$	492	$	1,084		$	377		$	53	$	2,347	$	4,695
Ending balances:
Individually evaluated for impairment	$	—	$	—	$	—	$	—		$	—		$	—	$	—	$	—
Collectively evaluated for impairment	342		—		492		1,084			377			53		2,347		4,695
Loans receivable:
Ending balance-total	$	19,469	$	11,739	$	36,861	$	223,595		$	26,778		$	5,092	$	—	$	323,534
Ending balances:
Individually evaluated for impairment	$	15	$	—	$	477	$	9,041		$	—		$	11	$	—	$	9,544
Collectively evaluated for impairment	$	19,454	$	11,739	$	38,384	$	214,554		$	26,778		$	5,081	$	—	$	313,990

17

Note 4—Loans-continued

							Real estate		Real estate
				Real estate			Mortgage		Mortgage		Consumer		Consumer
(Dollars in thousands)	Commercial			Construction			Residential		Commercial		Home equity		Other		Unallocated		Total
2011
Allowance for loan losses:
Beginning balance	$	681		$	905		$	465	$	1,404	$	325	$	88	$	1043	$	4,911
Charge-offs	265			—			186		861		285		99		—		1,696
Recoveries	31			—			5		—		5		23		—		64
Provisions	(116		)	(905		)	230		932		476		45		758		1,420
Ending balance December 31, 2011	$	331		$	—		$	514	$	1,475	$	521	$	57	$	1,801	$	4,699
Ending balances:
Individually evaluated for impairment	$	1		$	—		$	—	$	1	$	—	$	—	$	—	$	2
Collectively evaluated for impairment	330			—			514		1,474		521		57		1,801		4,697
Loans receivable:
Ending balance-total	$	20,608		$	11,767		$	38,337	$	220,288	$	27,976	$	5,335	$	—	$	324,311
Ending balances:
Individually evaluated for impairment	$	45		$	—		$	622	$	8,667	$	—	$	19	$	—	$	9,353
Collectively evaluated for impairment	$	20,563		$	11,767		$	37,715	$	211,621	$	27,976	$	5,316	$	—	$	314,958

Loans outstanding to bank directors, executive officers and their related business interests amounted to $10.5 million and $10.4 million at September 30, 2012 and September 30, 2011, respectively. Repayments on these loans during the nine months ended September 30, 2012 were $438 thousand and loans made amounted to $112 thousand. Repayments on these loans during the nine months ended September 30, 2011 were $1.3 million and loans made amounted to $808 thousand during the same period.  Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and generally do not involve more than the normal risk of collectability.

18

Note 4—Loans-continued

The detailed activity in the allowance for loan losses as of and for the three months ended September 30, 2012 and the three months ended September 30, 2011 is as follows:

					Real estate			Real estate
			Real estate		Mortgage			Mortgage			Consumer			Consumer
(Dollars in thousands)	Commercial		Construction		Residential			Commercial			Home equity			Other		Unallocated		Total
2012
Allowance for loan losses:
Beginning balance June 30, 2012	$	249	$	—	599			$	1,313		$	445		$	45	$	2,091	$	4,742
Charge-offs	26		—		82			67			—			14		—		189
Recoveries	7		—		1			—			1			18		—		27
Provisions	112		—		(26		)	(162		)	(69		)	4		256		115
Ending balance September 30, 2012	$	342	$	—	$	492		$	1,084		$	377		$	53	$	2,347	$	4,695

					Real estate			Real estate
			Real estate		Mortgage			Mortgage		Consumer		Consumer
(Dollars in thousands)	Commercial		Construction		Residential			Commercial		Home equity		Other		Unallocated		Total
2011
Allowance for loan losses:
Beginning balance June 30, 2011	$	362	$	379	$	514		$	1,697	$	425	$	51	$	1,288	$	4,716
Charge-offs	85		—		—			164		115		24		—		388
Recoveries	13		—		2			—		1		4		—		20
Provisions	26		5		(62		)	50		180		17		144		360
Ending balance September 30, 2011	$	316	$	384	$	454		$	1,583	$	491	$	48	$	1,432	$	4,708

19

Note 4—Loans-continued

The following table presents at September 30, 2012 and December 31, 2011 loans individually evaluated and considered impaired under FAS ASC 310 “Accounting by Creditors for Impairment of a Loan.” Impairment includes performing troubled debt restructurings.

	September 30,		December 31,
(Dollars in thousands)	2012		2011
Total loans considered impaired	$	9,544	$	9,353
Loans considered impaired for which there is a related allowance for loan loss:
Outstanding loan balance	—		148
Related allowance	—		2
Loans considered impaired and previously written down to fair value	9,544		9,205
Average impaired loans	10,530		9,926

The following tables are by loan category and present at September 30, 2012 and December 31, 2011 loans individually evaluated and considered impaired under FAS ASC 310 “Accounting by Creditors for Impairment of a Loan.” Impairment includes performing troubled debt restructurings.

			Unpaid				Average		Interest
(Dollars in thousands)	Recorded		Principal		Related		Recorded		Income
September 30, 2012	Investment		Balance		Allowance		Investment		Recognized
With no allowance recorded:
Commercial	$	15	$	46	$	—	$	92	$	1
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	477		505		—		563		2
Mortgage-commercial	9,041		9,536		—		9,853		266
Consumer:
Home Equity	—		—		—		—		—
Other	11		11		—		22		—
With an allowance recorded:
Commercial	—		—		—		—		—
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	—		—		—		—		—
Mortgage-commercial	—		—		—		—		—
Consumer:
Home Equity	—		—		—		—		—
Other	—		—		—		—		—
Total:
Commercial	$	15	$	46	$	—	$	92	$	1
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	477		505		—		563		2
Mortgage-commercial	9,041		9,536		—		9,853		266
Consumer:
Home Equity	—		—		—		—		—
Other	11		11		—		22		—
	$	9,544	$	10,098	$	—	$	10,530	$	269

The Company determined that all specific reserves for impaired loans were confirmed losses and were charged-off against outstanding loan balances during the nine months ended September 30, 2012.

20

Note 4—Loans-continued

			Unpaid				Average		Interest
(Dollars in thousands)	Recorded		Principal		Related		Recorded		Income
December 31, 2011	Investment		Balance		Allowance		Investment		Recognized
With no allowance recorded:
Commercial	$	12	$	19	$	—	$	21	$	—
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	622		650		—		656		4
Mortgage-commercial	8,552		8,975		—		9,066		382
Consumer:
Home Equity	—		—		—		—		—
Other	19		19		—		30		1
With an allowance recorded:
Commercial	33		33		1		36		2
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	—		—		—		—		—
Mortgage-commercial	115		115		1		117		8
Consumer:
Home Equity	—		—		—		—		—
Other	—		—		—		—		—
Total:
Commercial	45		52		—		57		2
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	622		650		—		656		4
Mortgage-commercial	8,667		9,090		—		9,183		390
Consumer:
Home Equity	—		—		—		—		—
Other	19		19		—		30		1
	$	9,353	$	9,811	$	2	$	9,926	$	397

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying the loans as to credit risk.  This analysis is performed on a quarterly basis.  The Company uses the following definitions for risk ratings:

Special Mention.  Loans classified as special mention have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.  Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

21

Note 4—Loans-continued

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  As of September 30, 2012 and December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is shown in the table below.  As of September 30, 2012 and December 31, 2011, no loans were classified as doubtful.

(Dollars in thousands)			Special
September 30, 2012	Pass		Mention		Substandard		Doubtful		Total
Commercial, financial & agricultural	$	19,228	$	33	$	208	$	—	$	19,469
Real estate:
Construction	6,988		2,522		2,229		—		11,739
Mortgage – residential	34,845		1,257		759		—		36,861
Mortgage – commercial	205,592		4,149		13,854		—		223,595
Consumer:
Home Equity	26,110		575		93		—		26,778
Other	5,072		3		17		—		5,092
Total	$	297,835	$	8,539	$	17,160	$	—	$	323,534

(Dollars in thousands)			Special
December 31, 2011	Pass		Mention		Substandard		Doubtful		Total
Commercial, financial & agricultural	$	19,827	$	499	$	282	$	—	$	20,608
Real estate:
Construction	6,764		—		5,003		—		11,767
Mortgage – residential	37,063		305		969		—		38,337
Mortgage – commercial	200,984		8,009		11,295		—		220,288
Consumer:
Home Equity	27,692		38		246		—		27,976
Other	5,311		5		19		—		5,335
Total	$	297,641	$	8,856	$	17,814	$	—	$	324,311

At September 30, 2012 and December 31, 2011, non-accrual loans totaled $4.9 million and $5.4 million, respectively.

Troubled debt restructurings that are still accruing included in impaired loans at September 30, 2012 and December 31, 2011 amounted to $4.6 million and $3.9 million, respectively.  Troubled debt restructurings in nonaccrual status at September 30, 2012 and December 31, 2011 amounted to $1.9 million and $3.8 million, respectively.

There were no loans greater than ninety days delinquent and still accruing interest at September 30, 2012.  Loans greater than ninety days delinquent and still accruing interest at December 31, 2011 amounted to $25 thousand.

22

Note 4—Loans-continued

The following tables are by loan category and present loans past due and on non-accrual status as of September 30, 2012 and December 31, 2011:

(Dollars in thousands) September 30, 2012	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Commercial	$	150	$	49	$	—	$	15	$	214	$	19,255	$	19,469
Real estate:
Construction	—		—		—		—		—		11,739		11,739
Mortgage-residential	357		330		—		477		1,164		35,697		36,861
Mortgage-commercial	1,391		981		—		4,420		6,792		216,803		223,595
Consumer:
Home equity	77		—		—		—		77		26,701		26,778
Other	44		15		—		11		70		5,022		5,092
Total	$	2,019	$	1,375	$	—	$	4,923	$	8,317	$	315,217	$	323,534

(Dollars in thousands) December 31, 2011	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Commercial	$	147	$	123	$	—	$	12	$	282	$	20,326	$	20,608
Real estate:
Construction	—		—		—		—		—		11,767		11,767
Mortgage-residential	391		95		—		623		1,109		37,228		38,337
Mortgage-commercial	1,382		966		25		4,749		7,122		213,166		220,288
Consumer:
Home equity	45		—		—		—		45		27,931		27,976
Other	42		18		—		19		79		5,256		5,335
Total	$	2,007	$	1,202	$	25	$	5,403	$	8,637	$	315,674	$	324,311

23

Note 4—Loans-continued

As a result of adopting the amendments in Accounting Standards Update (ASU) 2011-02, the Company reassessed all restructurings that occurred on or after the beginning of the fiscal year of adoption (January 1, 2011) to determine whether they were considered TDRs under the amended guidance.  The Company identified as TDRs certain loans for which the allowance for loan losses had previously been measured under a general allowance methodology.  Upon identifying those loans as TDRs, the Company identified them as impaired under the guidance in ASC 310-10-35.  The amendments in ASU 2011-02 require prospective application of the impairment measurement guidance in ASC 310-10-35 for those loans newly identified as impaired.  At September 30, 2012 and December 31, 2011, the recorded investment in loans for which the allowance was previously measured under a general allowance methodology and are now impaired under ASC 310-10-35 was $6.5 million and $7.7 million, respectively.  An allowance for loans losses of $2 thousand was associated with those loans at December 31, 2011.  There was no allowance associated with those loans as of September 30, 2012.

The following table, by loan category, present loans determined to be TDRs during the three month period ended September 30, 2011.  There were no loans determined to be TDRs during the three month period ended September 30, 2012

	For the three months ended September 30, 2011
Troubled Debt Restructurings (Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Nonaccrual
Mortgage-Commercial	1	$	648	$	648
Total nonaccrual	1	$	648	$	648
Accrual
Mortgage-Commercial	1	$	337	$	315
Total Accrual	1	$	337	$	315
Total TDRs	2	$	985	$	963

The following table, by loan category, present loans determined to be TDRs during the nine month period ended September 30, 2012.

	For the nine months ended September 30, 2012
Troubled Debt Restructurings (Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Nonaccrual
Mortgage-Commercial	1	$	53	$	40
Total nonaccrual	1	$	53	$	40
Accrual
Mortgage-Commercial	2	$	596	$	596
Total Accrual	2	$	596	$	596
Total TDRs	3	$	649	$	636

During the nine months ended September 30, 2012, the Company modified three loans that were considered to be TDRs.  The payment and interest rate were lowered for two of these loans and the payment was modified to interest only for one loan.

24

Note 4—Loans-continued

The following table, by loan category, present loans determined to be TDRs during the nine month period ended September 30, 2011.

	For the nine months ended September 30, 2011
Troubled Debt Restructurings (Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Nonaccrual
Mortgage-Commercial	5	$	765	$	765
Commercial & Industrial	2	53		53
Total nonaccrual	7	$	818	$	818
Accrual
Mortgage-Commercial	1	$	337	$	315
Total Accrual	1	$	337	$	315
Total TDRs	8	$	1,155	$	1,133

During the nine months ended September 30, 2011, the Bank modified eight loans that were considered to be TDRs.  The payment and interest rate were lowered for six of these loans, the payment was lowered for one loan and for one loan the company and guarantor were released.

25

Note 4—Loans-continued

The following tables, by loan category, present loans determined to be TDRs in the twelve month period preceding September 30, 2011 that subsequently defaulted during the three or nine month periods ended September 30, 2011.  There were no loans determined to be TDRs in the last twelve months that subsequently defaulted during the three or nine month periods ended September 30, 2012.  Defaulted loans are those loans that are greater than 89 days past due.

Troubled Debt Restructurings that	For the three months ended September 30, 2011
subsequently defaulted this period (Dollars in thousands)	Number of Contracts	Recorded Investment
Mortgage-Commercial	3	61
Commercial and Industrial	1	14
Total TDRs	4	75

Troubled Debt Restructurings that	For the nine months ended September 30, 2011
subsequently defaulted this period (Dollars in thousands)	Number of Contracts	Recorded Investment
Mortgage-Commercial	3	61
Commercial and Industrial	1	14
Total TDRs	4	75

During the three and nine months ended September 30, 2011, four loans that had previously been restructured defaulted.  A loan is considered to have defaulted when it becomes 89 days past due.

In the determination of the allowance for loan losses, all TDRs are reviewed to ensure that one of the three proper valuation methods (fair market value of the collateral, present value of cash flows, or observable market price) is adhered to.  Each non-accrual loan is written down to its corresponding collateral value.  All TDR accruing loans that have a loan balance which exceeds the present value of cash flow will have a specific allocation.  All nonaccrual loans are considered impaired.  Under ASC 310-10, a loan is impaired when it is probable that the Company will be unable to collect all amounts due, including both principal and interest, according to the contractual terms of the loan agreement.

Note 5 - Recently Issued Accounting Pronouncements

The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting, and or disclosure of financial information by the Company.

In September 2011, the Intangibles topic was amended to permit an entity to consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. These amendments were effective for the Company on January 1, 2012 and had no effect on the financial statements.

In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the ASC was amended by ASU 2011-03. The requirement for the transferor to have

26

Note 5 - Recently Issued Accounting Pronouncements-continued

the ability to repurchase or redeem the financial assets on substantially the agreed terms and the collateral maintenance implementation guidance related to that criterion were removed from the assessment of effective control. The other criteria to assess effective control were not changed. The amendments were effective for the Company on January 1, 2012 and had no effect on the financial statements.

ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. The amendments were effective for the Company beginning January 1, 2012 and had no effect on the financial statements.

The Comprehensive Income topic of the ASC was amended in June 2011. The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in shareholders’ equity and requires consecutive presentation of the statement of net income and other comprehensive income. The amendments were applicable to the Company on January 1, 2012 and have been applied retrospectively. In December 2011, the topic was further amended to defer the effective date of presenting reclassification adjustments from other comprehensive income to net income on the face of the financial statements. Companies should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the amendments while FASB redeliberates future requirements.

In July 2012, the Intangibles topic was amended to permit an entity to consider qualitative factors to determine whether it is more likely than not that indefinite-lived intangible assets are impaired. If it is determined to be more likely than not that indefinite-lived intangible assets are impaired, then the entity is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The amendments are not expected to have a material effect on the Company’s financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

27

Note 6 — Fair Value of Financial Instruments

The Company adopted FASB ASC Fair Value Measurement Topic 820, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level l	Quoted prices in active markets for identical assets or liabilities.
Level 2	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

FASB ASC 825-10-50 “Disclosure about Fair Value of Financial Instruments”, requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below.

Cash and short term investments—The carrying amount of these financial instruments (cash and due from banks, interest-bearing bank balances, federal funds sold and securities purchased under agreements to resell) approximates fair value. All mature within 90 days and do not present unanticipated credit concerns and are classified as Level 1.

Investment Securities—Measurement is on a recurring basis based upon quoted market prices, if available.  If quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for prepayment assumptions, projected credit losses, and liquidity.  Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, or by dealers or brokers in active over-the-counter markets.  Level 2 securities include mortgage-backed securities issued both by government sponsored enterprises and private label mortgage-backed securities.  Generally these fair values are priced from established pricing models.  Level 3 securities include corporate debt obligations and asset—backed securities that are less liquid or for which there is an inactive market.

Loans Held for Sale— The Company originates fixed rate residential loans on a servicing released basis in the secondary market. Loans closed but not yet settled with an investor, are carried in the Company’s loans held for sale portfolio. These loans are fixed rate residential loans that have been originated in the Company’s name and have closed. Virtually all of these loans have commitments to be purchased by investors at a locked in by price with the investors on the same day that the loan was locked in with the company’s customers. Therefore, these loans present very little market risk for the Company and are classified as Level 2.  The carrying amount of these loans approximates fair value.

Loans—The fair value of loans are estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities and are classified as Level 2. As discount rates are based on current loan rates as well as management estimates, the fair values presented may not be indicative of the value negotiated in an actual sale.  Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair value of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be Level 3 inputs.

Other Real Estate Owned (OREO) — OREO is carried at the lower of carrying value or fair value on a non-recurring basis.  Fair value is based upon independent appraisals or management’s estimation of the collateral and is considered a Level 3 measurement.

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Note 6 — Fair Value of Financial Instruments - continued

Accrued Interest Receivable—The fair value approximates the carrying value and is classified as Level 1.

Interest rate swap—The fair value approximates the carrying value and is classified as Level 3.

Deposits—The fair value of demand deposits, savings accounts, and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposits is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturities.  Deposits are classified as Level 2.

Federal Home Loan Bank Advances—Fair value is estimated based on discounted cash flows using current market rates for borrowings with similar terms and are classified as Level 2.

Short Term Borrowings—The carrying value of short term borrowings (securities sold under agreements to repurchase and demand notes to the Treasury) approximates fair value.  These are classified as Level 2.

Junior Subordinated Debentures—The fair values of junior subordinated debentures is estimated by using discounted cash flow analyses based on incremental borrowing rates for similar types of instruments.  These are classified as Level 2.

Accrued Interest Payable—The fair value approximates the carrying value and is classified as Level 1.

Commitments to Extend Credit—The fair value of these commitments is immaterial because their underlying interest rates approximate market.

The carrying amount and estimated fair value by classification Level of the Company’s financial instruments as of September 30, 2012 are as follows:

	September 30, 2012
	Carrying			Fair Value
(Dollars in thousands)	Amount			Total			Level 1		Level 2		Level 3
Financial Assets:
Cash and short term investments	$	20,379		$	20,379		$	20,379	$	—	$	—
Available-for-sale securities	210,734			210,734			906		209,828		—
Other investments, at cost	4,540			—			—		—		—
Loans held for sale	8,685			8,685			—		8,685		—
Loans receivable	323,534			327,786			—		318,242		9,544
Allowance for loan losses	4,695			—			—		—		—
Net loans	318,839			327,786			—		318,242		9,544
Accrued interest	2,074			2,074			2,074		—		—
Interest rate swap	(418		)	(418		)	—		—		(418		)
Financial liabilities:
Non-interest bearing demand	$	92,738		$	92,738		$	—	$	92,738	$	—
NOW and money market accounts	147,655			147,655			—		147,655		—
Savings	41,358			41,358			—		41,358		—
Time deposits	192,714			194,605			—		194,605		—
Total deposits	474,465			476,356			—		476,356		—
Federal Home Loan Bank Advances	38,491			44,619			—		44,619		—
Short term borrowings	15,651			15,651			—		15,651		—
Junior subordinated debentures	17,917			17,917			—		17,917		—
Accrued interest payable	1,225			1,225			1,225		—		—

29

Note 6 — Fair Value of Financial Instruments - continued

The carrying amount and estimated fair value of the Company’s financial instruments as of December 31, 2011 are as follows:

	December 31, 2011
(Dollars in thousands)	Carrying Amount			Fair  Value
Financial Assets:
Cash and short term investments	$	16,492		$	16,492
Available-for-sale securities	201,032			201,032
Other investments, at cost	5,637			—
Loans held for sale	3,725			3,725
Loans receivable	324,311			324,204
Allowance for loan losses	4,699			—
Net loans	319,612			324,204
Accrued interest	1,914			1,914
Interest rate swap	(602		)	(602		)
Financial liabilities:
Non-interest bearing demand	$	83,572		$	83,572
NOW and money market accounts	136,483			136,483
Savings	34,048			34,048
Time deposits	210,482			214,437
Total deposits	464,585			468,540
Federal Home Loan Bank Advances	43,862			50,238
Short term borrowings	13,616			13,616
Junior subordinated debentures	17,913			17,913
Accrued interest payable	1,624			1,624

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Note 6 — Fair Value of Financial Instruments - continued

The following tables reflect the changes in fair values for the nine and three-month periods ended September 30, 2012 and 2011 and where these changes are included in the income statement:

(Dollars in thousands)

	Nine months ended September 30,						Three months ended  September 30,
	2012			2011			2012			2011
Description	Non-interest income: Fair value adjustment loss			Non-interest income: Fair value adjustment loss			Non-interest income: Fair value adjustment loss			Non-interest income: Fair value adjustment loss
Interest rate swap	$	(57	)	$	(185	)	$	(20	)	$	(60	)
Total	$	(57	)	$	(185	)	$	(20	)	$	(60	)

The following table summarizes quantitative disclosures about the fair value for each category of assets carried at fair value as of September 30, 2012 and December 31, 2011 that are measured on a recurring basis.  There were no liabilities carried at fair value as of September 30, 2012 or December 31, 2011 that are measured on a recurring basis.

(Dollars in thousands)

Description	September 30, 2012			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
Government sponsored enterprises	$	1,544		$	—	$	1,544	$	—
Mortgage-backed securities	122,466			—		122,466		—
Small Business Administration securities	50,931			—		50,931		—
State and local government	33,827			—		33,827		—
Corporate and other securities	1,966			906		1,060		—
	210,734			906		209,828		—
Interest rate cap/swap	(418		)	—		—		(418		)
Total	$	210,316		$	906	$	209,828	$	(418	)
(Dollars in thousands)
Description	December 31, 2011			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
Government sponsored enterprises	$	34		$	—	$	34	$	—
Mortgage backed securities	141,631			—		141,631		—
Small Business Administration securities	36,479			—		36,479		—
State and local government	20,488			—		20,488		—
Corporate and other securities	2,400			926		1,474		—
	201,032			926		200,106		—
Interest rate cap/floor	(602		)	—		—		(602		)
Total	$	200,430		$	926	$	200,106	$	(602	)

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Note 6 — Fair Value of Financial Instruments - continued

The following tables reconcile the changes in Level 3 financial instruments for the nine and three months ended September 30, 2012, that are measured on a recurring basis.

(Dollars in thousands)	Interest rate Cap/Floor/Swap
Beginning Balance December 31, 2011	$	(602	)
Total gains or losses (realized/unrealized)
Included in earnings	(57		)
Included in other comprehensive income	—
Purchases, issuances, and settlements	241
Transfers in and/or out of Level 3	—
Ending Balance September 30, 2012	$	(418	)
(Dollars in thousands)	Interest rate Cap/Floor/Swap
Beginning Balance June 30, 2012	$	(479	)
Total gains or losses (realized/unrealized)
Included in earnings	(20		)
Included in other comprehensive income	—
Purchases, issuances, and settlements	81
Transfers in and/or out of Level 3	—
Ending Balance September 30, 2012	$	(418	)

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Note 6 — Fair Value of Financial Instruments - continued

The following tables summarize quantitative disclosures about the fair value for each category of assets carried at fair value as of September 30, 2012 and December 31, 2011 that are measured on a non-recurring basis.

(Dollars in thousands)

Description	September 30,2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial & Industrial	$	15	$	—	$	—	$	15
Real estate:
Mortgage-residential	477		—		—		477
Mortgage-commercial	9,041		—		—		9,041
Consumer:
Home equity	—		—		—		—
Other	11		—		—		11
Total impaired	9,544		—		—		9,544
Other real estate owned:
Construction	301		—		—		301
Mortgage-residential	438		—		—		438
Mortgage-commercial	4,831		—		—		4,831
Total other real estate owned	5,570		—		—		5,570
Total	$	15,114	$	—	$	—	$	15,114
(Dollars in thousands)
Description	December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial & Industrial	$	45	$	—	$	—	$	45
Real estate:
Mortgage-residential	622		—		—		622
Mortgage-commercial	8,667		—		—		8,667
Consumer:
Home equity	—		—		—		—
Other	19		—		—		19
Total impaired	9,353		—		—		9,353
Other real estate owned:			—		—
Construction	2,156		—		—		2,156
Mortgage-residential	4,278		—		—		4,278
Mortgage-commercial	917		—		—		917
Total other real estate owned	7,351		—		—		7,351
Total	$	16,704	$	—	$	—	$	16,704

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Note 6 — Fair Value of Financial Instruments - continued

The Company has a large percentage of loans with real estate serving as collateral. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair value of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be Level 3 inputs. Third party appraisals are generally obtained when a loan is identified as being impaired or at the time it is transferred to OREO.  This internal process would consist of evaluating the underlying collateral to independently obtained comparable properties.  With respect to less complex or smaller credits, an internal evaluation may be performed.  Generally the independent and internal evaluations are updated annually.  Factors considered in determining the fair value include geographic sales trends, the value of comparable surrounding properties as well as the condition of the property. The aggregate amount of impaired loans was $9.5 million and $9.4 million for the nine months ended September 30, 2012 and year ended December 31, 2011, respectively.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2012, the significant unobservable inputs used in the fair value measurements were as follows:

(Dollars in thousands)	Fair Value as of September 30, 2012			Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Inputs
Interest Rate Swap	$	(418	)	Discounted cash flows	Weighted Average Credit Factor	3.20%
OREO	$	5,570		Appraisal Value/Comparison Sales/Other estimates	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost
Impaired loans	$	9,544		Appraisal Value/Discounted Cash Flows	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost

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Note 7 — Subsequent Events

Effective October 1, 2012, the Bank converted from a national bank charter to a South Carolina state bank charter and changed its name from First Community Bank, N.A. to First Community Bank.

On August 29, 2012, we repurchased $3.78 million of our Series T preferred stock from the U.S. Treasury through a modified Dutch auction process.  This represented 3,780 shares of the original 11,350 shares of preferred stock sold to the U.S. Treasury in November 2008 pursuant to the TARP Capital Purchase Program.  The remaining 7,570 shares of Series T preferred stock were purchased in this same auction by third party investors unrelated to the Company.  As of October 8, 2012, we have repurchased or redeemed the remaining shares of Series T preferred stock from the third party investors.  The financial results reported for the third quarter include non-recurring expenses related to this matter in the amount of $119 thousand including attorney costs, CPA costs, and U.S. Treasury’s counsel’s costs.  In addition, we recorded a charge for the remaining discount accretion of approximately $159 thousand.

On October 25, 2012, the U.S. Treasury accepted our bid to repurchase the warrant to purchase 195,915 shares of our common stock issued to the U.S. Treasury pursuant to the TARP Capital Purchase Program.  The repurchase price agreed upon was $297,500. The repurchase transaction was completed on November 1, 2012.  The repurchase of the warrant, from the U.S. Treasury has completely eliminated its equity stake in the Company through the TARP Capital Purchase Program.

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.  Nonrecognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.  Management has reviewed events occurring through the date the financial statements were available to be issued and no subsequent events other than disclosed above occurred requiring accrual or disclosure.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report contains statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future performance, and business of our Company.  Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “continue,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements.  Potential risks and uncertainties that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, without limitation, those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011 as filed with the Securities and Exchange Commission (the “SEC”) and the following:

·        reduced earnings due to higher credit losses generally and specifically because losses in the sectors of our loan portfolio secured by real estate are greater than expected due to economic factors, including, but not limited to, declining real estate values, increasing interest rates, increasing unemployment, or changes in payment behavior or other factors;

·        the amount of our loan portfolio collateralized by real estate and weaknesses in the real estate market;

·        restrictions or conditions imposed by our regulators on our operations may make it more difficult for us to achieve our goals, including the potential that the regulatory agencies may require higher levels of capital above the current standard regulatory-mandated minimums, including the impact of the proposed capital rules under Basel III;

·        reduced earnings due to higher other-than-temporary impairment charges resulting from additional decline in the value of our securities portfolio, specifically as a result of increasing default rates, and loss severities on the underlying real estate collateral;

·        the adequacy of the level of our allowance for loan losses and the amount of loan loss provisions required in future periods;

·        results of examinations by our regulatory authorities, including the possibility that the regulatory authorities

35

may, among other things, require us to increase our allowance for loan losses or write-down assets;

·        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, including, but not limited to, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and regulations adopted thereunder, changes in federal and/or state tax laws or interpretations thereof by taxing authorities, including potential negative economic developments that may occur if certain federal tax reductions expire and spending cuts go into effect as currently scheduled, and other governmental initiatives affecting the financial services industry;

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

·        changes occurring in business conditions and inflation;

·        increased funding costs due to market illiquidity, increased competition for funding, and/or increased regulatory requirements with regard to funding;

·        changes in deposit flows;

·        changes in technology;

·        changes in monetary and tax policies, including confirmation of the income tax refund claims received by the Internal Revenue Service (“IRS”);

·        changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board and the Financial Accounting Standards Board;

·        the rate of delinquencies and amounts of loans charged-off;

·        the rate of loan growth in recent years and the lack of seasoning of a portion of our loan portfolio;

·        our ability to maintain appropriate levels of capital and to comply with our higher individual minimum capital ratios;

·        our ability to attract and retain key personnel;

·        our ability to retain our existing clients, including our deposit relationships;

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

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

·        other risks and uncertainties detailed from time to time in our filings with the SEC.

These risks are exacerbated by the developments since 2008 in national and international financial markets, and we are unable to predict what effect continued uncertainty in market conditions will have on the Company.  Beginning in 2008 and continuing into 2012, the capital and credit markets have experienced severe levels of volatility and disruption.  During the first nine months of 2012, economic conditions, while slow by historical standards and still fluctuating on a day-to-day basis, have shown general signs of stabilization. However, as a result of U.S. government fiscal challenges, continued volatility in European sovereign and bank debt, slow improvement in domestic employment conditions and the economic and monetary policy statements by the Board of Governors of the Federal Reserve System (the “Federal Reserve”), it is difficult to predict if this stabilization is indicative of a lasting trend. There can be no assurance that these challenging developments of the past few years will not further materially and adversely affect our business, financial condition and results of operations.

All forward-looking statements in this report are based on information available to us as of the date of this report.  Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee you that these expectations will be achieved.  We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Overview

The following discussion describes our results of operations for the nine months and three months ended September 30, 2012 as compared to the nine month and three month periods ended September 30, 2011 and also analyzes our financial condition as of September 30, 2012 as compared to December 31, 2011.  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.

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

36

against our operating earnings. In the following section we have included a discussion of this process, as well as several tables describing our allowance for loan losses and the allocation of this allowance among our various categories of loans.

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 non-interest income, as well as our non-interest expense, in the following discussion.

During the third quarter of 2012 and October 2012, we finalized the following significant four events:

·On July 27, 2012, the Company closed its public offering of common stock.  The offering resulted in the issuance of a total of 1.875 million shares of common stock at $8.00 per share, resulting in gross proceeds of $15 million, as compared to our original target of $12.5 million, and  net proceeds of approximately $13.8 million.  The investors in the offering consisted of a blend of institutional and retail investors.  The offering was over-subscribed and priced at the closing price of our stock on the day of the pricing of the offering.  We believe that this offering represents the only successfully executed underwritten public offering of common stock in a capital raising offering by a bank in the Carolinas with $1 billion or less in total assets in more than five years.

·On August 29, 2012, we repurchased $3.78 million of our Series T preferred stock from the U.S. Treasury through a modified Dutch auction process.  This represented 3,780 shares of the original 11,350 shares of preferred stock sold to the U.S. Treasury in November 2008 pursuant to the TARP Capital Purchase Program.  The remaining 7,570 shares of Series T preferred stock were purchased in this same auction by third party investors unrelated to the Company.  The auction price was $982.83 per share, which we believe was the highest price paid through that date for a company’s shares in the Treasury’s TARP preferred stock auctions.  As of October 8, 2012, we have repurchased or redeemed the remaining shares of Series T preferred stock from the third party investors.  The financial results reported for the third quarter include non-recurring expenses related to this matter in the amount of $119 thousand including attorney costs, CPA costs, and U.S. Treasury underwriter costs.  In addition, we recorded a charge for the remaining discount accretion of approximately $159 thousand.

·In addition, effective October 1, 2012, we completed a planned conversion from a national bank charter to a state bank charter as a non-member bank.  The conversion will reduce certain regulatory examination cost in the future.

·On October 25, 2012, the U.S. Treasury accepted our bid to repurchase the warrant to purchase 195,915 shares of our common stock issued to the U.S. Treasury pursuant to the TARP Capital Purchase Program.  The repurchase price agreed upon was $297,500.  The repurchase transaction was completed on November 1, 2012.  The repurchase of the warrant, from the U.S. Treasury has completely eliminated its equity stake in the Company through the TARP Capital Purchase Program.

In addition to the events described above, the following discussion and analysis 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 unaudited consolidated financial statements as of September 30, 2012 and our notes included in the consolidated financial statements in our 2011 Annual Report on Form 10-K as filed with the SEC.

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,

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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.

The evaluation and recognition of OTTI on certain investments, including our private label MBSs and other corporate debt security holdings, requires significant judgment and estimates.  Some of the more critical judgments supporting the evaluation of OTTI include projected cash flows including prepayment assumptions, default rates and severities of losses on the underlying collateral within the security.  Under different conditions or utilizing different assumptions, the actual OTTI recognized by us may be different from the actual amounts recognized in our consolidated financial statements.  See Note 3 to the financial statements for the disclosure of certain assumptions used as well as OTTI recognized in the financial statements during the nine and three months ended September 30, 2012 and 2011.

Recent Regulatory Developments

As described above, effective October 1, 2012, the Bank converted from a national bank charter to a South Carolina state bank charter and changed its name from First Community Bank, N.A. to First Community Bank.  As a national bank, the Bank’s primary regulator was the Office of the Comptroller of the Currency (the “OCC”).  As a South Carolina state chartered bank, the Bank’s primary federal regulator is now the Federal Deposit Insurance Corporation (the “FDIC”).

Following a recent on-site examination of the Bank, the OCC notified the Bank that, effective June 28, 2012, the Bank is no longer subject to the Formal Written Agreement that it entered into with the OCC on April 6, 2010 (the “Formal Agreement”). The Formal Agreement was based on the findings of the OCC during a 2009 on-site examination of the Bank.  As reflected in the Formal Agreement, the OCC’s primary concern with the Bank was driven by the rating agencies downgrades of non-agency MBSs in its investment portfolio.  These securities, purchased in 2004 through 2008, were all rated AAA by the rating agencies at the time of purchase; however, they were impacted by the economic recession and the stress on the residential housing sector and were subsequently downgraded, many to below investment grade.  As of September 30, 2012, the Bank had reduced the non-agency MBSs in its investment portfolio that are rated below investment grade to $1.6 million.

The OCC also notified the Bank that, effective June 28, 2012, it is no longer subject to the Individual Minimum Capital Ratios established for the Bank on February 24, 2010, which had required the Bank to maintain a Tier 1 leverage capital ratio of at least 8.00%, a Tier 1 risk-based capital ratio of at least 10.00%, and a total risk-based capital ratio of at least 12.00%.  The general regulatory minimums to be well-capitalized are a Tier 1 leverage capital ratio of at least 5.00%, a Tier 1 risk-based capital ratio of at least 6.00%, and a total risk-based capital ratio of at least 10.00%.  These regulatory capital ratios for the Bank were 10.08%, 17.13% and 18.39%, respectively, as of September 30, 2012. The Bank is well-capitalized for regulatory purposes.

In addition, the Federal Reserve notified the Company that, effective July 10, 2012, the Company is no longer subject to the MOU.

Comparison of Results of Operations for Nine Months Ended September 30, 2012 to the Nine Months Ended September 30, 2011

Net Income

Our net income for the nine months ended September 30, 2012 was $2.9 million, or $0.60 diluted earnings per common share, as compared to $2.3 million, or $0.53 diluted earnings per common share, for the nine months ended September 30, 2011.  The increase in net income between the two periods is primarily due to a lower provision for loan losses and an increase of $1.3 million in non-interest income.  These were partially offset by a decrease of $412 thousand in net-interest income and a $577 thousand increase in non- interest expense during the nine months ended September 30, 2012 as compared to the same period in 2011.  Average earning assets increased by $2.4 million in the first nine months of 2012 as compared to the same period in 2011.  Average earning assets were $552.5 million during the nine months ended September 30, 2012 as compared to $550.1 million during the nine months ended September 30, 2011.  The slight increase in average earning assets was primarily a result of the inclusion of the common stock offering proceeds in average earning assets during part of this period prior to redeeming the Series T preferred stock noted above.

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Net Interest Income

Please refer to the table at the end of this Item 2 for the yield and rate data for interest-bearing balance sheet components during the nine month periods ended September 30, 2012 and 2011, along with average balances and the related interest income and interest expense amounts.

Net interest income was $13.3 million for the nine months ended September 30, 2012 as compared to $13.7 million for the nine months ended September 30, 2011.  This decrease was primarily due to the decrease in earning assets.  The net interest margin on a taxable equivalent basis decreased 7 basis points, from 3.33% as of September 30, 2011 to 3.26% as of September 30, 2012.  The yield on earning assets decreased by 45 basis points in the first nine months of 2012 as compared to the same period in 2011. The yield on earning assets for the nine months ended September 30, 2012 and 2011 was 4.24% and 4.69%, respectively.  The cost of interest-bearing liabilities during the first nine months of 2012 was 1.25% as compared to 1.58% in the same period of 2011, resulting in a 33 basis points decrease. Continued low loan demand has resulted in loans comprising 59.8% of average earning assets in the first nine months of 2012 as compared to 60.0% in the same period of 2011.  The relatively flat level loans as well as reinvesting cash flows from maturing loans and investments at interest rates that have continued to decline over the last year have resulted in the 45 basis point decline in the yield on earning assets during the two periods.  Our cost of funds has declined by 33 basis points on average in the first nine months of 2012 as compared to the same period of 2011.  Interest-bearing transaction accounts, money market accounts and savings deposits, which are typically our lower costing funds, represent 39.5% of our average interest bearing liabilities during the first nine months of 2012 as compared to 34.2% in the same period of 2011.  Time deposits and borrowed funds, typically the higher costing funds, represent 60.5% of our average interest-bearing funds in the first nine months of 2012 as compared to 65.8% during the same period in 2011.  Throughout the first nine months of 2012, we continued to focus on controlling the growth of the balance sheet and shifting our funding from higher cost certificates of deposit to “pure deposits” (deposits other than certificates of deposits).  The improvement in the overall mix of our funding sources has contributed to the reduction in our cost of funds during the first nine months of 2012 as compared to the same period in 2011.

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Provision and Allowance for Loan Losses

At September 30, 2012 and December 31, 2011, the allowance for loan losses was $4.7 million.  This represented 1.45% of total loans at both September 30, 2012 and December 31, 2011.  Our provision for loan losses was $416 thousand for the nine months ended September 30, 2012 as compared to $1.1 million for the nine months ended September 30, 2011.  This provision is made based on our assessment of general loan loss risk and asset quality.  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 collectability of loans, including consideration of factors such as the balance of impaired loans, the quality, mix, and size of our overall loan portfolio, the experience ability and depth of lending personnel, economic conditions (local and national) 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, and concentrations of credit.  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.

The decrease in the provision for loan losses for the first nine months of 2012 as compared to the same period in 2011 is a result of a continuation of moderating levels of classified and non-performing loans as well as some moderate improvement in economic conditions, including stabilizing unemployment levels, in our markets. Our loan portfolio consists of a large percentage of real estate secured loans.  Real estate values continue to be adversely impacted as a result of the economic downturn over the last several years.  Impaired values of the underlying real estate collateral as well as continued slowdown in both residential and commercial real estate sales impacts our ability to sell collateral upon foreclosure.  Although there are signs in our market that this slowdown is moderating, there is a risk that this trend will continue.  The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended.  If real estate values continue to decline, it is also more likely that we would be required to increase our allowance for loan losses.  If during a period of reduced real estate values we are required to liquidate the property collateralizing a loan to satisfy the debt or to increase the allowance for loan losses, it could materially reduce our profitability and adversely affect our financial condition.

Non-performing assets were $10.5 million (1.73% of total assets) at September 30, 2012 as compared to $9.5 million (1.6% of total assets), $10.8 million (1.79% of total assets) and $12.8 million (2.15% of total assets) at June 30, 2012, March 31, 2012 and December 31, 2011, respectively. The net increase of $1.0 million in non-performing assets at September 30, 2012 on a linked quarter basis is primarily attributed to the net effect of the inflow of three new non-accrual loans in the approximate amount of $1.6 million, the movement of another three loans from non-accrual to Other Real Estate Owned (“OREO”) status in the amount of $1.0 million, and the sale of OREO properties in the amount of approximately $375 thousand. While we believe these ratios are favorable in comparison to current industry results nationally and specifically in our local markets, we continue to be concerned about the impact of this economic environment on our customer base of local businesses and professionals.  There were 26 loans, totaling $4.9 million, included in non-performing status (non-accrual loans and loans past due 90 days and still accruing) at September 30, 2012. The largest with a carrying value of $1.4 million is secured by a first lien on an owner occupied commercial business property located in the midlands of South Carolina.  The average balance of the remaining 24 loans is approximately $145 thousand and the majority of these loans are secured by first mortgage liens. At the time the loans are placed in non-accrual status, we typically obtain an updated appraisal and, if the loan balance exceeds fair value, write the balance down to the fair value.  At September 30, 2012, we had no loans delinquent more than 90 days and still accruing interest, and loans totaling $3.4 million that were delinquent 30 days to 89 days representing 1.05% of total loans.

Our management continuously monitors non-performing, classified and past due loans, to identify deterioration regarding the condition of these loans. At September 30, 2012, we have identified two loan relationships in the amount of $1.7 million that are current as to principal and interest and not included in non-performing assets that could represent potential problem loans.  These balances are included as substandard loans in Note 4 of the financial statements.

We perform an analysis quarterly to assess the risk within the loan portfolio. The portfolio is segregated into similar risk components for which historical loss ratios are calculated and adjusted for identified changes in current portfolio characteristics.  Historical loss ratios are calculated by product type and by regulatory credit risk classification.  The allowance consists of an allocated and unallocated allowance.  The allocated portion is determined by types and

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ratings of loans within the portfolio.  This allocated portion of the allowance is based on historical loss experience as well as certain qualitative factors as explained above. The annualized weighted average loss ratios over the 24 month period ended September 30, 2012 for loans classified substandard, special mention and pass have been approximately 3.43%, 1.46% and 0.24%, respectively. The qualitative factors have been established based on certain assumptions made as a result of the current local economic conditions and as conditions change are adjusted to be directionally consistent with these changes. The unallocated portion of the allowance is established for losses that exist in the remainder of the portfolio and compensates for uncertainty in estimating the loan losses.  The unallocated portion of the allowance is composed of factors based on management’s evaluation of various conditions that are not directly measured in the estimation of probable losses through the experience formula or specific allowances.  The unallocated allowance of the portfolio is primarily identified through discussions with senior credit management and through consideration of various portfolio specifics and other uncertainties outside of our markets that could impact the risk inherent in the portfolio.  These include factors such as uncertainty as to a sustainable economic recovery, ongoing global debt crisis and sustained levels of high national unemployment.  The unallocated portion of the allowance as a percentage of the total allowance has grown over the last several years.  Given these uncertainties in economic conditions and particularly real estate valuations, we do not believe it would be prudent to reduce substantially the overall level of our allowance at this time.  The unallocated portion as a percentage of the loan portfolio has grown recently, primarily as a result of higher historical loss periods dropping out of our overall analysis accompanied by a relatively flat loan portfolio.  As economic conditions show sustainable improvement, we believe the unallocated portion of the allowance should decrease as a percentage of the total allowance. In the near term, however, this percentage may continue to increase slightly.

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.  The allowance is also subject to examination and testing for adequacy by regulatory agencies, which may consider such factors as the methodology used to determine adequacy and the size of the allowance relative to that of peer institutions.  Such regulatory agencies could require us to adjust our allowance based on information available to them at the time of their examination.

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The following table summarizes the activity related to our allowance for loan losses:

Allowance for Loan Losses

	Nine months Ended September 30,
(Dollars in thousands)	2012			2011
Average loans outstanding (including loans held for sale)	$	330,263		$	329,843
Loans outstanding at period end	$	323,534		$	324,233
Non-performing assets:
Nonaccrual loans	$	4,923		$	3,408
Loans 90 days past due still accruing	—			—
Foreclosed real estate	5,570			8,269
Total non-performing assets	$	10,493		$	11,677
Beginning balance of allowance	$	4,699		$	4,911
Loans charged-off:
Construction and development	—			—
1-4 family residential mortgage	112			142
Multi-family residential	—			—
Non-residential real estate	245			683
Home equity	—			247
Commercial	88			239
Installment & credit card	51			57
Total loans charged-off	496			1,368
Recoveries:
1-4 family residential mortgage	10			4
Non-residential real estate	—			—
Home equity	3			4
Commercial	32			27
Installment & credit card	31			20
Total recoveries	76			55
Net loan charge offs	420			1,313
Provision for loan losses	416			1,110
Balance at period end	$	4,695		$	4,708
Net charge -offs to average loans	0.13		%	0.40		%
Allowance as percent of total loans	1.45		%	1.45		%
Non-performing assets as % of total assets	1.73		%	1.92		%
Allowance as % of non-performing assets	44.74		%	40.32		%

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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

	September 30, 2012				December 31, 2011
			% of loans in					% of loans in
(Dollars in thousands)	Amount		Category		Amount			Category
Commercial, Financial and Agricultural	$	342	6.0	%	$	331		6.4	%
Real Estate — Construction	—		3.6	%	—			3.6	%
Real Estate Mortgage:
Commercial	1,084		69.1	%	1,475			67.9	%
Residential	492		11.4	%	514			11.8	%
Consumer:
Home Equity	377		8.3	%	521			8.6	%
Other	53		1.6	%	57			1.7	%
Unallocated	2,347		N/A		1,801			N/A
Total	$	4,695	100.0	%	$		4,699	100.0	%

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 Non-interest Expense

Non-interest income during the first nine months of 2012 was $5.7 million as compared to $4.4 million during the same period in 2011.  Deposit service charges for the nine months ended September 30, 2012 were $1.2 million, a decrease of $217 thousand from $1.4 million for the nine months ended September 30, 2011.  This decrease results from lower fees on our Overdraft Privilege (ODP) product.  Mortgage origination fees increased $1.8 million primarily as a result of the addition of Palmetto South Mortgage Corporation (“Palmetto South”) in the third quarter of 2011 as well as continued refinancing activity as a result of the historically low interest rate environment.  In the nine months ended September 30, 2011, we had gains on sale of securities in the amount of $274 thousand, as compared to a loss of $62 thousand in the first nine months of 2012.  During the nine months ended September 30, 2012 and 2011, we sold certain non-agency MBSs that were rated below investment grade.  During the first nine months of 2012, we sold eight below investment grade non-agency MBSs and one investment grade corporate security with a total book value of approximately $11.7 million.  The loss on the sales amounted to approximately $2.1 million and was offset by gains of the approximate same amount from the sale of certain agency MBSs and municipal securities.  The sales in the first nine months of 2011 also related primarily to the sale of certain non-agency MBSs that had been previously downgraded to below investment grade.  The sales in the first nine months of 2012 and 2011 served to significantly reduce the level of securities on our balance sheet that are rated below investment grade.  The cash generated from these transactions were reinvested in our investment portfolio, primarily in securities with a risk rating of 20% or less. At September 30, 2012, we have four remaining securities with a carrying value of $1.7 million that are rated below investment grade.  During the first nine months of 2012, we incurred OTTI charges of $200 thousand (credit component) on certain non-agency MBSs that were sold as part of the transactions noted above (see Note 3 — Investment Securities to our Consolidated Financial Statements for further information).  The sale of the below investment grade MBSs in both the 2011 and 2012 periods significantly reduces our exposure to future OTTI charges from our investment portfolio.  In the first nine months of 2012, we paid down Federal Home Loan Bank advances in the amount of $4.0 million and incurred a loss in the amount of $121 thousand.  During the same period of 2011, we paid down $6.7 million in Federal Home Loan advances and incurred a loss of $74 thousand related to the prepayment of these advances in the third quarter of 2011.

Total non-interest expense increased by $577 thousand, or 4.19%, during the first nine months of 2012, as compared to the same period in 2011.  Salary and benefit expense increased by $1.2 million from $7.0 million in the first nine

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months of 2011 to $8.2 million in the first nine months of 2012.  At September 30, 2012, we had 157 full time equivalent employees.  As a result of the Palmetto South acquisition in the third quarter of 2011, we added approximately 10 full time equivalent employees.  This increase in the number of full time equivalent employees as well as normal salary adjustments account for the increase in salary and benefit cost in the first nine months of 2012 as compared to the same period in 2011.  Occupancy cost increased $79 thousand in the first nine months of 2012 as compared to the same period of 2011.  This increase is primarily a result of the addition of lease payments and other costs associated with the Palmetto South office facility.  FDIC insurance assessments decreased by $184 thousand in the first nine months of 2012 as compared to the same period in 2011.  The decrease is primarily a result of changes made to the base used to calculate the assessment.   The assessment base changed to an asset-based calculation effective for the second quarter of 2011.  The assessment rate for the first quarter of 2011 was approximately 22 basis points on deposits. Beginning in the second quarter 2011 and thereafter, this rate changed to approximately 14 basis points of the Bank’s total average assets less bank tangible equity.  In November 2009, all insured institutions, with limited exceptions, were required to prepay insurance assessments for a three-year period. Our prepayment made to the FDIC in December 2009 totaled approximately $2.9 million.  At September 30, 2012, the remaining prepaid insurance assessment amounted to $446 thousand and is included in “Other assets”.   Other real estate expenses decreased $79 thousand in the first nine months of 2012 as compared to the same period in 2011.  The decrease relates to moderating levels of accumulated delinquent taxes, insurance, legal fees and repair expenses incurred as the level of other real estate owned increased over the last several years.  Amortization of intangibles decreased in the first half of 2012 in the amount of $313 thousand.  This decrease reflects that during the fourth quarter of 2011 the core deposit premium for the 2004 acquisition of Dutch Fork Bankshares (“Dutch Fork”) became fully amortized.  The amortization on that core deposit intangible was approximately $35 thousand per month. The other changes in non-interest expense categories reflect normal fluctuations between the two periods.

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

	Nine months ended
	September 30,
(In thousands)	2012		2011
Data processing	$	383	$	356
Supplies	118		133
Telephone	226		230
Correspondent services	120		152
Loss on limited partnership interest	141		89
Insurance	161		161
Postage	129		131
Professional fees	624		817
Director fees	224		228
Other	553		510
	$	2,679	$	2,807

Income Tax Expense

Our effective tax rate was 30.7% and 29.9% in the first nine months of 2012 and 2011, respectively.  Our effective tax rate is currently expected to remain between 30.0% and 32.0% throughout the rest of 2012.

Comparison of Results of Operations for Three Months Ended September 30, 2012 to the Three Months Ended September 30, 2011:

Net Income

Please refer to the table “Yields on Average Earning Assets and Rates on Average Interest-Bearing Liabilities” appearing at the end of this Item for the yield and rate data for interest-bearing balance sheet components during the three-month periods ended September 30, 2012 and 2011, along with average balances and the related interest income and interest expense amounts.

Our net income for the third quarter of 2012 was $1.2 million, or $0.19 diluted earnings per common share, as compared to $957 thousand, or $0.24 diluted earnings per common share, in the same period of 2011.  Net interest income decreased by $299 thousand for the three months ended September 30, 2012 from $4.6 million in 2011 to $4.3 million in 2012.  The decrease in net interest income is primarily due to a decrease in our net interest margin in

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the third quarter of 2012 as compared to the same period of 2011.  The net-interest margin for the third quarter of 2012 on a tax equivalent basis was 3.12% as compared to 3.37% in 2011.  The yield on average earning assets decreased to 3.99% in the third quarter of 2012 from 4.64% in the third quarter of 2011. The cost of interest bearing liabilities also decreased to 1.16% in the third quarter of 2012 as compared to 1.49% in the third quarter of 2011.

The decline in net interest margin was partially impacted by the increase in average earning assets as a result of proceeds from the common stock offering.  The net funds received in this offering on July 27, 2012 of approximately $13.8 million were held for the balance of the third quarter.  This increased average earning assets by approximately $10.0 million and were held in very low yielding overnight funds while we finalized our redemption and repurchase of the Series T preferred stock as described above.  We estimate this impacted our net interest margin for the third quarter of 2012 by approximately 6 basis points.  Average earning assets were $563.2 million during the third quarter of 2012 as compared to $551.9 million during the third quarter of 2011.  The yield on earning assets decreased to 3.99% for the three months ended September 30, 2012 as compared to 4.64% in the same period of 2011.  The decline in yield on securities of 100 basis points was the biggest contributor to the decline in our yield on earning assets.  This was caused by the continuing historically low interest rate environment and the result of reinvesting the cash flows from the portfolio in lower yielding securities.  In addition, the sale of the majority of our private label mortgage backed securities earlier in 2012 resulted in reinvesting the proceeds of these transactions in substantially lower yielding securities.  As previously stated, the sale of these private label mortgage backed securities substantially reduces the potential for future OTTI charges.  Through continued discipline in pricing new and maturing time deposits, the cost of interest bearing liabilities decreased 33 basis points in the third quarter of 2012 to 1.16% as compared to 1.49% during the same period in 2011.

The impact of the decrease in net interest margin was offset by an increase of $714 thousand in non-interest income from $1.7 million in the third quarter of 2011 to $2.4 million in the third quarter of 2012.  The majority of this increase resulted from an increase in mortgage origination fees of $695 thousand in the third quarter of 2012 as compared to the same period in 2011.  The addition of Palmetto South in the third quarter of 2011 and continued historically low interest rates have contributed to the increase in this source of revenue.  During the third quarter of 2012, we incurred a loss of $35 thousand on the sale of one corporate security. This compares to a gain of $133 thousand in the same period of 2011.  As previously discussed, we paid down $6.7 million in Federal Home Loan advances in the third quarter of 2011.  A loss of $74 thousand related to the prepayment of these advances was recorded in the third quarter of 2011.  There were no prepayment of FHLB advances in the third quarter of 2012.

Provision for Loan Losses

The provision for loan losses for the three months ended September 30, 2012 was $115 thousand as compared to $360 thousand for the three months ended September 30, 2011.  As noted in the discussion of our nine month results, the decrease in the provision for loan losses for the three months ending September 30, 2012 as compared to the same period in 2011 is a result of a continuation of moderating levels of classified and non-performing loans as well as some stabilizing economic conditions, including unemployment levels, in our markets.

Non-interest Income and Non-interest Expense

For the three months ended September 30, 2012, we had non-interest income of $2.4 million as compared to non-interest income of $1.7 million in the same period of 2011.  Deposit service charges decreased by $45 thousand in the third quarter of 2012 as compared to the same period of 2011.  This decrease is a result of fewer items being presented for payment on insufficient funds as well as the impact of regulatory changes related to overdraft protection programs on assessing charges for items presented through ATMs and electronic point of sale transactions. The decrease in our net interest income and lower deposit service charges was primarily offset by a significant increase of $695 thousand in mortgage origination fees during the two periods.  As previously noted, the addition of Palmetto South in the third quarter of 2011, as well as the continued very low interest rate environment, contributed to the increase in this source of fee income.

Total non-interest expense increased by $265 thousand in the third quarter of 2012, as compared to the same period of 2011.  Salaries and benefits increased by $381 thousand in the third quarter of 2012 as compared to the same period in 2011.  This increase is a result of the addition of approximately ten Palmetto South employees in the third quarter of 2011 as well as normal annual salary adjustments between the two periods.  A slight increase in other real estate expenses of $39 thousand in the third quarter of 2012 is primarily a result of write-downs on one OREO property in the third quarter of 2012 as compared to the same period of 2011.  Amortization of intangibles decreased from $105 thousand in the third quarter of 2011 to $51 thousand in the same period of 2012.  As noted in the nine month discussion, this is a result of the previously recorded core deposit intangible recorded as a result of the 2004 acquisition of Dutch Fork being fully amortized in the second half of 2011.  FDIC assessment expense decreased by

45

$59 thousand in the third quarter of 2012 as compared to the same period of 2011.  This decrease results from a slightly lower rate being assessed to our bank beginning July 1, 2012.  All other variances in non-interest expenses during the three months ended September 30, 2012 as compared to the same period of 2011 reflect normal fluctuations in each of the categories.

Financial Position

Assets totaled $606.3 million at September 30, 2012, as compared to $593.9 million at December 31, 2011, an increase of $12.4 million.  This increase in assets results a continued strategy to grow “pure deposits” (deposits excluding time deposits) while reducing higher costing time deposits through controlling pricing.  Loans (excluding loans held for sale) at September 30, 2012 were $323.5 million as compared to $324.3 million at December 31, 2011.  We funded in excess of $37.6 million of new loan production in the first nine months of 2012, but scheduled pay downs as well as modest transfers from loans to other real estate owned accounted for the slight decrease in loan balances during the nine month period.  At September 30, 2012 and December 31, 2011, loans (excluding loans held for sale) accounted for 58.0% and 60.0% of earning assets, respectively.  The loan-to-deposit ratio at September 30, 2012 was 68.2% as compared to 69.8% at December 31, 2011. Investment securities increased from $206.7 million at December 31, 2011 to $215.3 million at September 30, 2012.  Deposits increased by $9.9 million to $474.5 million at September 30, 2012 as compared to $464.6 million at December 31, 2011.  The increase in deposits was partially used to prepay a $4.0 million Federal Home Loan Bank advance.  This advance was scheduled to mature in the first quarter of 2013.

During the first nine months of 2012, as previously discussed, we sold eight below investment grade non-agency MBSs and on corporate investment grade security with a total book value of approximately $11.7 million.  The loss on the sale of these securities was approximately $2.1 million and was offset by the sale of agency mortgage backed and municipal securities for a gain of the approximate same amount.  The sales of these non-agency MBSs have served to significantly reduce the level of securities on our balance sheet that are rated below investment grade.  The cash generated from these transactions was reinvested in the investment portfolio in securities with a risk rating of 20% or less, thus further improving our risk based capital ratios.  As previously noted, these downgraded investments have been under a great deal of scrutiny by our primary regulatory agency as a result of being downgraded.  We have further discussed that, in our opinion, the rating system and the regulatory concerns do not properly reflect the overall credit risk in this type of multi-obligor securities since neither adequately considers the price paid by the holder of the bond.  The decreased level of these below investment grade securities provides for improved regulatory capital ratios since the proceeds are primarily invested in lower regulatory risk weighted assets, as well as reduces the regulatory concern related to the downgraded securities portfolio.  As of September 30, 2012, the total book value of securities (four securities) rated below investment grade in our portfolio amounted to $1.7 million.  As previously noted, management continues to monitor the remaining portfolio with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of the securities may be sold or are other-than temporarily impaired, which would require a charge to earnings in such period.

Quality loan portfolio growth continues to be a strategic focus in 2012 and beyond.  One of our goals as a community bank has been, and continues to be, to grow our assets through quality loan growth by providing credit to small and mid-size businesses, as well as individuals within the markets we serve. Loan production and portfolio growth rates continue to be impacted by the current economic recession, as borrowers are less inclined to leverage their corporate and personal balance sheets. However, we remain committed to meeting the credit needs of our local markets. A continuation of the very slow recovery from recessionary national and local economic conditions as well as deterioration of asset quality within our Company could significantly impact our ability to grow our loan portfolio.

46

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

	September 30,					December 31,
	2012					2011
(In thousands)	Amount			Percent		Amount			Percent
Commercial, financial & agricultural	$	19,469		6.0	%	$	20,608		6.4	%
Real estate:
Construction	11,739			3.6	%	11,767			3.6	%
Mortgage — residential	36,861			11.4	%	38,337			11.8	%
Mortgage — commercial	223,595			69.1	%	220,288			67.9	%
Consumer:
Home Equity	26,778			8.3	%	27,976			8.6	%
Other	5,092			1.6	%	5,335			1.7	%
Total gross loans	323,534			100.0	%	324,311			100.0	%
Allowance for loan losses	(4,695		)			(4,699		)
Total net loans	$	318,839				$	319,612

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. We follow the common practice of financial institutions in our market areas 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 we limit the loan-to-value ratio to 80%.

Market Risk Management

The effective management of market risk is essential to achieving our strategic financial objectives.  Our most significant market risk is interest rate risk.  We have established an Asset/Liability Management Committee (“ALCO”) to monitor and manage interest rate risk.  The ALCO monitors and manages the pricing and maturity of assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on 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 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 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.

We are currently liability sensitive within one year.  However, neither the “gap” analysis nor the asset/liability modeling is a precise indicator of our interest sensitivity position due to the many factors that affect net interest income, including changes in the volume and mix of earning assets and interest-bearing liabilities.  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, we monitor 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.

We entered into a five year interest rate swap agreement on October 8, 2008 that expires on October 8, 2013. The swap agreement has a $10.0 million notional amount. We receive a variable rate of interest on the notional amount based on a three month LIBOR rate and pay a fixed rate interest of 3.66%. The contract was entered into to protect us from the negative impact of rising interest rates. Our exposure to credit risk is limited to the ability of the counterparty to make potential future payments required pursuant to the agreement. Our exposure to market risk of loss is limited to the changes in the market value of the swap between reporting periods. At September 30, 2012 and December 31, 2011, the fair value of the contract was a negative $418 thousand and $602 thousand, respectively. A fair value adjustment for the swap of ($57 thousand) and ($185 thousand) was recognized in other income for the nine month periods ended September 30, 2012 and 2011, respectively. The fair value of the contract is the present value, over the

47

remaining term of the contract, of the difference between the swap rate to maturity at the reporting date multiplied by the notional amount and the fixed interest rate of 3.66% multiplied by the notional amount of the contract.

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 September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011 over twelve months.

Net Interest Income Sensitivity

Change in short-term interest rates	September 30, 2012		June 30, 2012		March 31,  2012		December 31, 2011
+200bp	+6.68	%	+ 7.88	%	+ 3.49	%	+3.05	%
+100bp	+3.99	%	+ 4.78	%	+ 2.08	%	+2.06	%
Flat	—		—		—		—
-100bp	-8.40	%	- 9.51	%	- 6.50	%	-7.48	%
-200bp	-12.56	%	- 15.23	%	- 11.20	%	-12.91	%

The significant decrease in net interest income in a down 200 basis point environment primarily results from the current level of interest rates being paid on our interest bearing transaction accounts as well as money market accounts.  The interest rates on these accounts are at a level where they cannot be repriced in proportion to the change in interest rates.  The increase and decrease of 100 and 200 basis points assume a simultaneous and parallel change in interest rates along the entire yield curve.  At the current historically low interest rate levels a downward shift of 200 basis points across the entire yield curve is unlikely.

We also perform 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 September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011 the PVE exposure in a plus 200 basis point increase in market interest rates was estimated to be 8.15%, 10.29%, 3.24% and 2.70%, respectively.

48

Liquidity and Capital Resources

We believe our liquidity remains adequate to meet operating and loan funding requirements.  Interest-bearing bank balances, federal funds sold, and investment securities available-for-sale represents 36.4% of total assets at September 30, 2012.  We believe that our existing stable base of core deposits along with continued growth in this deposit base will enable us to meet our 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 the payment of operating expenses.  Sources of liquidity, in addition to deposit gathering activities, include maturing loans and investments, purchase of federal funds from other financial institutions and selling securities under agreements to repurchase.  We monitor closely the level of large certificates of deposits in amounts of $100 thousand or more as they tend to be more sensitive to changes in interest rates, and thus less reliable sources of funding for liquidity purposes.  At September 30, 2012, the amount of certificates of deposits of $100 thousand or more represented 15.9% of total deposits.  These deposits are issued to local customers many of whom 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 September 30, 2012, we had issued commitments to extend credit of $44.8 million, including $25.7 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.

Other than as described elsewhere in this report, we are not aware of any trends, events or uncertainties that we expect to result in a significant adverse effect on our 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 liquidity position in a relatively short period of time.

The Company has generally maintained a high level of liquidity and adequate capital, which along with continued retained earnings, we believe will be sufficient to fund the operations of the Bank for at least the next 12 months.  Shareholders’ equity was 9.0% and 8.1% of total assets at September 30, 2012 and December 31, 2011, respectively.  The Bank maintains federal funds purchased lines, in the total amount of $20.0 million, with two financial institutions, although these have not been utilized in 2011 or 2012.  In addition, the Bank has a repo line in the amount of $10.0 million with another financial institution.  Specific investment securities would be pledged if and when we were to utilize the repo line.  The Federal Home Loan Bank of Atlanta has approved a line of credit of up to 25% of the Bank’s assets, which would be collateralized by a pledge against specific investment securities and or eligible loans.  We regularly review the liquidity position of the Company and have implemented internal policies establishing guidelines for sources of asset based liquidity and evaluate and monitor the total amount of purchased funds used to support the balance sheet and funding from noncore sources.  We believe that our existing stable base of core deposits along with continued growth in this deposit base will enable us to meet our long term liquidity needs successfully.

The Federal Reserve and bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%.  Under the capital adequacy guidelines, regulatory capital is classified into two tiers.  These guidelines require an institution to maintain a certain level of Tier 1 and Tier 2 capital to risk-weighted assets.  Tier 1 capital consists of common shareholders’ equity, excluding the unrealized gain or loss on securities available for sale, minus certain intangible assets.  In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100% based on the risks believed to be inherent in the type of asset.  Tier 2 capital consists of Tier 1 capital plus the general reserve for loan losses, subject to certain limitations.  We are also required to maintain capital at a minimum level based on total average assets, which is known as the Tier 1 leverage ratio.  At both the holding company and bank level, we are subject to various regulatory capital requirements administered by the federal banking agencies.  To be considered “well capitalized,” we must maintain total risk-based capital of at least 10%, Tier 1 capital of at least 6%, and a leverage ratio of at least 5%.  Generally, to be considered adequately capitalized, the OCC and Federal Reserve regulatory capital guidelines for Tier 1 capital, total capital and leverage capital ratios are 4.0%, 8.0% and 4.0%, respectively.  As previously noted, effective October 1, 2012, we completed a planned conversion of our Bank from a national bank charter to a state bank charter (as a non-member bank).  As a result, our Bank’s primary federal regulator is now the FDIC rather than the OCC.  The required regulatory capital ratios to be “adequately” capitalized and “well” capitalized remain the same under the FDIC.

The OCC notified the Bank that, effective June 28, 2012, it is no longer subject to the Individual Minimum Capital

49

Ratios established for the Bank on February 24, 2010, which had required the Bank to maintain a Tier 1 leverage capital ratio of at least 8.00%, a Tier 1 risk-based capital ratio of at least 10.00%, and a total risk-based capital ratio of at least 12.00%.  These regulatory capital ratios for the Bank were 10.08%, 17.05% and 18.31%, respectively, as of September 30, 2012, as compared to 9.27%, 15.12%, and 16.38%, respectively, at December 31, 2011. The Company’s risk-based capital ratios of leverage ratio, Tier 1, and total capital were 10.56%, 17.86%, and 19.80%, respectively, at September 30, 2012, as compared to 9.40%, 15.33% and 17.25%, respectively, at December 31, 2011.  Accordingly, both the Bank and the Company are considered to be “well capitalized” as of September 30, 2012.  Management anticipates that the Bank and the Company will remain a well capitalized institution for at least the next 12 months.

As previously discussed, following a recent on-site examination of the bank, the OCC notified the bank that, effective June 28, 2012, the Bank is no longer subject to the Formal Agreement that it entered into with the OCC on April 6, 2010.  In addition, the Federal Reserve has notified the Company that, effective July 10, 2012, the Company is no longer subject to the MOU that it had entered into with the Federal Reserve in December of 2011 (which had terminated and replaced a Memorandum of Understanding entered into in June of 2010).

The ability of the Company to pay cash dividends is dependent upon receiving cash in the form of dividends from the Bank. The dividends that may be paid by the Bank to the Company are subject to legal limitations and regulatory capital requirements.

As previously noted, on July 27, 2012, the Company closed its public offering of common stock.  The offering resulted in the issuance of a total of 1.875 million shares of common stock at $8.00 per share, resulting in gross proceeds of $15 million.  Net proceeds were approximately $13.8 million after deducting underwriting, discount, commissions and other estimated expenses.

We used the proceeds of the public offering to repurchase all 11,350 outstanding shares of our Series T preferred stock originally issued to the U.S. Treasury pursuant to the TARP Capital Purchase Program.  In addition, on October 25, 2012, the U.S. Treasury accepted our bid to repurchase the warrant for 195,915 shares of our common stock issued to the U.S. Treasury pursuant to the TARP Capital Purchase Program.  The repurchase price was $297,500. The repurchase of the warrants was closed on November 1, 2012.

The balance of the proceeds from the public offering will be used for general corporate purposes, including contributing a portion of the proceeds to the Bank as additional capital to support organic growth and, potentially, opportunistic acquisitions that meet our investment criteria.

In June 2012, the Federal Reserve approved three notices of proposed rulemaking (“NPRs”) to, among other things, implement the Basel III minimum capital requirements and capital conservation buffer. The three NPRs are expected to be published jointly by the Federal Reserve, the FDIC and the OCC after each agency has completed its approval process. The comment period on the NPRs expired on October 22, 2012. If approved in their current form, the NPRs would be effective over a phased-in period from 2013 to 2019. We are in the process of evaluating the impact of the proposed rules on the Company and the Bank.

50

FIRST COMMUNITY CORPORATION

Yields on Average Earning Assets and Rates

on Average Interest-Bearing Liabilities

	Nine months ended September 30, 2012							Nine months ended September 30, 2011
	Average			Interest		Yield/		Average			Interest		Yield/
(Dollars in thousands)	Balance			Earned/Paid		Rate		Balance			Earned/Paid		Rate
Assets
Earning assets
Loans	$	330,263		$	13,804	5.58	%	$	329,843		$	14,376	5.83	%
Securities:	204,212			3,669		2.40	%	204,040			4,854		3.18	%
Federal funds sold and securities purchased under agreements to resell	17,976			61		0.45	%	16,230			58		0.48	%
Total earning assets	552,451			17,534		4.24	%	550,113			19,288		4.69	%
Cash and due from banks	8,580							7,830
Premises and equipment	17,417							17,818
Other assets	27,032							33,063
Allowance for loan losses	(4,741		)					(4,841		)
Total assets	$	600,739						$	603,983
Liabilities
Interest-bearing liabilities
Interest-bearing transaction accounts	$	88,815		120		0.18	%	$	81,710		217		0.36	%
Money market accounts	51,932			120		0.31	%	48,748			165		0.45	%
Savings deposits	38,390			37		0.13	%	31,541			38		0.16	%
Time deposits	201,601			2,196		1.46	%	221,766			3,137		1.89	%
Other borrowings	72,710			1,772		3.26	%	89,949			2,030		3.02	%
Total interest-bearing liabilities	453,448			4,245		1.25	%	473,714			5,587		1.58	%
Demand deposits	89,915							82,007
Other liabilities	5,436							4,872
Shareholders’ equity	51,940							43,390
Total liabilities and shareholders’ equity	$	600,739						$	603,983
Cost of funds, including demand deposits						1.04	%						1.34	%
Net interest spread						2.99	%						3.11	%
Net interest income/margin				$	13,289	3.21	%				$	13,701	3.33	%
Net interest income/margin FTE basis	$	190		$	13,479	3.26	%	$	18		$	13,719	3.33	%

51

FIRST COMMUNITY CORPORATION

Yields on Average Earning Assets and Rates

on Average Interest-Bearing Liabilities

	Three months ended September 30, 2012							Three months ended September 30, 2011
	Average			Interest		Yield/		Average			Interest		Yield/
(Dollars in thousands)	Balance			Earned/Paid		Rate		Balance			Earned/Paid		Rate
Assets
Earning assets
Loans	$	330,106		$	4,548	5.48	%	$	325,008		$	4,747	5.86	%
Securities:	208,769			1,079		2.06	%	212,425			1,618		3.06	%
Federal funds sold and securities purchased	24,315			23		0.38	%	14,486			17		0.47	%
Total earning assets	563,190			5,650		3.99	%	551,919			6,382		4.64	%
Cash and due from banks	8,698							8,397
Premises and equipment	17,394							17,684
Other assets	25,483							32,949
Allowance for loan losses	(4,745		)					(4,833		)
Total assets	$	610,020						$	606,116
Liabilities
Interest-bearing liabilities
Interest-bearing transaction accounts	$	91,778		$	37	0.16	%	$	85,519		$	69	0.32	%
Money market accounts	53,328			36		0.27	%	50,220			54		0.43	%
Savings deposits	39,955			13		0.13	%	32,275			12		0.15	%
Time deposits	195,230			652		1.33	%	218,948			979		1.79	%
Other borrowings	72,460			583		3.20	%	86,280			640		2.98	%
Total interest-bearing liabilities	452,751			1,321		1.16	%	473,242			1,754		1.49	%
Demand deposits	93,098							82,252
Other liabilities	5,723							5,585
Shareholders’ equity	58,448							45,037
Total liabilities and shareholders’ equity	$	610,020						$	606,116
Cost of funds, including demand deposits						0.97	%						1.27	%
Net interest spread						2.83	%						3.15	%
Net interest income/margin				$	4,329	3.06	%				$	4,628	3.36	%
Net interest income/margin FTE basis	$	94		$	4,423	3.12	%	$	5		$	4,633	3.37	%

52

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our quantitative and qualitative disclosures about market risk as of September 30,  2012 from that presented in our Annual Report on Form 10-K for the year ended December 31, 2011.  See the “Market Risk Management’s subsection in Item 2, Management Discussion and Analysis of Financial Condition and Results of Operations for quantitative and qualitative disclosures about market risk, which information is incorporated herein by reference.

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e).  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective as of September 30, 2012.  There have been no significant changes in our internal controls over financial reporting during the fiscal quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.

Item 1A.  Risk Factors.

Not Applicable.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable.

Item 3.  Defaults Upon Senior Securities.

Not Applicable.

Item 4.  Mine Safety Disclosures.

Not Applicable.

Item 5.  Other Information.

None.

Item 6.  Exhibits

Exhibit	Description
31.1	Rule 13a-14(a) Certification of the Principal Executive Officer.
31.2	Rule 13a-14(a) Certification of the Principal Financial Officer.
32	Section 1350 Certifications.

101              The following materials from the Quarterly Report on Form 10-Q of First Community Corporation for the quarter ended September 30, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated

53

Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements. (1)

(1)           As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” or part of a registration statement or prospectus for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.

54

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FIRST COMMUNITY CORPORATION

(REGISTRANT)

Date:	November 13, 2012	By:	/s/ Michael C. Crapps
			Michael C. Crapps
			President and Chief Executive Officer
			(Principal Executive Officer)
Date:	November 13, 2012	By:	/s/ Joseph G. Sawyer
			Joseph G. Sawyer
			Senior Vice President (Principal Financial and Accounting Officer)

55

INDEX TO EXHIBITS

Exhibit Number	Description
31.1	Rule 13a-14(a) Certification of the Principal Executive Officer.
31.2	Rule 13a-14(a) Certification of the Principal Financial Officer.
32	Section 1350 Certifications.

101         The following materials from the Quarterly Report on Form 10-Q of First Community Corporation for the quarter ended September 30, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements. (1)

(1)           As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” or part of a registration statement or prospectus for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.

56

EX-31.1

Exhibit 31.1

Rule 13a-14(a) Certification of the Principal Executive Officer.

I, Michael C. Crapps, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of First Community Corporation;

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

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

4.             The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

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

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

Date: November 13, 2012
	/s/ Michael C. Crapps
	Michael C. Crapps, President and C.E.O.
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Rule 13a-14(a) Certification of the Principal Financial Officer.

I, Joseph G. Sawyer, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of First Community Corporation;

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

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

4.             The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

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

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

Date: November 13, 2012
	/s/ Joseph G. Sawyer
	Joseph G. Sawyer, Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32

Exhibit 32

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

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, the Chief Executive Officer and the Chief Financial Officer of First Community Corporation (the “Company”), each certify that, to his knowledge on the date of this certification:

1.             The quarterly report of the Company for the period ended September 30, 2012 as filed with the Securities and Exchange Commission on this date (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

/s/ Michael C. Crapps

Michael C. Crapps

Chief Executive Officer

November 13, 2012

/s/ Joseph G. Sawyer

Joseph G. Sawyer

Chief Financial Officer

November 13, 2012

XML

Fair Value of Financial Instruments (Details 6) (USD $) In Thousands, unless otherwise specified				9 Months Ended		9 Months Ended			9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Significant Unobservable Inputs (Level 3)	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) Interest Rate Swap Discounted cash flows	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) OREO Appraisal Value/Comparison Sales/Other estimates	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) OREO Appraisal Value/Comparison Sales/Other estimates Minimum	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) OREO Appraisal Value/Comparison Sales/Other estimates Maximum	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) Impaired loans Appraisal Value/Discounted Cash Flows	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) Impaired loans Appraisal Value/Discounted Cash Flows Minimum	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) Impaired loans Appraisal Value/Discounted Cash Flows Maximum
Significant unobservable inputs used in the fair value measurements
Interest rate swap			$ (418)	$ (418)
OREO	5,570	7,351			5,570
Aggregate amount of impaired loans	$ 9,544	$ 9,353						$ 9,544
Rate (as a percent)				3.20%		6.00%	16.00%		6.00%	16.00%

XML

Loans (Details 6) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2011 item	Sep. 30, 2012 item	Sep. 30, 2011 item
Loans
Number of Contracts	2	3	8
Pre-Modification Outstanding Recorded Investment	$ 985	$ 649	$ 1,155
Post-Modification Outstanding Recorded Investment	963	636	1,133
Number of loans for which payment and interest rate were lowered		2	6
Number of loans for which payment have been modified to interest only		1
Number of loans for which payment was lowered			1
Number of loans for which the company and guarantor were released			1
Troubled Debt Restructurings that subsequently defaulted
Number of Contracts	4		4
Recorded Investment	75		75
Default threshold		89 days	89 days
Number of proper valuation methods used to review the allowance for loan losses		3
Nonaccrual
Loans
Number of Contracts	1	1	7
Pre-Modification Outstanding Recorded Investment	648	53	818
Post-Modification Outstanding Recorded Investment	648	40	818
Accrual
Loans
Number of Contracts	1	2	1
Pre-Modification Outstanding Recorded Investment	337	596	337
Post-Modification Outstanding Recorded Investment	315	596	315
Mortgage-commercial
Troubled Debt Restructurings that subsequently defaulted
Number of Contracts	3		3
Recorded Investment	61		61
Mortgage-commercial | Nonaccrual
Loans
Number of Contracts	1	1	5
Pre-Modification Outstanding Recorded Investment	648	53	765
Post-Modification Outstanding Recorded Investment	648	40	765
Mortgage-commercial | Accrual
Loans
Number of Contracts	1	2	1
Pre-Modification Outstanding Recorded Investment	337	596	337
Post-Modification Outstanding Recorded Investment	315	596	315
Commercial & Industrial
Troubled Debt Restructurings that subsequently defaulted
Number of Contracts	4		4
Recorded Investment	14		14
Commercial & Industrial | Nonaccrual
Loans
Number of Contracts			2
Pre-Modification Outstanding Recorded Investment			53
Post-Modification Outstanding Recorded Investment			$ 53

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Investment Securities (Details 4) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Fair Value
Less than 12 months		$ 24,907,000		$ 32,735,000
12 months or more		10,837,000		19,271,000
Total		35,744,000		52,006,000
Unrealized Loss
Less than 12 months		366,000		264,000
12 months or more		240,000		2,214,000
Total		606,000		2,478,000
Book value of securities		210,734,000		201,032,000
Fair value of securities		210,734,000		201,032,000
Collateralized mortgage obligations, amortized cost		207,320,000		199,072,000
Impairment charges recognized in earnings, credit component	50,000	200,000	54,000
Estimated credit losses	191,000	415,000	262,000
Small Business Administration pools
Fair Value
Less than 12 months		7,297,000		6,108,000
12 months or more		2,692,000		2,203,000
Total		9,989,000		8,311,000
Unrealized Loss
Less than 12 months		80,000		38,000
12 months or more		9,000		6,000
Total		89,000		44,000
Fair value of securities		50,931,000		36,479,000
Collateralized mortgage obligations, amortized cost		50,170,000		35,889,000
Government Sponsored Enterprise mortgage-backed securities
Fair Value
Less than 12 months		15,470,000		25,113,000
12 months or more		6,157,000		3,269,000
Total		21,627,000		28,382,000
Unrealized Loss
Less than 12 months		148,000		163,000
12 months or more		55,000		24,000
Total		203,000		187,000
Government Sponsored Enterprise mortgage-backed securities | Bank
Unrealized Loss
Book value of securities		117,800,000
Fair value of securities		119,600,000
Non-agency mortgage-backed securities
Fair Value
Less than 12 months		805,000		574,000
12 months or more		1,939,000		13,275,000
Total		2,744,000		13,849,000
Unrealized Loss
Less than 12 months		131,000		3,000
12 months or more		175,000		2,158,000
Total		306,000		2,161,000
Fair value of securities		2,900,000
Collateralized mortgage obligations, amortized cost		3,400,000
Number of securities with OTTI		2
Fair value of securities with OTTI		2,500,000
Impairment charges recognized in earnings, credit component		199,800
Estimated credit losses		199,800
Corporate bonds and other
Fair Value
Less than 12 months				940,000
12 months or more		49,000		524,000
Total		49,000		1,464,000
Unrealized Loss
Less than 12 months				60,000
12 months or more		1,000		26,000
Total		1,000		86,000
Fair value of securities		1,966,000		2,400,000
Collateralized mortgage obligations, amortized cost		1,932,000		2,432,000
State and local government
Fair Value
Less than 12 months		1,335,000
Total		1,335,000
Unrealized Loss
Less than 12 months		7,000
Total		7,000
Fair value of securities		33,827,000		20,488,000
Collateralized mortgage obligations, amortized cost		$ 32,531,000		$ 19,617,000

XML

Fair Value of Financial Instruments (Details 4) (Interest rate Cap/Floor/Swap, USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Interest rate Cap/Floor/Swap
Reconciliation of changes in level 3 financial instruments
Balance at the beginning of the period	$ (479)	$ (602)
Total gains or losses (realized/unrealized)
Included in earnings	(20)	(57)
Purchases, issuances, and settlements	81	241
Balance at the end of the period	$ (418)	$ (418)

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Cash flows from operating activities:
Net income	$ 2,947	$ 2,253
Adjustments to reconcile net income to net cash provided in operating activities:
Depreciation	639	634
Premium amortization	2,096	1,369
Provision for loan losses	416	1,110	(1,420)
Writedowns of other real estate owned	266	243
Loss on sale of other real estate owned	8	109
Amortization of intangibles	153	466
Gain (loss) on sale of securities	62	(274)
Loss on early extinguishment of debt	121	74
Other-than-temporary-impairment on securities	200	54
Net decrease in fair value option instruments and derivatives	57	185
Decrease in other assets	1,628	520
Increase (decrease) in other liabilities	(529)	292
Net cash provided in operating activities	8,064	7,035
Cash flows from investing activities:
Purchase of investment securities available-for-sale and other investments	(89,195)	(91,464)
Maturity of investment securities available-for-sale	29,017	28,919
Proceeds from sale of securities available-for-sale and other investments	50,748	47,792
Increase in loans	(6,658)	(4,535)
Proceeds from sale of other real estate owned	3,487	2,141
Purchase of property and equipment	(452)	(211)
Proceeds from sale of land		9
Net cash used in investing activities	(13,053)	(17,349)
Cash flows from financing activities:
Increase in deposit accounts	9,879	17,815
Increase in securities sold under agreements to repurchase	2,036	4,241
Decrease in other borrowings		(20)
Advances from the FHLB	1,500	1,500
Repayment of advances FHLB	(6,992)	(20,945)
Proceeds from sale Common Stock	13,792
Redemption of Preferred Stock	(10,535)
Dividends paid: Common Stock	(397)	(393)
Preferred Stock	(475)	(426)
Dividend reinvestment plan	68	68
Net cash provided from financing activities	8,876	1,840
Net increase (decrease) in cash and cash equivalents	3,887	(8,474)
Cash and cash equivalents at beginning of period	16,492	26,461	26,461
Cash and cash equivalents at end of period	20,379	17,987	16,492
Cash paid during the period for:
Interest	4,645	5,967
Non-cash investing and financing activities:
Unrealized gain on securities	960	3,284
Transfer of loans to foreclosed property	$ 1,980	$ 3,694

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Loans (Details 2) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Activity in the allowance for loan losses
Balance at the beginning of the period	$ 4,742,000	$ 4,716,000	$ 4,699,000	$ 4,911,000	$ 4,911,000
Charge-offs	189,000	388,000	496,000	1,368,000	1,696,000
Recoveries	27,000	20,000	76,000	55,000	64,000
Provisions	(115,000)	(360,000)	(416,000)	(1,110,000)	1,420,000
Balance at end of the period	4,695,000	4,708,000	4,695,000	4,708,000	4,699,000
Allowance for loan losses
Individually evaluated for impairment					2,000
Collectively evaluated for impairment	4,695,000		4,695,000		4,697,000
Loans receivable:
Ending balance-total	323,534,000		323,534,000		324,311,000
Individually evaluated for impairment	9,544,000		9,544,000		9,353,000
Collectively evaluated for impairment	313,990,000		313,990,000		314,958,000
Loans outstanding to bank directors, executive officers and their related business interests	10,500,000	10,400,000	10,500,000	10,400,000
Loans to bank directors, executive officers and their related business interests repaid during the period			438,000	1,300,000
Loans made to bank directors, executive officers and their related business interests during the period			112,000	808,000
Total loans considered impaired	9,544,000		9,544,000		9,353,000
Loans considered impaired for which there is a related allowance for loan loss:
Outstanding loan balance					148,000
Related allowance					2,000
Loans considered impaired and previously written down to fair value	9,544,000		9,544,000		9,205,000
Average impaired loans			10,530,000		9,926,000
Commercial
Activity in the allowance for loan losses
Balance at the beginning of the period	249,000	362,000	331,000	681,000	681,000
Charge-offs	26,000	85,000	88,000		265,000
Recoveries	7,000	13,000	32,000		31,000
Provisions	112,000	26,000	67,000		(116,000)
Balance at end of the period	342,000	316,000	342,000	316,000	331,000
Allowance for loan losses
Individually evaluated for impairment					1,000
Collectively evaluated for impairment	342,000		342,000		330,000
Loans receivable:
Ending balance-total	19,469,000		19,469,000		20,608,000
Individually evaluated for impairment	15,000		15,000		45,000
Collectively evaluated for impairment	19,454,000		19,454,000		20,563,000
Total loans considered impaired	15,000		15,000		45,000
Loans considered impaired for which there is a related allowance for loan loss:
Outstanding loan balance					33,000
Related allowance					1,000
Loans considered impaired and previously written down to fair value	15,000		15,000		12,000
Average impaired loans			92,000		57,000
Real estate: Construction
Activity in the allowance for loan losses
Balance at the beginning of the period		379,000		905,000	905,000
Provisions		5,000			(905,000)
Balance at end of the period		384,000		384,000
Loans receivable:
Ending balance-total	11,739,000		11,739,000		11,767,000
Collectively evaluated for impairment	11,739,000		11,739,000		11,767,000
Real estate: Mortgage-residential
Activity in the allowance for loan losses
Balance at the beginning of the period	599,000	514,000	514,000	465,000	465,000
Charge-offs	82,000		112,000		186,000
Recoveries	1,000	2,000	10,000		5,000
Provisions	(26,000)	(62,000)	80,000		230,000
Balance at end of the period	492,000	454,000	492,000	454,000	514,000
Allowance for loan losses
Collectively evaluated for impairment	492,000		492,000		514,000
Loans receivable:
Ending balance-total	36,861,000		36,861,000		38,337,000
Individually evaluated for impairment	477,000		477,000		622,000
Collectively evaluated for impairment	38,384,000		38,384,000		37,715,000
Total loans considered impaired	477,000		477,000		622,000
Loans considered impaired for which there is a related allowance for loan loss:
Loans considered impaired and previously written down to fair value	477,000		477,000		622,000
Average impaired loans			563,000		656,000
Real estate: Mortgage-commercial
Activity in the allowance for loan losses
Balance at the beginning of the period	1,313,000	1,697,000	1,475,000	1,404,000	1,404,000
Charge-offs	67,000	164,000	245,000		861,000
Provisions	(162,000)	50,000	(146,000)		932,000
Balance at end of the period	1,084,000	1,583,000	1,084,000	1,583,000	1,475,000
Allowance for loan losses
Individually evaluated for impairment					1,000
Collectively evaluated for impairment	1,084,000		1,084,000		1,474,000
Loans receivable:
Ending balance-total	223,595,000		223,595,000		220,288,000
Individually evaluated for impairment	9,041,000		9,041,000		8,667,000
Collectively evaluated for impairment	214,554,000		214,554,000		211,621,000
Total loans considered impaired	9,041,000		9,041,000		8,667,000
Loans considered impaired for which there is a related allowance for loan loss:
Outstanding loan balance					115,000
Related allowance					1,000
Loans considered impaired and previously written down to fair value	9,041,000		9,041,000		8,552,000
Average impaired loans			9,853,000		9,183,000
Consumer: Home equity
Activity in the allowance for loan losses
Balance at the beginning of the period	445,000	425,000	521,000	325,000	325,000
Charge-offs		115,000			285,000
Recoveries	1,000	1,000	3,000		5,000
Provisions	(69,000)	180,000	(147,000)		476,000
Balance at end of the period	377,000	491,000	377,000	491,000	521,000
Allowance for loan losses
Collectively evaluated for impairment	377,000		377,000		521,000
Loans receivable:
Ending balance-total	26,778,000		26,778,000		27,976,000
Collectively evaluated for impairment	26,778,000		26,778,000		27,976,000
Consumer: Other
Activity in the allowance for loan losses
Balance at the beginning of the period	45,000	51,000	57,000	88,000	88,000
Charge-offs	14,000	24,000	51,000		99,000
Recoveries	18,000	4,000	31,000		23,000
Provisions	4,000	17,000	16,000		45,000
Balance at end of the period	53,000	48,000	53,000	48,000	57,000
Allowance for loan losses
Collectively evaluated for impairment	53,000		53,000		57,000
Loans receivable:
Ending balance-total	5,092,000		5,092,000		5,335,000
Individually evaluated for impairment	11,000		11,000		19,000
Collectively evaluated for impairment	5,081,000		5,081,000		5,316,000
Total loans considered impaired	11,000		11,000		19,000
Loans considered impaired for which there is a related allowance for loan loss:
Loans considered impaired and previously written down to fair value	11,000		11,000		19,000
Average impaired loans			22,000		30,000
Unallocated
Activity in the allowance for loan losses
Balance at the beginning of the period	2,091,000	1,288,000	1,801,000	1,043,000	1,043,000
Provisions	256,000	144,000	546,000		758,000
Balance at end of the period	2,347,000	1,432,000	2,347,000	1,432,000	1,801,000
Allowance for loan losses
Collectively evaluated for impairment	$ 2,347,000		$ 2,347,000		$ 1,801,000

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Loans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Loans
Loans	$ 323,534		$ 323,534		$ 324,311
Activity in the allowance for loan losses
Balance at the beginning of the period	4,742	4,716	4,699	4,911	4,911
Provision for loan losses	(115)	(360)	(416)	(1,110)	1,420
Charged off loans	(189)	(388)	(496)	(1,368)	(1,696)
Recoveries	27	20	76	55	64
Balance at end of the period	4,695	4,708	4,695	4,708	4,699
Commercial, financial and agricultural
Loans
Loans	19,469		19,469		20,608
Real estate: Construction
Loans
Loans	11,739		11,739		11,767
Activity in the allowance for loan losses
Balance at the beginning of the period		379		905	905
Provision for loan losses		5			(905)
Balance at end of the period		384		384
Real estate: Mortgage-residential
Loans
Loans	36,861		36,861		38,337
Fair value of residential mortgage loans held for sale	8,700		8,700		3,700
Activity in the allowance for loan losses
Balance at the beginning of the period	599	514	514	465	465
Provision for loan losses	(26)	(62)	80		230
Charged off loans	(82)		(112)		(186)
Recoveries	1	2	10		5
Balance at end of the period	492	454	492	454	514
Real estate: Mortgage-residential | Minimum
Loans
Number of business days required to transfer the loans to investors after the receipt of funds			3 days
Real estate: Mortgage-residential | Maximum
Loans
Number of business days required to transfer the loans to investors after the receipt of funds			14 days
Real estate: Mortgage-commercial
Loans
Loans	223,595		223,595		220,288
Activity in the allowance for loan losses
Balance at the beginning of the period	1,313	1,697	1,475	1,404	1,404
Provision for loan losses	(162)	50	(146)		932
Charged off loans	(67)	(164)	(245)		(861)
Balance at end of the period	1,084	1,583	1,084	1,583	1,475
Consumer: Home equity
Loans
Loans	26,778		26,778		27,976
Activity in the allowance for loan losses
Balance at the beginning of the period	445	425	521	325	325
Provision for loan losses	(69)	180	(147)		476
Charged off loans		(115)			(285)
Recoveries	1	1	3		5
Balance at end of the period	377	491	377	491	521
Consumer: Other
Loans
Loans	5,092		5,092		5,335
Activity in the allowance for loan losses
Balance at the beginning of the period	45	51	57	88	88
Provision for loan losses	4	17	16		45
Charged off loans	(14)	(24)	(51)		(99)
Recoveries	18	4	31		23
Balance at end of the period	$ 53	$ 48	$ 53	$ 48	$ 57

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Loans (Details 3) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
With no allowance recorded:
Recorded Investment	$ 9,544	$ 9,205
With an allowance recorded:
Recorded Investment		148
Related allowance		2
Total:
Recorded Investment	9,544	9,353
Unpaid Principal Balance	10,098	9,811
Average Recorded Investment	10,530	9,926
Interest Income Recognized	269	397
Commercial
With no allowance recorded:
Recorded Investment	15	12
Unpaid Principal Balance	46	19
Average Recorded Investment	92	21
Interest Income Recognized	1
With an allowance recorded:
Recorded Investment		33
Unpaid Principal Balance		33
Related allowance		1
Average Recorded Investment		36
Interest Income Recognized		2
Total:
Recorded Investment	15	45
Unpaid Principal Balance	46	52
Average Recorded Investment	92	57
Interest Income Recognized	1	2
Real estate: Mortgage-residential
With no allowance recorded:
Recorded Investment	477	622
Unpaid Principal Balance	505	650
Average Recorded Investment	563	656
Interest Income Recognized	2	4
Total:
Recorded Investment	477	622
Unpaid Principal Balance	505	650
Average Recorded Investment	563	656
Interest Income Recognized	2	4
Real estate: Mortgage-commercial
With no allowance recorded:
Recorded Investment	9,041	8,552
Unpaid Principal Balance	9,536	8,975
Average Recorded Investment	9,853	9,066
Interest Income Recognized	266	382
With an allowance recorded:
Recorded Investment		115
Unpaid Principal Balance		115
Related allowance		1
Average Recorded Investment		117
Interest Income Recognized		8
Total:
Recorded Investment	9,041	8,667
Unpaid Principal Balance	9,536	9,090
Average Recorded Investment	9,853	9,183
Interest Income Recognized	266	390
Consumer: Other
With no allowance recorded:
Recorded Investment	11	19
Unpaid Principal Balance	11	19
Average Recorded Investment	22	30
Interest Income Recognized		1
Total:
Recorded Investment	11	19
Unpaid Principal Balance	11	19
Average Recorded Investment	22	30
Interest Income Recognized		$ 1

XML

Loans (Details 4) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Loans
Loans	$ 323,534,000	$ 324,311,000
Non-accrual loans	4,923,000	5,403,000
Loans greater than ninety days delinquent and still accruing interest		25,000
Accrual
Loans
Troubled debt restructurings	4,600,000	3,900,000
Nonaccrual
Loans
Troubled debt restructurings	1,900,000	3,800,000
Pass
Loans
Loans	297,835,000	297,641,000
Special Mention
Loans
Loans	8,539,000	8,856,000
Substandard
Loans
Loans	17,160,000	17,814,000
Commercial, financial and agricultural
Loans
Loans	19,469,000	20,608,000
Commercial, financial and agricultural | Pass
Loans
Loans	19,228,000	19,827,000
Commercial, financial and agricultural | Special Mention
Loans
Loans	33,000	499,000
Commercial, financial and agricultural | Substandard
Loans
Loans	208,000	282,000
Real estate: Construction
Loans
Loans	11,739,000	11,767,000
Real estate: Construction | Pass
Loans
Loans	6,988,000	6,764,000
Real estate: Construction | Special Mention
Loans
Loans	2,522,000
Real estate: Construction | Substandard
Loans
Loans	2,229,000	5,003,000
Real estate: Mortgage-residential
Loans
Loans	36,861,000	38,337,000
Non-accrual loans	477,000	623,000
Real estate: Mortgage-residential | Pass
Loans
Loans	34,845,000	37,063,000
Real estate: Mortgage-residential | Special Mention
Loans
Loans	1,257,000	305,000
Real estate: Mortgage-residential | Substandard
Loans
Loans	759,000	969,000
Real estate: Mortgage-commercial
Loans
Loans	223,595,000	220,288,000
Non-accrual loans	4,420,000	4,749,000
Loans greater than ninety days delinquent and still accruing interest		25,000
Real estate: Mortgage-commercial | Pass
Loans
Loans	205,592,000	200,984,000
Real estate: Mortgage-commercial | Special Mention
Loans
Loans	4,149,000	8,009,000
Real estate: Mortgage-commercial | Substandard
Loans
Loans	13,854,000	11,295,000
Consumer: Home equity
Loans
Loans	26,778,000	27,976,000
Consumer: Home equity | Pass
Loans
Loans	26,110,000	27,692,000
Consumer: Home equity | Special Mention
Loans
Loans	575,000	38,000
Consumer: Home equity | Substandard
Loans
Loans	93,000	246,000
Consumer: Other
Loans
Loans	5,092,000	5,335,000
Non-accrual loans	11,000	19,000
Consumer: Other | Pass
Loans
Loans	5,072,000	5,311,000
Consumer: Other | Special Mention
Loans
Loans	3,000	5,000
Consumer: Other | Substandard
Loans
Loans	$ 17,000	$ 19,000

XML

Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Consolidated Statements of Changes in Shareholders' Equity
Other comprehensive income, tax expense	$ 329	$ 1,883
Dividends: Common stock (in dollars per share)	$ 0.12	$ 0.12

XML

Loans (Details 5) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Loans
30-59 Days Past Due	$ 2,019,000	$ 2,007,000
60-89 Days Past Due	1,375,000	1,202,000
Greater than 90 Days and Accruing		25,000
Nonaccrual	4,923,000	5,403,000
Total Past Due	8,317,000	8,637,000
Current	315,217,000	315,674,000
Total Loans	323,534,000	324,311,000
Recorded investment in loans for which the allowance was previously measured under a general allowance methodology and are now impaired under ASC 310-10-35	6,500,000	7,700,000
Allowance for loans losses in loans for which the allowance was previously measured under a general allowance methodology and are now impaired under ASC 310-10-35		2,000
Commercial
Loans
30-59 Days Past Due	150,000	147,000
60-89 Days Past Due	49,000	123,000
Nonaccrual	15,000	12,000
Total Past Due	214,000	282,000
Current	19,255,000	20,326,000
Total Loans	19,469,000	20,608,000
Real estate: Construction
Loans
Current	11,739,000	11,767,000
Total Loans	11,739,000	11,767,000
Real estate: Mortgage-residential
Loans
30-59 Days Past Due	357,000	391,000
60-89 Days Past Due	330,000	95,000
Nonaccrual	477,000	623,000
Total Past Due	1,164,000	1,109,000
Current	35,697,000	37,228,000
Total Loans	36,861,000	38,337,000
Real estate: Mortgage-commercial
Loans
30-59 Days Past Due	1,391,000	1,382,000
60-89 Days Past Due	981,000	966,000
Greater than 90 Days and Accruing		25,000
Nonaccrual	4,420,000	4,749,000
Total Past Due	6,792,000	7,122,000
Current	216,803,000	213,166,000
Total Loans	223,595,000	220,288,000
Consumer: Home equity
Loans
30-59 Days Past Due	77,000	45,000
Total Past Due	77,000	45,000
Current	26,701,000	27,931,000
Total Loans	26,778,000	27,976,000
Consumer: Other
Loans
30-59 Days Past Due	44,000	42,000
60-89 Days Past Due	15,000	18,000
Nonaccrual	11,000	19,000
Total Past Due	70,000	79,000
Current	5,022,000	5,256,000
Total Loans	$ 5,092,000	$ 5,335,000

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Subsequent Events (Details) (USD $)	9 Months Ended	0 Months Ended	1 Months Ended	3 Months Ended	0 Months Ended
	Sep. 30, 2012	Aug. 29, 2012 Series T preferred stock	Nov. 30, 2008 Series T preferred stock	Sep. 30, 2012 Series T preferred stock	Oct. 25, 2012 Subsequent event Series T preferred stock
Subsequent Events
Value of stock repurchased		$ 3,780,000
Number of shares repurchased		3,780
Number of shares sold under stock repurchase program			11,350
Number of shares repurchased by third party investors		7,570
Non-recurring expenses related to share repurchases				119,000
Charge for remaining discount accretion	53,000			159,000
Number of shares to be repurchased as per bid approval by the U.S. Treasury					195,915
Repurchase price					$ 297,500

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Cash and due from banks	$ 10,485	$ 10,599
Interest-bearing bank balances	9,284	5,512
Federal funds sold and securities purchased under agreements to resell	610	381
Investment securities - available for sale	210,734	201,032
Other investments, at cost	4,540	5,637
Loans held for sale	8,685	3,725
Loans	323,534	324,311
Less, allowance for loan losses	4,695	4,699
Net loans	318,839	319,612
Property, furniture and equipment - net	17,297	17,483
Bank owned life insurance	10,779	10,974
Other real estate owned	5,570	7,351
Intangible assets	211	365
Goodwill	571	571
Other assets	8,734	10,645
Total assets	606,339	593,887
Deposits:
Non-interest bearing demand	92,738	83,572
NOW and money market accounts	147,655	136,483
Savings	41,358	34,048
Time deposits less than $100,000	117,149	128,616
Time deposits $100,000 and over	75,565	81,866
Total deposits	474,465	464,585
Securities sold under agreements to repurchase	15,651	13,616
Federal Home Loan Bank advances	38,491	43,862
Junior subordinated debt	17,917	17,913
Other liabilities	5,537	6,015
Total liabilities	552,061	545,991
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00 per share, 10,000,000 shares authorized; issued and outstanding 750 at September 30, 2012 11,350 at December 31, 2011	750	11,137
Common stock, par value $1.00 per share; 10,000,000 shares authorized; issued and outstanding 5,224,282 at September 30,2012 3,307,531 at December 31, 2011	5,224	3,308
Common stock warrants issued	560	560
Additional paid in capital	61,381	49,165
Restricted stock	(197)
Accumulated deficit	(15,729)	(17,603)
Accumulated other comprehensive income	2,289	1,329
Total shareholders' equity	54,278	47,896
Total liabilities and shareholders' equity	$ 606,339	$ 593,887

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unrealized gain during the period on available-for-sale securities, tax expense	$ 420	$ 1,035	$ 418	$ 1,806
Reclassification adjustment for (gain)loss included in net income, tax (expense) benefit	12	47	21	96
Reclassification adjustment for other-than-temporary-impairment on securities, tax benefit	$ 0	$ 18	$ 68	$ 19

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Fair Value of Financial Instruments (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Assets and liabilities measured at fair value
Non-interest income: Fair value adjustment loss	$ (20)	$ (60)	$ (57)	$ (185)
Interest rate swap
Assets and liabilities measured at fair value
Non-interest income: Fair value adjustment loss	$ (20)	$ (60)	$ (57)	$ (185)

XML

Investment Securities (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Investment Securities
Amortized Cost	$ 207,320,000		$ 207,320,000		$ 199,072,000
Gross Unrealized Gains	4,020,000		4,020,000		4,438,000
Gross Unrealized Losses	606,000		606,000		2,478,000
Fair Value	210,734,000		210,734,000		201,032,000
Proceeds from sale of investment securities available-for-sale	470,000	10,700,000	49,500,000	47,800,000
Gross realized gains		588,000	2,000,000	2,300,000
Gross realized losses	35,000	455,000	2,100,000	2,000,000
Government sponsored enterprises
Investment Securities
Amortized Cost	1,525,000		1,525,000		31,000
Gross Unrealized Gains	19,000		19,000		3,000
Fair Value	1,544,000		1,544,000		34,000
Mortgage-backed securities
Investment Securities
Amortized Cost	121,162,000		121,162,000		141,103,000
Gross Unrealized Gains	1,813,000		1,813,000		2,876,000
Gross Unrealized Losses	509,000		509,000		2,348,000
Fair Value	122,466,000		122,466,000		141,631,000
Small Business Administration pools
Investment Securities
Amortized Cost	50,170,000		50,170,000		35,889,000
Gross Unrealized Gains	850,000		850,000		634,000
Gross Unrealized Losses	89,000		89,000		44,000
Fair Value	50,931,000		50,931,000		36,479,000
State and local government
Investment Securities
Amortized Cost	32,531,000		32,531,000		19,617,000
Gross Unrealized Gains	1,303,000		1,303,000		871,000
Gross Unrealized Losses	7,000		7,000
Fair Value	33,827,000		33,827,000		20,488,000
Corporate and other securities
Investment Securities
Amortized Cost	1,932,000		1,932,000		2,432,000
Gross Unrealized Gains	35,000		35,000		54,000
Gross Unrealized Losses	1,000		1,000		86,000
Fair Value	1,966,000		1,966,000		2,400,000
Corporate bonds
Investment Securities
Fair Value	1,000,000		1,000,000		1,400,000
Mutual funds
Investment Securities
Fair Value	897,200		897,200		904,900
Federal Home Loan Mortgage Corporation (the FHLMC or Freddie Mac) preferred stock
Investment Securities
Fair Value	9,200		9,200		20,900
Foreign debt
Investment Securities
Fair Value	$ 59,600		$ 59,600		$ 59,000

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Fair Value of Financial Instruments (Details 3) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Assets and liabilities measured at fair value
Available for sale securities	$ 210,734,000	$ 201,032,000
Government sponsored enterprises
Assets and liabilities measured at fair value
Available for sale securities	1,544,000	34,000
Mortgage backed securities
Assets and liabilities measured at fair value
Available for sale securities	122,466,000	141,631,000
Small Business Administration securities
Assets and liabilities measured at fair value
Available for sale securities	50,931,000	36,479,000
State and local government
Assets and liabilities measured at fair value
Available for sale securities	33,827,000	20,488,000
Corporate and other securities
Assets and liabilities measured at fair value
Available for sale securities	1,966,000	2,400,000
Fair value
Assets and liabilities measured at fair value
Available for sale securities	210,734,000	201,032,000
Interest rate cap/swap	(418,000)	(602,000)
Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets and liabilities measured at fair value
Available for sale securities	906,000
Significant Other Observable Inputs (Level 2)
Assets and liabilities measured at fair value
Available for sale securities	209,828,000
Significant Unobservable Inputs (Level 3)
Assets and liabilities measured at fair value
Interest rate cap/swap	(418,000)
Recurring basis | Fair value
Assets and liabilities measured at fair value
Available for sale securities		201,032,000
Interest rate cap/swap		(602,000)
Total	210,316,000	200,430,000
Recurring basis | Fair value | Government sponsored enterprises
Assets and liabilities measured at fair value
Available for sale securities	1,544,000	34,000
Recurring basis | Fair value | Mortgage backed securities
Assets and liabilities measured at fair value
Available for sale securities	122,466,000	141,631,000
Recurring basis | Fair value | Small Business Administration securities
Assets and liabilities measured at fair value
Available for sale securities	50,931,000	36,479,000
Recurring basis | Fair value | State and local government
Assets and liabilities measured at fair value
Available for sale securities	33,827,000	20,488,000
Recurring basis | Fair value | Corporate and other securities
Assets and liabilities measured at fair value
Available for sale securities	1,966,000	2,400,000
Recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets and liabilities measured at fair value
Available for sale securities	906,000	926,000
Total	906,000	926,000
Recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | Corporate and other securities
Assets and liabilities measured at fair value
Available for sale securities	906,000	926,000
Recurring basis | Significant Other Observable Inputs (Level 2)
Assets and liabilities measured at fair value
Available for sale securities	209,828,000	200,106,000
Total	209,828,000	200,106,000
Recurring basis | Significant Other Observable Inputs (Level 2) | Government sponsored enterprises
Assets and liabilities measured at fair value
Available for sale securities	1,544,000	34,000
Recurring basis | Significant Other Observable Inputs (Level 2) | Mortgage backed securities
Assets and liabilities measured at fair value
Available for sale securities	122,466,000	141,631,000
Recurring basis | Significant Other Observable Inputs (Level 2) | Small Business Administration securities
Assets and liabilities measured at fair value
Available for sale securities	50,931,000	36,479,000
Recurring basis | Significant Other Observable Inputs (Level 2) | State and local government
Assets and liabilities measured at fair value
Available for sale securities	33,827,000	20,488,000
Recurring basis | Significant Other Observable Inputs (Level 2) | Corporate and other securities
Assets and liabilities measured at fair value
Available for sale securities	1,060,000	1,474,000
Recurring basis | Significant Unobservable Inputs (Level 3)
Assets and liabilities measured at fair value
Interest rate cap/swap	(418,000)	(602,000)
Total	$ (418,000)	$ (602,000)

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Investment Securities (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Analysis of amounts relating to credit losses on debt securities recognized in earnings
Credit losses recognized in earnings	$ 50	$ 200	$ 54
Trust preferred security
Analysis of amounts relating to credit losses on debt securities recognized in earnings
Credit losses recognized in earnings	455
Number of securities with an OTTI wherein loss related to credit was recognized in earnings			1
Non-agency MBSs
Analysis of amounts relating to credit losses on debt securities recognized in earnings
Credit losses recognized in earnings	50	200	54
Number of securities with an OTTI wherein loss related to credit was recognized in earnings	1	2	1
Non-agency MBSs | Loans greater than 60 days delinquent
Analysis of amounts relating to credit losses on debt securities recognized in earnings
Minimum period of loan delinquency		60 days
Period over which loans will be resolved		2 years
Non-agency MBSs | Balance of the portfolio
Analysis of amounts relating to credit losses on debt securities recognized in earnings
Default rate (as a percent)		3.30%
Average prepayment rate (as a percent)		5.40%
Average severity (as a percent)		52.40%
Available-for-sale
Analysis of amounts relating to credit losses on debt securities recognized in earnings
Balance at beginning of period		930	2,143
Other-than-temporary-impairment not previously recognized		173	50
Additional increase for which an other-than-temporary impairment was previously recognized related to credit losses		27	4
Other-than-temporary-impairment previously recognized on securities sold		(679)
Realized losses during the period		(159)	(1,284)
Balance related to credit losses on debt securities at end of period	$ 736	$ 292	$ 736

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Consolidated Statements of Changes in Shareholders' Equity (USD $) In Thousands, unless otherwise specified	Total	Preferred Stock	Common Stock	Common Stock Warrants	Additional Paid-in Capital	Nonvested Restricted Stock	Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)
Balance at Dec. 31, 2010	$ 41,797	$ 11,035	$ 3,270	$ 509	$ 48,956		$ (19,732)	$ (2,241)
Balance (in shares) at Dec. 31, 2010			3,270
Increase (Decrease) in Stockholders' Equity
Net income	2,253						2,253
Other comprehensive income net of tax expense of $329 and $1,883 for the nine months ended September 30, 2012 and September 30, 2011, respectively	3,284							3,284
Issuance of restricted stock	91		23		133	(65)
Issuance of restricted stock (in shares)			23
Amortization of compensation on restricted stock	26					26
Dividends: Common ($0.12 and $0.12 per share) for the nine months ended September 30, 2012 and September 30, 2011, respectively	(393)						(393)
Preferred	(426)						(426)
Accretion and redemption costs		76					(76)
Dividend reinvestment plan	68		11		57
Dividend reinvestment plan (in shares)			11
Balance at Sep. 30, 2011	46,700	11,111	3,304	509	49,146	(39)	(18,374)	1,043
Balance (in shares) at Sep. 30, 2011			3,304
Balance at Dec. 31, 2011	47,896	11,137	3,308	560	49,165		(17,603)	1,329
Balance (in shares) at Dec. 31, 2011			3,308
Increase (Decrease) in Stockholders' Equity
Net income	2,947						2,947
Other comprehensive income net of tax expense of $329 and $1,883 for the nine months ended September 30, 2012 and September 30, 2011, respectively	960							960
Issuance of restricted stock			33		239	(272)
Issuance of restricted stock (in shares)			33
Amortization of compensation on restricted stock	75					75
Issuance of common stock	13,792		1,875		11,917
Issuance of common stock (in shares)			1,875
Dividends: Common ($0.12 and $0.12 per share) for the nine months ended September 30, 2012 and September 30, 2011, respectively	(397)						(397)
Preferred	(475)						(475)
Redemption of preferred stock	(10,535)	(10,535)
Accretion and redemption costs	(53)	148					(201)
Dividend reinvestment plan	68		8		60
Dividend reinvestment plan (in shares)			8
Balance at Sep. 30, 2012	$ 54,278	$ 750	$ 5,224	$ 560	$ 61,381	$ (197)	$ (15,729)	$ 2,289
Balance (in shares) at Sep. 30, 2012			5,224

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Sep. 30, 2012	Dec. 31, 2011
CONSOLIDATED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 1.00	$ 1.00
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	750	11,350
Preferred stock, shares outstanding	750	11,350
Common stock, par value (in dollars per share)	$ 1.00	$ 1.00
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	5,224,282	3,307,531
Common stock, shares outstanding	5,224,282	3,307,531

XML

Earnings Per Common Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Common Share

Schedule of reconciliation of the numerator and denominator of the basic and diluted earnings per common share computation

	Nine months				Three months
	Ended September 30,				Ended September 30,
(In thousands, except price per share)	2012		2011		2012		2011
Numerator (Net income available to common shareholders)	$	2,271	$	1,751	$	881	$	790
Denominator
Weighted average common shares outstanding for:
Basic earnings per share	3,780		3,280		4,693		3,294
Dilutive securities:
Deferred compensation	—		—		2		—
Warrants – Treasury stock method	27		—		31		—
Diluted earnings per share	3,807		3,280		4,726		3,294
The average market price used in calculating assumed number of shares	$	7.84	$	6.45	$	8.27	$	6.19

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 13, 2012
Document and Entity Information
Entity Registrant Name	FIRST COMMUNITY CORP /SC/
Entity Central Index Key	0000932781
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		5,224,282
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

XML

Investment Securities (Tables)

9 Months Ended

Sep. 30, 2012

Investment Securities

Schedule of amortized cost and estimated fair values of investment securities

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2012:
Government sponsored enterprises	$	1,525	$	19	$	—	$	1,544
Mortgage-backed securities	121,162		1,813		509		122,466
Small Business Administration pools	50,170		850		89		50,931
State and local government	32,531		1,303		7		33,827
Corporate and other securities	1,932		35		1		1,966
	$	207,320	$	4,020	$	606	$	210,734
December 31, 2011:
Government sponsored enterprises	$	31	$	3	$	—	$	34
Mortgage-backed securities	141,103		2,876		2,348		141,631
Small Business Administration pools	35,889		634		44		36,479
State and local government	19,617		871		—		20,488
Corporate and other securities	2,432		54		86		2,400
	$	199,072	$	4,438	$	2,478	$	201,032

Schedule of other-than-temporary impairment (OTTI) losses on available-for-sale securities

	Nine months ended September 30, 2012		Three months ended September 30, 2012
(Dollars in thousands)	Available-for- sale securities		Available-for- sale securities
Total OTTI charge realized and unrealized	$	415	$	—
OTTI recognized in other comprehensive income (non-credit component)	215		—
Net impairment losses recognized in earnings (credit component)	$	200	$	—

	Nine months ended September 30, 2011		Three months ended September 30, 2011
(Dollars in thousands)	Available-for- sale securities		Available-for- sale securities
Total OTTI charge realized and unrealized	$	262	$	191
OTTI recognized in other comprehensive income (non-credit component)	208		141
Net impairment losses recognized in earnings (credit component)	$	54	$	50

Schedule of analysis of amounts relating to credit losses on debt securities recognized in earnings

	2012			2011
	Available for			Available for
(Dollars in thousands)	Sale			Sale
Balance at beginning of period	$	930		$	2,143
Other-than-temporary-impairment not previously recognized	173			50
Additional increase for which an other-than-temporary impairment was previously recognized related to credit losses	27			4
Other-than-temporary-impairment previously recognized on securities sold	(679		)	—
Realized losses during the period	(159		)	(1,284		)
Balance related to credit losses on debt securities at end of period	$	292		$	736

Schedule of gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous loss position

September 30, 2012

	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available-for-sale securities:
Small Business Administration Pools	$	7,297	$	80	$	2,692	$	9	$	9,989	$	89
Government Sponsored Enterprise mortgage-backed securities	15,470		148		6,157		55		21,627		203
Non-agency mortgage-backed securities	805		131		1,939		175		2,744		306
Corporate bonds and other	—		—		49		1		49		1
State and local government	1,335		7		—		—		1,335		7
Total	$	24,907	$	366	$	10,837	$	240	$	35,744	$	606

December 31, 2011

	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available-for-sale securities:
Government Sponsored Enterprise mortgage-backed securities	$	25,113	$	163	$	3,269	$	24	$	28,382	$	187
Small Business Administration pools	6,108		38		2,203		6		8,311		44
Non-agency mortgage-backed securities	574		3		13,275		2,158		13,849		2,161
Corporate bonds and other	940		60		524		26		1,464		86
Total	$	32,735	$	264	$	19,271	$	2,214	$	52,006	$	2,478

Schedule of non-agency MBSs/CMOs by credit rating

(Dollars in thousands)

Credit Rating	Number of CUSIPs	Par Value		Amortized Cost		Fair Value
AAA	3	$	189	$	189	$	188
AA	2	309		309		314
A1	1	384		384		376
A3	1	329		329		320
BBB	1	255		255		254
Baa1	1	77		76		76
Baa2	1	130		130		129
Below Investment Grade	4	2,070		1,698		1,281
Total	14	$	3,743	$	3,370	$	2,938

Schedule of the amortized cost and fair value of investment securities by contractual maturity

	Available-for-sale
(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	22,623	$	22,675
Due after one year through five years	97,789		99,385
Due after five years through ten years	59,240		60,872
Due after ten years	27,668		27,802
	$	207,320	$	210,734

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CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Interest income:
Loans, including fees	$ 4,548	$ 4,747	$ 13,804	$ 14,376
Taxable securities	853	1,600	3,194	4,803
Non taxable securities	226	18	475	51
Federal funds sold and securities purchased under resale agreements	13	7	30	28
Other	10	10	31	30
Total interest income	5,650	6,382	17,534	19,288
Interest expense:
Deposits	738	1,114	2,473	3,557
Federal funds sold and securities sold under agreement to repurchase	8	11	26	29
Other borrowed money	575	629	1,746	2,001
Total interest expense	1,321	1,754	4,245	5,587
Net interest income	4,329	4,628	13,289	13,701
Provision for loan losses	115	360	416	1,110
Net interest income after provision for loan losses	4,214	4,268	12,873	12,591
Non-interest income:
Deposit service charges	395	440	1,159	1,376
Mortgage origination fees	1,393	698	2,993	1,152
Investment advisory fees and non-deposit commissions	183	218	492	531
Gain (loss) on sale of securities	(35)	133	(62)	274
Loss on sale of other assets	(22)	(18)	(8)	(109)
Fair value loss adjustments	(20)	(60)	(57)	(185)
Other-than-temporary-impairment write-down on securities		(50)	(200)	(54)
Loss on early extinguishment of debt		(74)	(121)	(74)
Other	508	401	1,524	1,480
Total non-interest income	2,402	1,688	5,720	4,391
Non-interest expense:
Salaries and employee benefits	2,874	2,493	8,179	7,002
Occupancy	352	336	1,032	953
Equipment	307	287	877	858
Marketing and public relations	73	64	367	361
FDIC assessments	117	176	497	681
Other real estate expense	173	134	559	638
Amortization of intangibles	51	156	153	466
Other	876	912	2,679	2,807
Total non-interest expense	4,823	4,558	14,343	13,766
Net income before tax	1,793	1,398	4,250	3,216
Income taxes	573	441	1,303	963
Net income	1,220	957	2,947	2,253
Preferred stock dividends and accretion	220	167	557	502
Preferred stock redemption costs	119		119
Net income available to common shareholders	$ 881	$ 790	$ 2,271	$ 1,751
Basic earnings per common share (in dollars per share)	$ 0.19	$ 0.24	$ 0.60	$ 0.53
Diluted earnings per common share (in dollars per share)	$ 0.19	$ 0.24	$ 0.60	$ 0.53

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Investment Securities

9 Months Ended

Sep. 30, 2012

Investment Securities

Investment Securities

Note 3—Investment Securities

The amortized cost and estimated fair values of investment securities are summarized below:

AVAILABLE-FOR-SALE:

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2012:
Government sponsored enterprises	$	1,525	$	19	$	—	$	1,544
Mortgage-backed securities	121,162		1,813		509		122,466
Small Business Administration pools	50,170		850		89		50,931
State and local government	32,531		1,303		7		33,827
Corporate and other securities	1,932		35		1		1,966
	$	207,320	$	4,020	$	606	$	210,734
December 31, 2011:
Government sponsored enterprises	$	31	$	3	$	—	$	34
Mortgage-backed securities	141,103		2,876		2,348		141,631
Small Business Administration pools	35,889		634		44		36,479
State and local government	19,617		871		—		20,488
Corporate and other securities	2,432		54		86		2,400
	$	199,072	$	4,438	$	2,478	$	201,032

During the nine months ended September 30, 2012 and September 30, 2011, the Company received proceeds of $49.5 million and $47.8 million, respectively, from the sale of investment securities available-for-sale.  Gross realized gains amounted to $2.0 million and gross realized losses amounted to $2.1 million for the nine months ended September 30, 2012.  For the nine months ended September 30, 2011, gross realized gains amounted to $2.3 million and gross realized losses amounted to $2.0 million.  During the three months ended September 30, 2012 and September 30, 2011, the Company received proceeds of $470 thousand and $10.7 million, respectively, from the sale of investment securities available-for-sale.  Gross realized losses amounted to $35 thousand for the three months ended September 30, 2012.  There were no realized gains for the three months ended September 30, 2012.  For the three months ended September 30, 2011, gross realized gains amounted to $588 thousand and gross realized losses amounted to $455 thousand.

At September 30, 2012, corporate and other securities available-for-sale included the following at fair value: corporate bonds at $1.0 million, mutual funds at $897.2 thousand, foreign debt of $59.6 thousand and Federal Home Loan Mortgage Corporation (the “FHLMC” or “Freddie Mac”) preferred stock of $9.2 thousand.  At December 31 2011, corporate and other securities available-for-sale included the following at fair value: corporate bonds at $1.4 million, mutual funds at $904.9 thousand foreign debt of $59.0 thousand and FHLMC preferred stock of $20.9 thousand.

During the nine and three months ended September 30, 2012 and 2011, the Company recorded other-than-temporary-impairment (OTTI) losses on available-for-sale securities as follows:

	Nine months ended September 30, 2012		Three months ended September 30, 2012
(Dollars in thousands)	Available-for- sale securities		Available-for- sale securities
Total OTTI charge realized and unrealized	$	415	$	—
OTTI recognized in other comprehensive income (non-credit component)	215		—
Net impairment losses recognized in earnings (credit component)	$	200	$	—

	Nine months ended September 30, 2011		Three months ended September 30, 2011
(Dollars in thousands)	Available-for- sale securities		Available-for- sale securities
Total OTTI charge realized and unrealized	$	262	$	191
OTTI recognized in other comprehensive income (non-credit component)	208		141
Net impairment losses recognized in earnings (credit component)	$	54	$	50

During 2012 and 2011, OTTIs occurred for which only a portion was attributed to credit loss and recognized in earnings.  The remainder was reported in other comprehensive income.  The following is an analysis of amounts relating to credit losses on debt securities recognized in earnings during the nine months ended September 30, 2012 and 2011.

	2012			2011
	Available for			Available for
(Dollars in thousands)	Sale			Sale
Balance at beginning of period	$	930		$	2,143
Other-than-temporary-impairment not previously recognized	173			50
Additional increase for which an other-than-temporary impairment was previously recognized related to credit losses	27			4
Other-than-temporary-impairment previously recognized on securities sold	(679		)	—
Realized losses during the period	(159		)	(1,284		)
Balance related to credit losses on debt securities at end of period	$	292		$	736

For the nine months ended September 30, 2012, there were two non-agency mortgage backed securities with OTTI in which $200 thousand of OTTI representing credit losses was recognized in earnings.  For the nine months ended September 30, 2011, there was one trust preferred security and one non-agency mortgage backed security in which $54 thousand of OTTI representing credit losses was recognized in earnings.  There was no OTTI recognized in earnings for the three months ended September 30, 2012.  For the three months ended September 30, 2011, there was $50 thousand of OTTI recognized in earnings for one non-agency mortgage backed security.  During the third quarter of 2011, the trust preferred security was sold and an additional $455 thousand loss was recorded in earnings.  In evaluating the non-agency mortgage backed securities, relevant assumptions such as prepayment rate, default rate and loss severity on a loan level basis are used in determining the expected recovery of the contractual cash flows. The assumptions are that all loans greater than 60 days delinquent will be resolved across a two-year period at loss severities based on location and category. The balance of the underlying portfolio cash flows are evaluated using ongoing assumptions for loss severities, prepayment rates and default rates. The ongoing assumptions for average prepayment rate, default rate and severity used in the valuations were approximately 5.4%, 3.3%, and 52.4%, respectively. The underlying collateral on substantially all of these securities is fixed rate residential first mortgages located throughout the United States. The underlying collateral includes various percentages of owner-occupied, as well as, investment related single-family, 1-4 family and condominium residential properties. The securities were purchased at various discounts to par value. Based on the assumptions used in valuing the securities, the Company believes the existing discount and remaining subordinated collateral provide coverage against future credit losses on the downgraded securities for which no OTTI has been recognized.

The following table shows gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous loss position at September 30, 2012 and December 31, 2011.

September 30, 2012

	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available-for-sale securities:
Small Business Administration Pools	$	7,297	$	80	$	2,692	$	9	$	9,989	$	89
Government Sponsored Enterprise mortgage-backed securities	15,470		148		6,157		55		21,627		203
Non-agency mortgage-backed securities	805		131		1,939		175		2,744		306
Corporate bonds and other	—		—		49		1		49		1
State and local government	1,335		7		—		—		1,335		7
Total	$	24,907	$	366	$	10,837	$	240	$	35,744	$	606

December 31, 2011

	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available-for-sale securities:
Government Sponsored Enterprise mortgage-backed securities	$	25,113	$	163	$	3,269	$	24	$	28,382	$	187
Small Business Administration pools	6,108		38		2,203		6		8,311		44
Non-agency mortgage-backed securities	574		3		13,275		2,158		13,849		2,161
Corporate bonds and other	940		60		524		26		1,464		86
Total	$	32,735	$	264	$	19,271	$	2,214	$	52,006	$	2,478

Government Sponsored Enterprise, Mortgage-Backed Securities: Beginning in 2008 and continuing through 2012, the bond markets and many institutional holders of bonds have come under a great deal of stress partially as a result of increasing delinquencies in the sub-prime mortgage lending market. At September 30, 2012, the Company’s wholly-owned subsidiary, First Community Bank (the “Bank”), owns mortgage-backed securities (“MBSs”) including collateralized mortgage obligations (“CMOs”) with a book value of $117.8 million and approximate fair value of $119.6 million issued by government sponsored entities (“GSEs”). Current economic conditions have impacted MBSs issued by GSEs such as the FHLMC and the Federal National Mortgage Association (the “FNMA” or “Fannie Mae”). These entities have experienced increasing delinquencies in the underlying loans that make up the MBSs and CMOs. As of September 30, 2012 and December 31, 2011, all of the MBSs issued by GSEs are classified as “Available for Sale”. Unrealized losses on these investments are not considered to be “other than temporary” and we have the intent and ability to hold these until they mature or recover the current book value. The contractual cash flows of the investments are guaranteed by the GSE. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider the investments to be OTTI at September 30, 2012.

Non-agency mortgage —backed securities: The Company also holds private label mortgage-backed securities (“PLMBSs”), including CMOs, at September 30, 2012 with an amortized cost of $3.4 million and approximate fair value of $2.9 million.  Management monitors each of these securities on a quarterly basis to identify any deterioration in the credit quality, collateral values and credit support underlying the investments.

During the nine months ended September 30, 2012, the Company identified two PLMBS with a fair value of $2.5 million that it considered other-than-temporarily-impaired.  As prescribed by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10-65, the Company has recognized an impairment charge in earnings of $199.8 thousand (credit component) during the nine months ended September 30, 2012.  The $199.8 thousand represents the estimated credit losses on these securities for the nine months ended September 30, 2012. One of the securities identified as other-than-temporarily-impaired during the nine months ended September 30, 2012 was subsequently sold after the impairment was recognized.  During the three months ended September 30, 2012, no OTTI charges were recorded in earnings for the PLMBS portfolio.  For the three and nine months ended September 30, 2011, $50 thousand and $54 thousand in OTTI charges were recorded in earnings for the PLMBS portfolio, respectively.

The following table summarizes as of September 30, 2012 the number of CUSIPs, par value, carrying value and fair value of the non-agency MBSs/CMOs by credit rating. The credit rating reflects the lowest credit rating by any major rating agency.

(Dollars in thousands)

Credit Rating	Number of CUSIPs	Par Value		Amortized Cost		Fair Value
AAA	3	$	189	$	189	$	188
AA	2	309		309		314
A1	1	384		384		376
A3	1	329		329		320
BBB	1	255		255		254
Baa1	1	77		76		76
Baa2	1	130		130		129
Below Investment Grade	4	2,070		1,698		1,281
Total	14	$	3,743	$	3,370	$	2,938

During the nine months ended September 30, 2012, the Company sold eight below investment grade non-agency MBSs with a total book value of approximately $11.2 million. The loss on the sale of these securities was approximately $2.1 million and has been offset by gains of the approximate same amount from the sale of certain agency MBSs and municipal securities. These sales served to significantly reduce the level of below investment grade securities held in the portfolio.

Corporate Bonds: All of the corporate bonds held by the Company are reviewed on a quarterly basis to identify downgrades by rating agencies as well as deterioration of the underlying collateral or the issuer’s ability to service the debt obligation.  The Company owns one corporate bond as of September 30, 2012 which is rated above investment grade.  The Company does not consider this investment to be OTTI at September 30, 2012.

Small Business Administration Pools: These pools are guaranteed pass-thru with the full faith and credit of the United States government.  Because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider the investments to be OTTI at September 30, 2012.

State and Local Governments and Other: The unrealized losses on these investments are attributable to increases in interest rates, rather than credit quality. Because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider the investments to be OTTI at September 30, 2012.

The amortized cost and fair value of investment securities at September 30, 2012 by contractual maturity are as follows. Expected maturities differ from contractual maturities because borrowers may have the right to call or prepay the obligations with or without prepayment penalties.  MBSs are based on average life at estimated prepayment speeds.

	Available-for-sale
(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	22,623	$	22,675
Due after one year through five years	97,789		99,385
Due after five years through ten years	59,240		60,872
Due after ten years	27,668		27,802
	$	207,320	$	210,734

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Earnings Per Common Share

9 Months Ended

Sep. 30, 2012

Earnings Per Common Share

Earnings Per Common Share

Note 2 — Earnings Per Common Share

The following reconciles the numerator and denominator of the basic and diluted earnings per common share computation:

	Nine months				Three months
	Ended September 30,				Ended September 30,
(In thousands, except price per share)	2012		2011		2012		2011
Numerator (Net income available to common shareholders)	$	2,271	$	1,751	$	881	$	790
Denominator
Weighted average common shares outstanding for:
Basic earnings per share	3,780		3,280		4,693		3,294
Dilutive securities:
Deferred compensation	—		—		2		—
Warrants – Treasury stock method	27		—		31		—
Diluted earnings per share	3,807		3,280		4,726		3,294
The average market price used in calculating assumed number of shares	$	7.84	$	6.45	$	8.27	$	6.19

At September 30, 2012, there were 75,022 outstanding options at an average exercise price of $19.69 and warrants for 196,000 shares at $8.69.  None of these options or warrants has an exercise price below the average market price for the three-month and nine-month periods ended September 30, 2012, therefore they are not deemed to be dilutive.  In the fourth quarter of 2011, we issued $2.5 million in 8.75% subordinated notes maturing December 16, 2019.  Interest is payable quarterly and the notes may be prepaid at anytime without penalty.  Warrants for 107,500 shares of common stock at $5.90 per share were issued in connection with the issuance of the subordinated debt.  These warrants expire December 16, 2019 and are included in dilutive securities in the table above.

On July 27, 2012, the Company closed its public offering of common stock.  This offering resulted in the issuance of a total of 1,875,000 shares of common stock at $8.00 per share, including 244,565 shares granted to the underwriters to cover overallotments.

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Investment Securities (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Available-for-sale securities
Total OTTI charge realized and unrealized	$ 191	$ 415	$ 262
OTTI recognized in other comprehensive income (non-credit component)	141	215	208
Net impairment losses recognized in earnings (credit component)	$ 50	$ 200	$ 54

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Loans (Tables)

9 Months Ended

Sep. 30, 2012

Loans

Summary of loans by category

	September 30,		December 31,
(Dollars in thousands)	2012		2011
Commercial, financial and agricultural	$	19,469	$	20,608
Real estate:
Construction	11,739		11,767
Mortgage-residential	36,861		38,337
Mortgage-commercial	223,595		220,288
Consumer:
Home equity	26,778		27,976
Other	5,092		5,335
Total	$	323,534	$	324,311

Schedule of activity in the allowance for loan losses

	Nine months ended
	September 30,			September 30,
(Dollars in thousands)	2012			2011
Balance at the beginning of period	$	4,699		$	4,911
Provision for loan losses	416			1,110
Charged off loans	(496		)	(1,368		)
Recoveries	76			55
Balance at end of period	$	4,695		$	4,708

	Three months ended
	September 30,			September 30,
(Dollars in thousands)	2012			2011
Balance at the beginning of period	$	4,742		$	4,716
Provision for loan losses	115			360
Charged off loans	(189		)	(388		)
Recoveries	27			20
Balance at end of period	$	4,695		$	4,708

Schedule of activity in the allowance for loan losses and the recorded investment in loans receivable

The detailed activity in the allowance for loan losses and the recorded investment in loans receivable as of and for the nine months ended September 30, 2012 and the year ended December 31, 2011 is as follows:

					Real estate		Real estate
			Real estate		Mortgage		Mortgage			Consumer			Consumer
(Dollars in thousands)	Commercial		Construction		Residential		Commercial			Home equity			Other		Unallocated		Total
2012
Allowance for loan losses:
Beginning balance December 31, 2011	$	331	$	—	$	514	$	1,475		$	521		$	57	$	1,801	$	4,699
Charge-offs	88		—		112		245			—			51		—		496
Recoveries	32		—		10		—			3			31		—		76
Provisions	67		—		80		(146		)	(147		)	16		546		416
Ending balance September 30, 2012	$	342	$	—	$	492	$	1,084		$	377		$	53	$	2,347	$	4,695
Ending balances:
Individually evaluated for impairment	$	—	$	—	$	—	$	—		$	—		$	—	$	—	$	—
Collectively evaluated for impairment	342		—		492		1,084			377			53		2,347		4,695
Loans receivable:
Ending balance-total	$	19,469	$	11,739	$	36,861	$	223,595		$	26,778		$	5,092	$	—	$	323,534
Ending balances:
Individually evaluated for impairment	$	15	$	—	$	477	$	9,041		$	—		$	11	$	—	$	9,544
Collectively evaluated for impairment	$	19,454	$	11,739	$	38,384	$	214,554		$	26,778		$	5,081	$	—	$	313,990

							Real estate		Real estate
				Real estate			Mortgage		Mortgage		Consumer		Consumer
(Dollars in thousands)	Commercial			Construction			Residential		Commercial		Home equity		Other		Unallocated		Total
2011
Allowance for loan losses:
Beginning balance	$	681		$	905		$	465	$	1,404	$	325	$	88	$	1043	$	4,911
Charge-offs	265			—			186		861		285		99		—		1,696
Recoveries	31			—			5		—		5		23		—		64
Provisions	(116		)	(905		)	230		932		476		45		758		1,420
Ending balance December 31, 2011	$	331		$	—		$	514	$	1,475	$	521	$	57	$	1,801	$	4,699
Ending balances:
Individually evaluated for impairment	$	1		$	—		$	—	$	1	$	—	$	—	$	—	$	2
Collectively evaluated for impairment	330			—			514		1,474		521		57		1,801		4,697
Loans receivable:
Ending balance-total	$	20,608		$	11,767		$	38,337	$	220,288	$	27,976	$	5,335	$	—	$	324,311
Ending balances:
Individually evaluated for impairment	$	45		$	—		$	622	$	8,667	$	—	$	19	$	—	$	9,353
Collectively evaluated for impairment	$	20,563		$	11,767		$	37,715	$	211,621	$	27,976	$	5,316	$	—	$	314,958

The detailed activity in the allowance for loan losses as of and for the three months ended September 30, 2012 and the three months ended September 30, 2011 is as follows:

					Real estate			Real estate
			Real estate		Mortgage			Mortgage			Consumer			Consumer
(Dollars in thousands)	Commercial		Construction		Residential			Commercial			Home equity			Other		Unallocated		Total
2012
Allowance for loan losses:
Beginning balance June 30, 2012	$	249	$	—	599			$	1,313		$	445		$	45	$	2,091	$	4,742
Charge-offs	26		—		82			67			—			14		—		189
Recoveries	7		—		1			—			1			18		—		27
Provisions	112		—		(26		)	(162		)	(69		)	4		256		115
Ending balance September 30, 2012	$	342	$	—	$	492		$	1,084		$	377		$	53	$	2,347	$	4,695

					Real estate			Real estate
			Real estate		Mortgage			Mortgage		Consumer		Consumer
(Dollars in thousands)	Commercial		Construction		Residential			Commercial		Home equity		Other		Unallocated		Total
2011
Allowance for loan losses:
Beginning balance June 30, 2011	$	362	$	379	$	514		$	1,697	$	425	$	51	$	1,288	$	4,716
Charge-offs	85		—		—			164		115		24		—		388
Recoveries	13		—		2			—		1		4		—		20
Provisions	26		5		(62		)	50		180		17		144		360
Ending balance September 30, 2011	$	316	$	384	$	454		$	1,583	$	491	$	48	$	1,432	$	4,708

Schedule of loans individually evaluated and considered impaired

	September 30,		December 31,
(Dollars in thousands)	2012		2011
Total loans considered impaired	$	9,544	$	9,353
Loans considered impaired for which there is a related allowance for loan loss:
Outstanding loan balance	—		148
Related allowance	—		2
Loans considered impaired and previously written down to fair value	9,544		9,205
Average impaired loans	10,530		9,926

Schedule of loan category and loans individually evaluated and considered impaired

			Unpaid				Average		Interest
(Dollars in thousands)	Recorded		Principal		Related		Recorded		Income
September 30, 2012	Investment		Balance		Allowance		Investment		Recognized
With no allowance recorded:
Commercial	$	15	$	46	$	—	$	92	$	1
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	477		505		—		563		2
Mortgage-commercial	9,041		9,536		—		9,853		266
Consumer:
Home Equity	—		—		—		—		—
Other	11		11		—		22		—
With an allowance recorded:
Commercial	—		—		—		—		—
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	—		—		—		—		—
Mortgage-commercial	—		—		—		—		—
Consumer:
Home Equity	—		—		—		—		—
Other	—		—		—		—		—
Total:
Commercial	$	15	$	46	$	—	$	92	$	1
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	477		505		—		563		2
Mortgage-commercial	9,041		9,536		—		9,853		266
Consumer:
Home Equity	—		—		—		—		—
Other	11		11		—		22		—
	$	9,544	$	10,098	$	—	$	10,530	$	269

			Unpaid				Average		Interest
(Dollars in thousands)	Recorded		Principal		Related		Recorded		Income
December 31, 2011	Investment		Balance		Allowance		Investment		Recognized
With no allowance recorded:
Commercial	$	12	$	19	$	—	$	21	$	—
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	622		650		—		656		4
Mortgage-commercial	8,552		8,975		—		9,066		382
Consumer:
Home Equity	—		—		—		—		—
Other	19		19		—		30		1
With an allowance recorded:
Commercial	33		33		1		36		2
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	—		—		—		—		—
Mortgage-commercial	115		115		1		117		8
Consumer:
Home Equity	—		—		—		—		—
Other	—		—		—		—		—
Total:
Commercial	45		52		—		57		2
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	622		650		—		656		4
Mortgage-commercial	8,667		9,090		—		9,183		390
Consumer:
Home Equity	—		—		—		—		—
Other	19		19		—		30		1
	$	9,353	$	9,811	$	2	$	9,926	$	397

Schedule of loan category and loan by risk categories

(Dollars in thousands)			Special
September 30, 2012	Pass		Mention		Substandard		Doubtful		Total
Commercial, financial & agricultural	$	19,228	$	33	$	208	$	—	$	19,469
Real estate:
Construction	6,988		2,522		2,229		—		11,739
Mortgage – residential	34,845		1,257		759		—		36,861
Mortgage – commercial	205,592		4,149		13,854		—		223,595
Consumer:
Home Equity	26,110		575		93		—		26,778
Other	5,072		3		17		—		5,092
Total	$	297,835	$	8,539	$	17,160	$	—	$	323,534

(Dollars in thousands)			Special
December 31, 2011	Pass		Mention		Substandard		Doubtful		Total
Commercial, financial & agricultural	$	19,827	$	499	$	282	$	—	$	20,608
Real estate:
Construction	6,764		—		5,003		—		11,767
Mortgage – residential	37,063		305		969		—		38,337
Mortgage – commercial	200,984		8,009		11,295		—		220,288
Consumer:
Home Equity	27,692		38		246		—		27,976
Other	5,311		5		19		—		5,335
Total	$	297,641	$	8,856	$	17,814	$	—	$	324,311

Schedule of loan category and present loans past due and on non-accrual status

(Dollars in thousands) September 30, 2012	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Commercial	$	150	$	49	$	—	$	15	$	214	$	19,255	$	19,469
Real estate:
Construction	—		—		—		—		—		11,739		11,739
Mortgage-residential	357		330		—		477		1,164		35,697		36,861
Mortgage-commercial	1,391		981		—		4,420		6,792		216,803		223,595
Consumer:
Home equity	77		—		—		—		77		26,701		26,778
Other	44		15		—		11		70		5,022		5,092
Total	$	2,019	$	1,375	$	—	$	4,923	$	8,317	$	315,217	$	323,534

(Dollars in thousands) December 31, 2011	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Commercial	$	147	$	123	$	—	$	12	$	282	$	20,326	$	20,608
Real estate:
Construction	—		—		—		—		—		11,767		11,767
Mortgage-residential	391		95		—		623		1,109		37,228		38,337
Mortgage-commercial	1,382		966		25		4,749		7,122		213,166		220,288
Consumer:
Home equity	45		—		—		—		45		27,931		27,976
Other	42		18		—		19		79		5,256		5,335
Total	$	2,007	$	1,202	$	25	$	5,403	$	8,637	$	315,674	$	324,311

Schedule by loan category, present loans determined to be TDRs

	For the three months ended September 30, 2011
Troubled Debt Restructurings (Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Nonaccrual
Mortgage-Commercial	1	$	648	$	648
Total nonaccrual	1	$	648	$	648
Accrual
Mortgage-Commercial	1	$	337	$	315
Total Accrual	1	$	337	$	315
Total TDRs	2	$	985	$	963

	For the nine months ended September 30, 2012
Troubled Debt Restructurings (Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Nonaccrual
Mortgage-Commercial	1	$	53	$	40
Total nonaccrual	1	$	53	$	40
Accrual
Mortgage-Commercial	2	$	596	$	596
Total Accrual	2	$	596	$	596
Total TDRs	3	$	649	$	636

	For the nine months ended September 30, 2011
Troubled Debt Restructurings (Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Nonaccrual
Mortgage-Commercial	5	$	765	$	765
Commercial & Industrial	2	53		53
Total nonaccrual	7	$	818	$	818
Accrual
Mortgage-Commercial	1	$	337	$	315
Total Accrual	1	$	337	$	315
Total TDRs	8	$	1,155	$	1,133

Schedule by loan category, present loans determined to be TDRs in the last twelve months that had payment defaults during the period

Troubled Debt Restructurings that	For the three months ended September 30, 2011
subsequently defaulted this period (Dollars in thousands)	Number of Contracts	Recorded Investment
Mortgage-Commercial	3	61
Commercial and Industrial	1	14
Total TDRs	4	75

Troubled Debt Restructurings that	For the nine months ended September 30, 2011
subsequently defaulted this period (Dollars in thousands)	Number of Contracts	Recorded Investment
Mortgage-Commercial	3	61
Commercial and Industrial	1	14
Total TDRs	4	75

XML

Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2012

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Note 6 — Fair Value of Financial Instruments

The Company adopted FASB ASC Fair Value Measurement Topic 820, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level l	Quoted prices in active markets for identical assets or liabilities.
Level 2	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

FASB ASC 825-10-50 “Disclosure about Fair Value of Financial Instruments”, requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below.

Cash and short term investments—The carrying amount of these financial instruments (cash and due from banks, interest-bearing bank balances, federal funds sold and securities purchased under agreements to resell) approximates fair value. All mature within 90 days and do not present unanticipated credit concerns and are classified as Level 1.

Investment Securities—Measurement is on a recurring basis based upon quoted market prices, if available.  If quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for prepayment assumptions, projected credit losses, and liquidity.  Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, or by dealers or brokers in active over-the-counter markets.  Level 2 securities include mortgage-backed securities issued both by government sponsored enterprises and private label mortgage-backed securities.  Generally these fair values are priced from established pricing models.  Level 3 securities include corporate debt obligations and asset—backed securities that are less liquid or for which there is an inactive market.

Loans Held for Sale— The Company originates fixed rate residential loans on a servicing released basis in the secondary market. Loans closed but not yet settled with an investor, are carried in the Company’s loans held for sale portfolio. These loans are fixed rate residential loans that have been originated in the Company’s name and have closed. Virtually all of these loans have commitments to be purchased by investors at a locked in by price with the investors on the same day that the loan was locked in with the company’s customers. Therefore, these loans present very little market risk for the Company and are classified as Level 2.  The carrying amount of these loans approximates fair value.

Loans—The fair value of loans are estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities and are classified as Level 2. As discount rates are based on current loan rates as well as management estimates, the fair values presented may not be indicative of the value negotiated in an actual sale.  Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair value of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be Level 3 inputs.

Other Real Estate Owned (OREO) — OREO is carried at the lower of carrying value or fair value on a non-recurring basis.  Fair value is based upon independent appraisals or management’s estimation of the collateral and is considered a Level 3 measurement.

Accrued Interest Receivable—The fair value approximates the carrying value and is classified as Level 1.

Interest rate swap—The fair value approximates the carrying value and is classified as Level 3.

Deposits—The fair value of demand deposits, savings accounts, and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposits is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturities.  Deposits are classified as Level 2.

Federal Home Loan Bank Advances—Fair value is estimated based on discounted cash flows using current market rates for borrowings with similar terms and are classified as Level 2.

Short Term Borrowings—The carrying value of short term borrowings (securities sold under agreements to repurchase and demand notes to the Treasury) approximates fair value.  These are classified as Level 2.

Junior Subordinated Debentures—The fair values of junior subordinated debentures is estimated by using discounted cash flow analyses based on incremental borrowing rates for similar types of instruments.  These are classified as Level 2.

Accrued Interest Payable—The fair value approximates the carrying value and is classified as Level 1.

Commitments to Extend Credit—The fair value of these commitments is immaterial because their underlying interest rates approximate market.

The carrying amount and estimated fair value by classification Level of the Company’s financial instruments as of September 30, 2012 are as follows:

	September 30, 2012
	Carrying			Fair Value
(Dollars in thousands)	Amount			Total			Level 1		Level 2		Level 3
Financial Assets:
Cash and short term investments	$	20,379		$	20,379		$	20,379	$	—	$	—
Available-for-sale securities	210,734			210,734			906		209,828		—
Other investments, at cost	4,540			—			—		—		—
Loans held for sale	8,685			8,685			—		8,685		—
Loans receivable	323,534			327,786			—		318,242		9,544
Allowance for loan losses	4,695			—			—		—		—
Net loans	318,839			327,786			—		318,242		9,544
Accrued interest	2,074			2,074			2,074		—		—
Interest rate swap	(418		)	(418		)	—		—		(418		)
Financial liabilities:
Non-interest bearing demand	$	92,738		$	92,738		$	—	$	92,738	$	—
NOW and money market accounts	147,655			147,655			—		147,655		—
Savings	41,358			41,358			—		41,358		—
Time deposits	192,714			194,605			—		194,605		—
Total deposits	474,465			476,356			—		476,356		—
Federal Home Loan Bank Advances	38,491			44,619			—		44,619		—
Short term borrowings	15,651			15,651			—		15,651		—
Junior subordinated debentures	17,917			17,917			—		17,917		—
Accrued interest payable	1,225			1,225			1,225		—		—

The carrying amount and estimated fair value of the Company’s financial instruments as of December 31, 2011 are as follows:

	December 31, 2011
(Dollars in thousands)	Carrying Amount			Fair  Value
Financial Assets:
Cash and short term investments	$	16,492		$	16,492
Available-for-sale securities	201,032			201,032
Other investments, at cost	5,637			—
Loans held for sale	3,725			3,725
Loans receivable	324,311			324,204
Allowance for loan losses	4,699			—
Net loans	319,612			324,204
Accrued interest	1,914			1,914
Interest rate swap	(602		)	(602		)
Financial liabilities:
Non-interest bearing demand	$	83,572		$	83,572
NOW and money market accounts	136,483			136,483
Savings	34,048			34,048
Time deposits	210,482			214,437
Total deposits	464,585			468,540
Federal Home Loan Bank Advances	43,862			50,238
Short term borrowings	13,616			13,616
Junior subordinated debentures	17,913			17,913
Accrued interest payable	1,624			1,624

The following tables reflect the changes in fair values for the nine and three-month periods ended September 30, 2012 and 2011 and where these changes are included in the income statement:

(Dollars in thousands)

	Nine months ended September 30,						Three months ended  September 30,
	2012			2011			2012			2011
Description	Non-interest income: Fair value adjustment loss			Non-interest income: Fair value adjustment loss			Non-interest income: Fair value adjustment loss			Non-interest income: Fair value adjustment loss
Interest rate swap	$	(57	)	$	(185	)	$	(20	)	$	(60	)
Total	$	(57	)	$	(185	)	$	(20	)	$	(60	)

The following table summarizes quantitative disclosures about the fair value for each category of assets carried at fair value as of September 30, 2012 and December 31, 2011 that are measured on a recurring basis.  There were no liabilities carried at fair value as of September 30, 2012 or December 31, 2011 that are measured on a recurring basis.

(Dollars in thousands)

Description	September 30, 2012			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
Government sponsored enterprises	$	1,544		$	—	$	1,544	$	—
Mortgage-backed securities	122,466			—		122,466		—
Small Business Administration securities	50,931			—		50,931		—
State and local government	33,827			—		33,827		—
Corporate and other securities	1,966			906		1,060		—
	210,734			906		209,828		—
Interest rate cap/swap	(418		)	—		—		(418		)
Total	$	210,316		$	906	$	209,828	$	(418	)
(Dollars in thousands)
Description	December 31, 2011			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
Government sponsored enterprises	$	34		$	—	$	34	$	—
Mortgage backed securities	141,631			—		141,631		—
Small Business Administration securities	36,479			—		36,479		—
State and local government	20,488			—		20,488		—
Corporate and other securities	2,400			926		1,474		—
	201,032			926		200,106		—
Interest rate cap/floor	(602		)	—		—		(602		)
Total	$	200,430		$	926	$	200,106	$	(602	)

The following tables reconcile the changes in Level 3 financial instruments for the nine and three months ended September 30, 2012, that are measured on a recurring basis.

(Dollars in thousands)	Interest rate Cap/Floor/Swap
Beginning Balance December 31, 2011	$	(602	)
Total gains or losses (realized/unrealized)
Included in earnings	(57		)
Included in other comprehensive income	—
Purchases, issuances, and settlements	241
Transfers in and/or out of Level 3	—
Ending Balance September 30, 2012	$	(418	)
(Dollars in thousands)	Interest rate Cap/Floor/Swap
Beginning Balance June 30, 2012	$	(479	)
Total gains or losses (realized/unrealized)
Included in earnings	(20		)
Included in other comprehensive income	—
Purchases, issuances, and settlements	81
Transfers in and/or out of Level 3	—
Ending Balance September 30, 2012	$	(418	)

The following tables summarize quantitative disclosures about the fair value for each category of assets carried at fair value as of September 30, 2012 and December 31, 2011 that are measured on a non-recurring basis.

(Dollars in thousands)

Description	September 30,2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial & Industrial	$	15	$	—	$	—	$	15
Real estate:
Mortgage-residential	477		—		—		477
Mortgage-commercial	9,041		—		—		9,041
Consumer:
Home equity	—		—		—		—
Other	11		—		—		11
Total impaired	9,544		—		—		9,544
Other real estate owned:
Construction	301		—		—		301
Mortgage-residential	438		—		—		438
Mortgage-commercial	4,831		—		—		4,831
Total other real estate owned	5,570		—		—		5,570
Total	$	15,114	$	—	$	—	$	15,114
(Dollars in thousands)
Description	December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial & Industrial	$	45	$	—	$	—	$	45
Real estate:
Mortgage-residential	622		—		—		622
Mortgage-commercial	8,667		—		—		8,667
Consumer:
Home equity	—		—		—		—
Other	19		—		—		19
Total impaired	9,353		—		—		9,353
Other real estate owned:			—		—
Construction	2,156		—		—		2,156
Mortgage-residential	4,278		—		—		4,278
Mortgage-commercial	917		—		—		917
Total other real estate owned	7,351		—		—		7,351
Total	$	16,704	$	—	$	—	$	16,704

The Company has a large percentage of loans with real estate serving as collateral. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair value of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be Level 3 inputs. Third party appraisals are generally obtained when a loan is identified as being impaired or at the time it is transferred to OREO.  This internal process would consist of evaluating the underlying collateral to independently obtained comparable properties.  With respect to less complex or smaller credits, an internal evaluation may be performed.  Generally the independent and internal evaluations are updated annually.  Factors considered in determining the fair value include geographic sales trends, the value of comparable surrounding properties as well as the condition of the property. The aggregate amount of impaired loans was $9.5 million and $9.4 million for the nine months ended September 30, 2012 and year ended December 31, 2011, respectively.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2012, the significant unobservable inputs used in the fair value measurements were as follows:

(Dollars in thousands)	Fair Value as of September 30, 2012			Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Inputs
Interest Rate Swap	$	(418	)	Discounted cash flows	Weighted Average Credit Factor	3.20%
OREO	$	5,570		Appraisal Value/Comparison Sales/Other estimates	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost
Impaired loans	$	9,544		Appraisal Value/Discounted Cash Flows	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost

XML

Loans

9 Months Ended

Sep. 30, 2012

Loans

Loans

Note 4—Loans

Loans summarized by category as of September 30, 2012 and December 31, 2011 are as follows:

	September 30,		December 31,
(Dollars in thousands)	2012		2011
Commercial, financial and agricultural	$	19,469	$	20,608
Real estate:
Construction	11,739		11,767
Mortgage-residential	36,861		38,337
Mortgage-commercial	223,595		220,288
Consumer:
Home equity	26,778		27,976
Other	5,092		5,335
Total	$	323,534	$	324,311

At September 30, 2012 and December 31, 2011, there were $8.7 million and $3.7 million, respectively, of residential mortgage loans held for sale at fair value.  These loans are originated with firm purchase commitments from various investors at the time the loans are closed.  Generally, funds are received and the loans transferred to the investors within three to fourteen business days.

Activity in the allowance for loan losses for the nine months and three months ended September 30, 2012 and 2011 was as follows:

	Nine months ended
	September 30,			September 30,
(Dollars in thousands)	2012			2011
Balance at the beginning of period	$	4,699		$	4,911
Provision for loan losses	416			1,110
Charged off loans	(496		)	(1,368		)
Recoveries	76			55
Balance at end of period	$	4,695		$	4,708

	Three months ended
	September 30,			September 30,
(Dollars in thousands)	2012			2011
Balance at the beginning of period	$	4,742		$	4,716
Provision for loan losses	115			360
Charged off loans	(189		)	(388		)
Recoveries	27			20
Balance at end of period	$	4,695		$	4,708

The detailed activity in the allowance for loan losses and the recorded investment in loans receivable as of and for the nine months ended September 30, 2012 and the year ended December 31, 2011 is as follows:

					Real estate		Real estate
			Real estate		Mortgage		Mortgage			Consumer			Consumer
(Dollars in thousands)	Commercial		Construction		Residential		Commercial			Home equity			Other		Unallocated		Total
2012
Allowance for loan losses:
Beginning balance December 31, 2011	$	331	$	—	$	514	$	1,475		$	521		$	57	$	1,801	$	4,699
Charge-offs	88		—		112		245			—			51		—		496
Recoveries	32		—		10		—			3			31		—		76
Provisions	67		—		80		(146		)	(147		)	16		546		416
Ending balance September 30, 2012	$	342	$	—	$	492	$	1,084		$	377		$	53	$	2,347	$	4,695
Ending balances:
Individually evaluated for impairment	$	—	$	—	$	—	$	—		$	—		$	—	$	—	$	—
Collectively evaluated for impairment	342		—		492		1,084			377			53		2,347		4,695
Loans receivable:
Ending balance-total	$	19,469	$	11,739	$	36,861	$	223,595		$	26,778		$	5,092	$	—	$	323,534
Ending balances:
Individually evaluated for impairment	$	15	$	—	$	477	$	9,041		$	—		$	11	$	—	$	9,544
Collectively evaluated for impairment	$	19,454	$	11,739	$	38,384	$	214,554		$	26,778		$	5,081	$	—	$	313,990

							Real estate		Real estate
				Real estate			Mortgage		Mortgage		Consumer		Consumer
(Dollars in thousands)	Commercial			Construction			Residential		Commercial		Home equity		Other		Unallocated		Total
2011
Allowance for loan losses:
Beginning balance	$	681		$	905		$	465	$	1,404	$	325	$	88	$	1043	$	4,911
Charge-offs	265			—			186		861		285		99		—		1,696
Recoveries	31			—			5		—		5		23		—		64
Provisions	(116		)	(905		)	230		932		476		45		758		1,420
Ending balance December 31, 2011	$	331		$	—		$	514	$	1,475	$	521	$	57	$	1,801	$	4,699
Ending balances:
Individually evaluated for impairment	$	1		$	—		$	—	$	1	$	—	$	—	$	—	$	2
Collectively evaluated for impairment	330			—			514		1,474		521		57		1,801		4,697
Loans receivable:
Ending balance-total	$	20,608		$	11,767		$	38,337	$	220,288	$	27,976	$	5,335	$	—	$	324,311
Ending balances:
Individually evaluated for impairment	$	45		$	—		$	622	$	8,667	$	—	$	19	$	—	$	9,353
Collectively evaluated for impairment	$	20,563		$	11,767		$	37,715	$	211,621	$	27,976	$	5,316	$	—	$	314,958

Loans outstanding to bank directors, executive officers and their related business interests amounted to $10.5 million and $10.4 million at September 30, 2012 and September 30, 2011, respectively. Repayments on these loans during the nine months ended September 30, 2012 were $438 thousand and loans made amounted to $112 thousand. Repayments on these loans during the nine months ended September 30, 2011 were $1.3 million and loans made amounted to $808 thousand during the same period.  Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and generally do not involve more than the normal risk of collectability.

The detailed activity in the allowance for loan losses as of and for the three months ended September 30, 2012 and the three months ended September 30, 2011 is as follows:

					Real estate			Real estate
			Real estate		Mortgage			Mortgage			Consumer			Consumer
(Dollars in thousands)	Commercial		Construction		Residential			Commercial			Home equity			Other		Unallocated		Total
2012
Allowance for loan losses:
Beginning balance June 30, 2012	$	249	$	—	599			$	1,313		$	445		$	45	$	2,091	$	4,742
Charge-offs	26		—		82			67			—			14		—		189
Recoveries	7		—		1			—			1			18		—		27
Provisions	112		—		(26		)	(162		)	(69		)	4		256		115
Ending balance September 30, 2012	$	342	$	—	$	492		$	1,084		$	377		$	53	$	2,347	$	4,695

					Real estate			Real estate
			Real estate		Mortgage			Mortgage		Consumer		Consumer
(Dollars in thousands)	Commercial		Construction		Residential			Commercial		Home equity		Other		Unallocated		Total
2011
Allowance for loan losses:
Beginning balance June 30, 2011	$	362	$	379	$	514		$	1,697	$	425	$	51	$	1,288	$	4,716
Charge-offs	85		—		—			164		115		24		—		388
Recoveries	13		—		2			—		1		4		—		20
Provisions	26		5		(62		)	50		180		17		144		360
Ending balance September 30, 2011	$	316	$	384	$	454		$	1,583	$	491	$	48	$	1,432	$	4,708

The following table presents at September 30, 2012 and December 31, 2011 loans individually evaluated and considered impaired under FAS ASC 310 “Accounting by Creditors for Impairment of a Loan.” Impairment includes performing troubled debt restructurings.

	September 30,		December 31,
(Dollars in thousands)	2012		2011
Total loans considered impaired	$	9,544	$	9,353
Loans considered impaired for which there is a related allowance for loan loss:
Outstanding loan balance	—		148
Related allowance	—		2
Loans considered impaired and previously written down to fair value	9,544		9,205
Average impaired loans	10,530		9,926

The following tables are by loan category and present at September 30, 2012 and December 31, 2011 loans individually evaluated and considered impaired under FAS ASC 310 “Accounting by Creditors for Impairment of a Loan.” Impairment includes performing troubled debt restructurings.

			Unpaid				Average		Interest
(Dollars in thousands)	Recorded		Principal		Related		Recorded		Income
September 30, 2012	Investment		Balance		Allowance		Investment		Recognized
With no allowance recorded:
Commercial	$	15	$	46	$	—	$	92	$	1
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	477		505		—		563		2
Mortgage-commercial	9,041		9,536		—		9,853		266
Consumer:
Home Equity	—		—		—		—		—
Other	11		11		—		22		—
With an allowance recorded:
Commercial	—		—		—		—		—
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	—		—		—		—		—
Mortgage-commercial	—		—		—		—		—
Consumer:
Home Equity	—		—		—		—		—
Other	—		—		—		—		—
Total:
Commercial	$	15	$	46	$	—	$	92	$	1
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	477		505		—		563		2
Mortgage-commercial	9,041		9,536		—		9,853		266
Consumer:
Home Equity	—		—		—		—		—
Other	11		11		—		22		—
	$	9,544	$	10,098	$	—	$	10,530	$	269

The Company determined that all specific reserves for impaired loans were confirmed losses and were charged-off against outstanding loan balances during the nine months ended September 30, 2012.

			Unpaid				Average		Interest
(Dollars in thousands)	Recorded		Principal		Related		Recorded		Income
December 31, 2011	Investment		Balance		Allowance		Investment		Recognized
With no allowance recorded:
Commercial	$	12	$	19	$	—	$	21	$	—
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	622		650		—		656		4
Mortgage-commercial	8,552		8,975		—		9,066		382
Consumer:
Home Equity	—		—		—		—		—
Other	19		19		—		30		1
With an allowance recorded:
Commercial	33		33		1		36		2
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	—		—		—		—		—
Mortgage-commercial	115		115		1		117		8
Consumer:
Home Equity	—		—		—		—		—
Other	—		—		—		—		—
Total:
Commercial	45		52		—		57		2
Real estate:
Construction	—		—		—		—		—
Mortgage-residential	622		650		—		656		4
Mortgage-commercial	8,667		9,090		—		9,183		390
Consumer:
Home Equity	—		—		—		—		—
Other	19		19		—		30		1
	$	9,353	$	9,811	$	2	$	9,926	$	397

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying the loans as to credit risk.  This analysis is performed on a quarterly basis.  The Company uses the following definitions for risk ratings:

Special Mention.  Loans classified as special mention have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.  Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  As of September 30, 2012 and December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is shown in the table below.  As of September 30, 2012 and December 31, 2011, no loans were classified as doubtful.

(Dollars in thousands)			Special
September 30, 2012	Pass		Mention		Substandard		Doubtful		Total
Commercial, financial & agricultural	$	19,228	$	33	$	208	$	—	$	19,469
Real estate:
Construction	6,988		2,522		2,229		—		11,739
Mortgage – residential	34,845		1,257		759		—		36,861
Mortgage – commercial	205,592		4,149		13,854		—		223,595
Consumer:
Home Equity	26,110		575		93		—		26,778
Other	5,072		3		17		—		5,092
Total	$	297,835	$	8,539	$	17,160	$	—	$	323,534

(Dollars in thousands)			Special
December 31, 2011	Pass		Mention		Substandard		Doubtful		Total
Commercial, financial & agricultural	$	19,827	$	499	$	282	$	—	$	20,608
Real estate:
Construction	6,764		—		5,003		—		11,767
Mortgage – residential	37,063		305		969		—		38,337
Mortgage – commercial	200,984		8,009		11,295		—		220,288
Consumer:
Home Equity	27,692		38		246		—		27,976
Other	5,311		5		19		—		5,335
Total	$	297,641	$	8,856	$	17,814	$	—	$	324,311

At September 30, 2012 and December 31, 2011, non-accrual loans totaled $4.9 million and $5.4 million, respectively.

Troubled debt restructurings that are still accruing included in impaired loans at September 30, 2012 and December 31, 2011 amounted to $4.6 million and $3.9 million, respectively.  Troubled debt restructurings in nonaccrual status at September 30, 2012 and December 31, 2011 amounted to $1.9 million and $3.8 million, respectively.

There were no loans greater than ninety days delinquent and still accruing interest at September 30, 2012.  Loans greater than ninety days delinquent and still accruing interest at December 31, 2011 amounted to $25 thousand.

The following tables are by loan category and present loans past due and on non-accrual status as of September 30, 2012 and December 31, 2011:

(Dollars in thousands) September 30, 2012	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Commercial	$	150	$	49	$	—	$	15	$	214	$	19,255	$	19,469
Real estate:
Construction	—		—		—		—		—		11,739		11,739
Mortgage-residential	357		330		—		477		1,164		35,697		36,861
Mortgage-commercial	1,391		981		—		4,420		6,792		216,803		223,595
Consumer:
Home equity	77		—		—		—		77		26,701		26,778
Other	44		15		—		11		70		5,022		5,092
Total	$	2,019	$	1,375	$	—	$	4,923	$	8,317	$	315,217	$	323,534

(Dollars in thousands) December 31, 2011	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Commercial	$	147	$	123	$	—	$	12	$	282	$	20,326	$	20,608
Real estate:
Construction	—		—		—		—		—		11,767		11,767
Mortgage-residential	391		95		—		623		1,109		37,228		38,337
Mortgage-commercial	1,382		966		25		4,749		7,122		213,166		220,288
Consumer:
Home equity	45		—		—		—		45		27,931		27,976
Other	42		18		—		19		79		5,256		5,335
Total	$	2,007	$	1,202	$	25	$	5,403	$	8,637	$	315,674	$	324,311

As a result of adopting the amendments in Accounting Standards Update (ASU) 2011-02, the Company reassessed all restructurings that occurred on or after the beginning of the fiscal year of adoption (January 1, 2011) to determine whether they were considered TDRs under the amended guidance.  The Company identified as TDRs certain loans for which the allowance for loan losses had previously been measured under a general allowance methodology.  Upon identifying those loans as TDRs, the Company identified them as impaired under the guidance in ASC 310-10-35.  The amendments in ASU 2011-02 require prospective application of the impairment measurement guidance in ASC 310-10-35 for those loans newly identified as impaired.  At September 30, 2012 and December 31, 2011, the recorded investment in loans for which the allowance was previously measured under a general allowance methodology and are now impaired under ASC 310-10-35 was $6.5 million and $7.7 million, respectively.  An allowance for loans losses of $2 thousand was associated with those loans at December 31, 2011.  There was no allowance associated with those loans as of September 30, 2012.

The following table, by loan category, present loans determined to be TDRs during the three month period ended September 30, 2011.  There were no loans determined to be TDRs during the three month period ended September 30, 2012

	For the three months ended September 30, 2011
Troubled Debt Restructurings (Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Nonaccrual
Mortgage-Commercial	1	$	648	$	648
Total nonaccrual	1	$	648	$	648
Accrual
Mortgage-Commercial	1	$	337	$	315
Total Accrual	1	$	337	$	315
Total TDRs	2	$	985	$	963

The following table, by loan category, present loans determined to be TDRs during the nine month period ended September 30, 2012.

	For the nine months ended September 30, 2012
Troubled Debt Restructurings (Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Nonaccrual
Mortgage-Commercial	1	$	53	$	40
Total nonaccrual	1	$	53	$	40
Accrual
Mortgage-Commercial	2	$	596	$	596
Total Accrual	2	$	596	$	596
Total TDRs	3	$	649	$	636

During the nine months ended September 30, 2012, the Company modified three loans that were considered to be TDRs.  The payment and interest rate were lowered for two of these loans and the payment was modified to interest only for one loan.

The following table, by loan category, present loans determined to be TDRs during the nine month period ended September 30, 2011.

	For the nine months ended September 30, 2011
Troubled Debt Restructurings (Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Nonaccrual
Mortgage-Commercial	5	$	765	$	765
Commercial & Industrial	2	53		53
Total nonaccrual	7	$	818	$	818
Accrual
Mortgage-Commercial	1	$	337	$	315
Total Accrual	1	$	337	$	315
Total TDRs	8	$	1,155	$	1,133

During the nine months ended September 30, 2011, the Bank modified eight loans that were considered to be TDRs.  The payment and interest rate were lowered for six of these loans, the payment was lowered for one loan and for one loan the company and guarantor were released.

The following tables, by loan category, present loans determined to be TDRs in the twelve month period preceding September 30, 2011 that subsequently defaulted during the three or nine month periods ended September 30, 2011.  There were no loans determined to be TDRs in the last twelve months that subsequently defaulted during the three or nine month periods ended September 30, 2012.  Defaulted loans are those loans that are greater than 89 days past due.

Troubled Debt Restructurings that	For the three months ended September 30, 2011
subsequently defaulted this period (Dollars in thousands)	Number of Contracts	Recorded Investment
Mortgage-Commercial	3	61
Commercial and Industrial	1	14
Total TDRs	4	75

Troubled Debt Restructurings that	For the nine months ended September 30, 2011
subsequently defaulted this period (Dollars in thousands)	Number of Contracts	Recorded Investment
Mortgage-Commercial	3	61
Commercial and Industrial	1	14
Total TDRs	4	75

During the three and nine months ended September 30, 2011, four loans that had previously been restructured defaulted.  A loan is considered to have defaulted when it becomes 89 days past due.

In the determination of the allowance for loan losses, all TDRs are reviewed to ensure that one of the three proper valuation methods (fair market value of the collateral, present value of cash flows, or observable market price) is adhered to.  Each non-accrual loan is written down to its corresponding collateral value.  All TDR accruing loans that have a loan balance which exceeds the present value of cash flow will have a specific allocation.  All nonaccrual loans are considered impaired.  Under ASC 310-10, a loan is impaired when it is probable that the Company will be unable to collect all amounts due, including both principal and interest, according to the contractual terms of the loan agreement.

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Recently Issued Accounting Pronouncements

9 Months Ended

Sep. 30, 2012

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

Note 5 - Recently Issued Accounting Pronouncements

The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting, and or disclosure of financial information by the Company.

In September 2011, the Intangibles topic was amended to permit an entity to consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. These amendments were effective for the Company on January 1, 2012 and had no effect on the financial statements.

In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the ASC was amended by ASU 2011-03. The requirement for the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and the collateral maintenance implementation guidance related to that criterion were removed from the assessment of effective control. The other criteria to assess effective control were not changed. The amendments were effective for the Company on January 1, 2012 and had no effect on the financial statements.

ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. The amendments were effective for the Company beginning January 1, 2012 and had no effect on the financial statements.

The Comprehensive Income topic of the ASC was amended in June 2011. The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in shareholders’ equity and requires consecutive presentation of the statement of net income and other comprehensive income. The amendments were applicable to the Company on January 1, 2012 and have been applied retrospectively. In December 2011, the topic was further amended to defer the effective date of presenting reclassification adjustments from other comprehensive income to net income on the face of the financial statements. Companies should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the amendments while FASB redeliberates future requirements.

In July 2012, the Intangibles topic was amended to permit an entity to consider qualitative factors to determine whether it is more likely than not that indefinite-lived intangible assets are impaired. If it is determined to be more likely than not that indefinite-lived intangible assets are impaired, then the entity is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The amendments are not expected to have a material effect on the Company’s financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

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Subsequent Events

9 Months Ended

Sep. 30, 2012

Subsequent Events

Subsequent Events

Note 7 — Subsequent Events

Effective October 1, 2012, the Bank converted from a national bank charter to a South Carolina state bank charter and changed its name from First Community Bank, N.A. to First Community Bank.

On August 29, 2012, we repurchased $3.78 million of our Series T preferred stock from the U.S. Treasury through a modified Dutch auction process.  This represented 3,780 shares of the original 11,350 shares of preferred stock sold to the U.S. Treasury in November 2008 pursuant to the TARP Capital Purchase Program.  The remaining 7,570 shares of Series T preferred stock were purchased in this same auction by third party investors unrelated to the Company.  As of October 8, 2012, we have repurchased or redeemed the remaining shares of Series T preferred stock from the third party investors.  The financial results reported for the third quarter include non-recurring expenses related to this matter in the amount of $119 thousand including attorney costs, CPA costs, and U.S. Treasury’s counsel’s costs.  In addition, we recorded a charge for the remaining discount accretion of approximately $159 thousand.

On October 25, 2012, the U.S. Treasury accepted our bid to repurchase the warrant to purchase 195,915 shares of our common stock issued to the U.S. Treasury pursuant to the TARP Capital Purchase Program.  The repurchase price agreed upon was $297,500. The repurchase transaction was completed on November 1, 2012.  The repurchase of the warrant, from the U.S. Treasury has completely eliminated its equity stake in the Company through the TARP Capital Purchase Program.

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.  Nonrecognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.  Management has reviewed events occurring through the date the financial statements were available to be issued and no subsequent events other than disclosed above occurred requiring accrual or disclosure.

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Fair Value of Financial Instruments (Details) (USD $)	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Dec. 31, 2010
Financial Assets:
Available for sale securities	$ 210,734,000		$ 201,032,000
Other investments, at cost	4,540,000		5,637,000
Loans receivable	323,534,000		324,311,000
Allowance for loan losses	4,695,000	4,742,000	4,699,000	4,708,000	4,716,000	4,911,000
Financial liabilities:
Non-interest bearing demand	92,738,000		83,572,000
NOW and money market accounts	147,655,000		136,483,000
Savings	41,358,000		34,048,000
Fair value
Financial Assets:
Cash and short term investments	20,379,000		16,492,000
Available for sale securities	210,734,000		201,032,000
Loans held for sale	8,685,000		3,725,000
Loans receivable	327,786,000		324,204,000
Net loans	327,786,000		324,204,000
Accrued interest	2,074,000		1,914,000
Interest rate swap	(418,000)		(602,000)
Financial liabilities:
Non-interest bearing demand	92,738,000		83,572,000
NOW and money market accounts	147,655,000		136,483,000
Savings	41,358,000		34,048,000
Time deposits	194,605,000		214,437,000
Total deposits	476,356,000		468,540,000
Federal Home Loan Bank Advances	44,619,000		50,238,000
Short term borrowings	15,651,000		13,616,000
Junior subordinated debentures	17,917,000		17,913,000
Accrued interest payable	1,225,000		1,624,000
Level 1
Financial Assets:
Cash and short term investments	20,379,000
Available for sale securities	906,000
Accrued interest	2,074,000
Financial liabilities:
Accrued interest payable	1,225,000
Level 2
Financial Assets:
Available for sale securities	209,828,000
Loans held for sale	8,685,000
Loans receivable	318,242,000
Net loans	318,242,000
Financial liabilities:
Non-interest bearing demand	92,738,000
NOW and money market accounts	147,655,000
Savings	41,358,000
Time deposits	194,605,000
Total deposits	476,356,000
Federal Home Loan Bank Advances	44,619,000
Short term borrowings	15,651,000
Junior subordinated debentures	17,917,000
Level 3
Financial Assets:
Loans receivable	9,544,000
Net loans	9,544,000
Interest rate swap	(418,000)
Carrying Amount
Financial Assets:
Cash and short term investments	20,379,000		16,492,000
Available for sale securities	210,734,000		201,032,000
Other investments, at cost	4,540,000		5,637,000
Loans held for sale	8,685,000		3,725,000
Loans receivable	323,534,000		324,311,000
Allowance for loan losses	4,695,000		4,699,000
Net loans	318,839,000		319,612,000
Accrued interest	2,074,000		1,914,000
Interest rate swap	(418,000)		(602,000)
Financial liabilities:
Non-interest bearing demand	92,738,000		83,572,000
NOW and money market accounts	147,655,000		136,483,000
Savings	41,358,000		34,048,000
Time deposits	192,714,000		210,482,000
Total deposits	474,465,000		464,585,000
Federal Home Loan Bank Advances	38,491,000		43,862,000
Short term borrowings	15,651,000		13,616,000
Junior subordinated debentures	17,917,000		17,913,000
Accrued interest payable	$ 1,225,000		$ 1,624,000

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Earnings Per Common Share (Details) (USD $)	1 Months Ended	3 Months Ended		9 Months Ended				3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended
	Jul. 31, 2012	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Jul. 27, 2012	Dec. 31, 2011	Dec. 31, 2011 8.75% subordinated notes	Sep. 30, 2012 Options	Dec. 31, 2011 Warrants	Sep. 30, 2012 Warrants
Earnings Per Common Share
Numerator (Net income available to common shareholders)		$ 881,000	$ 790,000	$ 2,271,000	$ 1,751,000
Weighted average common shares outstanding for:
Basic earnings per share (in shares)		4,693,000	3,294,000	3,780,000	3,280,000
Dilutive securities:
Deferred compensation (in shares)		2,000
Warrants - Treasury stock method (in shares)		31,000		27,000
Diluted earnings per share (in shares)		4,726,000	3,294,000	3,807,000	3,280,000
The average market price used in calculating assumed number of shares (in dollars per share)		$ 8.27	$ 6.19	$ 7.84	$ 6.45
Earnings per common share
Outstanding securities not deemed to be dilutive (in shares)									75,022		196,000
Debt issued								$ 2,500,000
Interest rate (as a percent)								8.75%
Warrants issued (in shares)										107,500
Exercise price of warrants (in dollars per share)		$ 8.69		$ 8.69						$ 5.90
Average exercise price of options (in dollars per share)		$ 19.69		$ 19.69
Shares issued		5,224,282		5,224,282		1,875,000	3,307,531
Public offering price (in dollars per share)						$ 8.00
Shares granted to the underwriters to cover overallotments	244,565

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Investment Securities (Details 5) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Investment Securities
Loss on the sale of securities	$ (35,000)	$ 133,000	$ (62,000)	$ 274,000
Non-agency mortgage-backed /CMO securities
Investment Securities
Number of CUSIPs	14		14
Par Value	3,743,000		3,743,000
Amortized Cost	3,370,000		3,370,000
Fair Value	2,938,000		2,938,000
Non-agency mortgage-backed /CMO securities | AAA
Investment Securities
Number of CUSIPs	3		3
Par Value	189,000		189,000
Amortized Cost	189,000		189,000
Fair Value	188,000		188,000
Non-agency mortgage-backed /CMO securities | AA
Investment Securities
Number of CUSIPs	2		2
Par Value	309,000		309,000
Amortized Cost	309,000		309,000
Fair Value	314,000		314,000
Non-agency mortgage-backed /CMO securities | A1
Investment Securities
Number of CUSIPs	1		1
Par Value	384,000		384,000
Amortized Cost	384,000		384,000
Fair Value	376,000		376,000
Non-agency mortgage-backed /CMO securities | A3
Investment Securities
Number of CUSIPs	1		1
Par Value	329,000		329,000
Amortized Cost	329,000		329,000
Fair Value	320,000		320,000
Non-agency mortgage-backed /CMO securities | BBB
Investment Securities
Number of CUSIPs	1		1
Par Value	255,000		255,000
Amortized Cost	255,000		255,000
Fair Value	254,000		254,000
Non-agency mortgage-backed /CMO securities | Baa1
Investment Securities
Number of CUSIPs	1		1
Par Value	77,000		77,000
Amortized Cost	76,000		76,000
Fair Value	76,000		76,000
Non-agency mortgage-backed /CMO securities | Baa2
Investment Securities
Number of CUSIPs	1		1
Par Value	130,000		130,000
Amortized Cost	130,000		130,000
Fair Value	129,000		129,000
Non-agency mortgage-backed /CMO securities | Below Investment Grade
Investment Securities
Number of CUSIPs	4		4
Par Value	2,070,000		2,070,000
Amortized Cost	1,698,000		1,698,000
Fair Value	1,281,000		1,281,000
Number of securities sold			8
Book value of securities sold			11,200,000
Loss on the sale of securities			$ 2,100,000
Corporate bonds | Above Investment Grade
Investment Securities
Number of investments rated above investment grade	1		1

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net income	$ 1,220	$ 957	$ 2,947	$ 2,253
Other comprehensive income
Unrealized gain during the period on available-for-sale securities, net of tax expense of $418 and $1,806, for the nine months ended September 30, 2012 and September 30, 2011 and $420 and $1,035, for the three months ended September 30, 2012 and September 30, 2011, respectively	791	2,007	787	3,427
Less: Reclassification adjustment for (gain)loss included in net income, net of tax (expense) benefit of $21 and $96, for the nine months ended September 30, 2012 and September 30, 2011 and $12 and $47 for the three months ended September 30, 2012 and September 30, 2011, respectively	23	(86)	41	(178)
Reclassification adjustment for other-than-temporary- impairment on securities net of tax benefit of $68 and $19, for the nine months ended September 30, 2012 and September 30, 2011 and $0 and $18 for the three months ended September 30, 2012 and September 30, 2011, respectively		32	132	35
Other comprehensive income	814	1,953	960	3,284
Comprehensive income	$ 2,034	$ 2,910	$ 3,907	$ 5,537

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Basis of Presentation

9 Months Ended

Sep. 30, 2012

Basis of Presentation

Basis of Presentation

Note 1 - Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated balance sheets, and the consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows of First Community Corporation (“the Company”), present fairly in all material respects the Company’s financial position at September 30, 2012 and December 31, 2011, the Company’s results of operations for the nine months and three months ended September 30, 2012, and the Company’s cash flows for the nine months ended September 30, 2012 and 2011. The results of operations for the nine months and three months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

In the opinion of management, all adjustments necessary to fairly present the consolidated financial position and consolidated results of operations have been made. All such adjustments are of a normal, recurring nature.  All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements and notes thereto are presented in accordance with the instructions for Form 10-Q.  The information included in the Company’s 2011 Annual Report on Form 10-K should be referred to in connection with these unaudited interim financial statements.

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Investment Securities (Details 6) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Available-for-sale, Amortized Cost
Due in one year or less	$ 22,623
Due after one year through five years	97,789
Due after five years through ten years	59,240
Due after ten years	27,668
Total	207,320
Available-for-sale, Fair Value
Due in one year or less	22,675
Due after one year through five years	99,385
Due after five years through ten years	60,872
Due after ten years	27,802
Total	$ 210,734

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Fair Value of Financial Instruments (Details 5) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Assets and liabilities measured at fair value
Total impaired loans	$ 9,544	$ 9,353
Total other real estate owned	5,570	7,351
Mortgage-residential
Assets and liabilities measured at fair value
Total impaired loans		622
Mortgage-commercial
Assets and liabilities measured at fair value
Total impaired loans		8,667
Consumer, Other
Assets and liabilities measured at fair value
Total impaired loans		19
Non-recurring basis | Fair value
Assets and liabilities measured at fair value
Total impaired loans	9,544	9,353
Total other real estate owned	5,570	7,351
Total	15,114	16,704
Non-recurring basis | Fair value | Commercial & Industrial
Assets and liabilities measured at fair value
Total impaired loans	15	45
Non-recurring basis | Fair value | Mortgage-residential
Assets and liabilities measured at fair value
Total impaired loans	477	622
Total other real estate owned	438	4,278
Non-recurring basis | Fair value | Mortgage-commercial
Assets and liabilities measured at fair value
Total impaired loans	9,041	8,667
Total other real estate owned	4,831	917
Non-recurring basis | Fair value | Consumer, Other
Assets and liabilities measured at fair value
Total impaired loans	11	19
Non-recurring basis | Fair value | Construction
Assets and liabilities measured at fair value
Total other real estate owned	301	2,156
Non-recurring basis | Significant Unobservable Inputs (Level 3)
Assets and liabilities measured at fair value
Total impaired loans	9,544	9,353
Total other real estate owned	5,570	7,351
Total	15,114	16,704
Non-recurring basis | Significant Unobservable Inputs (Level 3) | Commercial & Industrial
Assets and liabilities measured at fair value
Total impaired loans	15	45
Non-recurring basis | Significant Unobservable Inputs (Level 3) | Mortgage-residential
Assets and liabilities measured at fair value
Total impaired loans	477	622
Total other real estate owned	438	4,278
Non-recurring basis | Significant Unobservable Inputs (Level 3) | Mortgage-commercial
Assets and liabilities measured at fair value
Total impaired loans	9,041	8,667
Total other real estate owned	4,831	917
Non-recurring basis | Significant Unobservable Inputs (Level 3) | Consumer, Other
Assets and liabilities measured at fair value
Total impaired loans	11	19
Non-recurring basis | Significant Unobservable Inputs (Level 3) | Construction
Assets and liabilities measured at fair value
Total other real estate owned	$ 301	$ 2,156

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value of Financial Instruments

Schedule of carrying amount and estimated fair value by classification Level of the Company's financial instruments

	September 30, 2012
	Carrying			Fair Value
(Dollars in thousands)	Amount			Total			Level 1		Level 2		Level 3
Financial Assets:
Cash and short term investments	$	20,379		$	20,379		$	20,379	$	—	$	—
Available-for-sale securities	210,734			210,734			906		209,828		—
Other investments, at cost	4,540			—			—		—		—
Loans held for sale	8,685			8,685			—		8,685		—
Loans receivable	323,534			327,786			—		318,242		9,544
Allowance for loan losses	4,695			—			—		—		—
Net loans	318,839			327,786			—		318,242		9,544
Accrued interest	2,074			2,074			2,074		—		—
Interest rate swap	(418		)	(418		)	—		—		(418		)
Financial liabilities:
Non-interest bearing demand	$	92,738		$	92,738		$	—	$	92,738	$	—
NOW and money market accounts	147,655			147,655			—		147,655		—
Savings	41,358			41,358			—		41,358		—
Time deposits	192,714			194,605			—		194,605		—
Total deposits	474,465			476,356			—		476,356		—
Federal Home Loan Bank Advances	38,491			44,619			—		44,619		—
Short term borrowings	15,651			15,651			—		15,651		—
Junior subordinated debentures	17,917			17,917			—		17,917		—
Accrued interest payable	1,225			1,225			1,225		—		—

	December 31, 2011
(Dollars in thousands)	Carrying Amount			Fair  Value
Financial Assets:
Cash and short term investments	$	16,492		$	16,492
Available-for-sale securities	201,032			201,032
Other investments, at cost	5,637			—
Loans held for sale	3,725			3,725
Loans receivable	324,311			324,204
Allowance for loan losses	4,699			—
Net loans	319,612			324,204
Accrued interest	1,914			1,914
Interest rate swap	(602		)	(602		)
Financial liabilities:
Non-interest bearing demand	$	83,572		$	83,572
NOW and money market accounts	136,483			136,483
Savings	34,048			34,048
Time deposits	210,482			214,437
Total deposits	464,585			468,540
Federal Home Loan Bank Advances	43,862			50,238
Short term borrowings	13,616			13,616
Junior subordinated debentures	17,913			17,913
Accrued interest payable	1,624			1,624

Schedule of changes in fair values and location in the income statement where these changes are included

(Dollars in thousands)

	Nine months ended September 30,						Three months ended  September 30,
	2012			2011			2012			2011
Description	Non-interest income: Fair value adjustment loss			Non-interest income: Fair value adjustment loss			Non-interest income: Fair value adjustment loss			Non-interest income: Fair value adjustment loss
Interest rate swap	$	(57	)	$	(185	)	$	(20	)	$	(60	)
Total	$	(57	)	$	(185	)	$	(20	)	$	(60	)

Schedule of fair value for each category of assets carried at fair value that are measured on a recurring basis

(Dollars in thousands)

Description	September 30, 2012			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
Government sponsored enterprises	$	1,544		$	—	$	1,544	$	—
Mortgage-backed securities	122,466			—		122,466		—
Small Business Administration securities	50,931			—		50,931		—
State and local government	33,827			—		33,827		—
Corporate and other securities	1,966			906		1,060		—
	210,734			906		209,828		—
Interest rate cap/swap	(418		)	—		—		(418		)
Total	$	210,316		$	906	$	209,828	$	(418	)
(Dollars in thousands)
Description	December 31, 2011			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
Government sponsored enterprises	$	34		$	—	$	34	$	—
Mortgage backed securities	141,631			—		141,631		—
Small Business Administration securities	36,479			—		36,479		—
State and local government	20,488			—		20,488		—
Corporate and other securities	2,400			926		1,474		—
	201,032			926		200,106		—
Interest rate cap/floor	(602		)	—		—		(602		)
Total	$	200,430		$	926	$	200,106	$	(602	)

Schedule reconciling the changes in Level 3 financial instruments measured on a recurring basis

(Dollars in thousands)	Interest rate Cap/Floor/Swap
Beginning Balance December 31, 2011	$	(602	)
Total gains or losses (realized/unrealized)
Included in earnings	(57		)
Included in other comprehensive income	—
Purchases, issuances, and settlements	241
Transfers in and/or out of Level 3	—
Ending Balance September 30, 2012	$	(418	)
(Dollars in thousands)	Interest rate Cap/Floor/Swap
Beginning Balance June 30, 2012	$	(479	)
Total gains or losses (realized/unrealized)
Included in earnings	(20		)
Included in other comprehensive income	—
Purchases, issuances, and settlements	81
Transfers in and/or out of Level 3	—
Ending Balance September 30, 2012	$	(418	)

Schedule of the fair value for each category of assets carried at fair value that are measured on a non-recurring basis

(Dollars in thousands)

Description	September 30,2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial & Industrial	$	15	$	—	$	—	$	15
Real estate:
Mortgage-residential	477		—		—		477
Mortgage-commercial	9,041		—		—		9,041
Consumer:
Home equity	—		—		—		—
Other	11		—		—		11
Total impaired	9,544		—		—		9,544
Other real estate owned:
Construction	301		—		—		301
Mortgage-residential	438		—		—		438
Mortgage-commercial	4,831		—		—		4,831
Total other real estate owned	5,570		—		—		5,570
Total	$	15,114	$	—	$	—	$	15,114
(Dollars in thousands)
Description	December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial & Industrial	$	45	$	—	$	—	$	45
Real estate:
Mortgage-residential	622		—		—		622
Mortgage-commercial	8,667		—		—		8,667
Consumer:
Home equity	—		—		—		—
Other	19		—		—		19
Total impaired	9,353		—		—		9,353
Other real estate owned:			—		—
Construction	2,156		—		—		2,156
Mortgage-residential	4,278		—		—		4,278
Mortgage-commercial	917		—		—		917
Total other real estate owned	7,351		—		—		7,351
Total	$	16,704	$	—	$	—	$	16,704

Schedule of significant unobservable inputs used in the fair value measurements

(Dollars in thousands)	Fair Value as of September 30, 2012			Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Inputs
Interest Rate Swap	$	(418	)	Discounted cash flows	Weighted Average Credit Factor	3.20%
OREO	$	5,570		Appraisal Value/Comparison Sales/Other estimates	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost
Impaired loans	$	9,544		Appraisal Value/Discounted Cash Flows	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost