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. These statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those projected in 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," "will," "expect," "anticipate," "believe," "intend," "plan," and "estimate," as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties include, but are not limited to, the following:

† 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;

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

† changes occurring in business conditions and inflation;

† changes in technology;

† changes in deposit flows;

† the adequacy of our level of allowance for loan loss;

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

† the rates of loan growth;

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

† changes in monetary and tax policies;

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

† changes in the securities markets; and

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

These risks are exacerbated by the recent developments in national and international financial markets, and we are unable to predict what effect these uncertain market conditions will have on the Company. During 2008, the capital and credit markets have experienced extended volatility and disruption. In the last 90 days, the volatility and disruption have reached unprecedented levels. There can be no assurance that these unprecedented recent developments will not materially and adversely affect our business, financial condition and results of operations.

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

We are a bank holding company registered under the Bank Holding Company Act of 1956, and were incorporated under the laws of South Carolina in 1994 primarily to own and control all of the capital stock of First Community Bank, N.A. (the "bank"), which commenced operations in August 1995. On October 1, 2004, we completed our acquisition of DutchFork Bancshares, Inc. and its wholly-owned subsidiary, Newberry Federal Savings Bank. During the second quarter of 2006, we completed our acquisition of DeKalb Bankshares, Inc., the holding company for The Bank of Camden. We engage in a commercial banking business from our main office in Lexington, South Carolina and our 11 full-service offices are located in Lexington (two), Forest Acres, Irmo, Cayce-West Columbia, Gilbert, Chapin, Northeast Columbia, Prosperity, Newberry and Camden. We offer a wide-range of traditional banking products and services for professionals and small-to medium-sized businesses, including consumer and commercial, mortgage, brokerage and investment, and insurance services. We also offer online banking to our customers.

The following discussion describes our results of operations for the three-month and nine-month periods ended September 30, 2008 as compared to the three-month and nine-month periods ended September 30, 2007, and also analyzes our financial condition as of September 30, 2008 as compared to December 31, 2007. Like most community banks, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference

between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.

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

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.

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

Emergency Economic Stabilization Act of 2008

In response to financial conditions affecting the banking system and financial markets and the potential threats to the solvency of investment banks and other financial institutions, the United States government has taken unprecedented actions. On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (the "EESA"). Pursuant to the EESA, the U.S. Treasury will have the authority to, among other things, purchase mortgages, mortgage-backed securities, and other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. On October 14, 2008, the U.S. Department of Treasury, which we refer to as the Treasury, announced the Capital Purchase Program under the EESA, pursuant to which the Treasury intends to make senior preferred stock investments in participating financial institutions. Regardless of our participation, governmental intervention and new regulations under these programs could materially and adversely affect our business, financial condition and results of operations.

On November 6, 2008, the Treasury informed us that we had received preliminary approval to participate in the Capital Purchase Program. Under the Capital Purchase Program, the Treasury would purchase up to approximately $11.3 million of our senior preferred stock and would receive warrants to purchase shares of our common stock. While we can provide no assurance that we will close on this investment by the Treasury, we currently anticipate that we will close on the Treasury's investment under the Capital Purchase Program during 2008. Under the Capital Purchase Program, each senior preferred share purchased by the Treasury would have a liquidation value of $1,000 per share. We would pay a cumulative dividends at a rate of 5% per annum on these senior preferred shares for the first five years and 9% per annum thereafter, payable quarterly. For 3 years following issue of the senior preferred shares we would be restricted in our ability to, among other things, (i) increase common dividends, (ii) repurchase common shares and (iii) redeem the senior preferred shares. Participation in the Capital Purchase Program would subject us to restrictions on payment and deduction of executive compensation. Pursuant to an interim final rule issued by the Board of Governors of the Federal Reserve System on October 16, 2008, bank holding companies that issue senior preferred stock to the Treasury under the Capital Purchase Program are permitted to include such capital instruments in Tier 1 capital for purposes of the Board's risk-based and leverage capital rules and guidelines for bank holding companies.

Under the Capital Purchase Program, we would also issue warrants to the Treasury to purchase shares of our common stock having an aggregate market price, as of the date of Treasury's investment in our senior preferred stock, equal to 15% of the amount of the Treasury's investment in our senior preferred stock. The exercise price of the common stock subject to these warrants would be set based on a 20-day trailing average price for our common stock and the warrants would be exercisable for a period of 10 years following issue. More details of the Capital Purchase Program may be found in the public term sheet, application documents and other materials found at the Treasury's website:
http://www.treas.gov.

Another aspect of the EESA (in addition to the Capital Purchase Plan described above) which became effective on October 3, 2008 is a temporary increase of the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. The basic deposit insurance limit will return to $100,000 after December 31, 2009 In addition, the bank anticipates participating in the FDIC's Temporary Liquidity Guarantee Program which was

announced October 14, 2008 as part of the EESA. This guarantee applies to the following transactions:

†

† Newly issued senior unsecured debt (up to $1.5 trillion) issued on or before June 30, 2009, including promissory notes, commercial paper, inter-bank funding, and any unsecured portion of secured debt. For eligible debt issued on or before June 30, 2009, coverage would only be provided for three years beyond that date, even if the liability has not matured; and

† Funds in non-interest-bearing transaction deposit accounts (up to $500 billion) held by FDIC-insured banks until December 31, 2009.

All FDIC institutions are covered until December 5, 2008 at no cost. After this initial period expires, the institution must opt out if it no longer wishes to participate in the program; otherwise, it will be assessed for future participation. There will be a 75-basis point fee to protect new debt issues and an additional 10-basis point fee to fully cover non-interest bearing deposit transaction accounts.

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 notes to our unaudited consolidated financial statements as of September 30, 2008 in this report and our notes included in the consolidated financial statements in our 2007 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

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

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

Comparison of Results of Operations for Nine Months Ended September 30, 2008 to the Nine Months Ended September 30, 2007:

Net Income (loss)

Our net loss for the nine months ended September 30, 2008 was $6.3 million, or $1.97 diluted loss per share, as compared to net income of $2.8 million, or $.84 diluted earnings per share, for the nine months ended September 30, 2007. The net loss for the nine months ended September 30, 2008 included a charge to recognize an "other-than-temporary-impairment" in the amount of $14.3 million on our investment in a preferred stock issue of the Federal Home Loan Mortgage Corporation ("Freddie Mac"), a government sponsored enterprise ("GSE") reflecting a write-down of substantially all of its carrying value. During the second quarter we made a decision to recognize an unrealized mark-to-market loss on this previously investment grade security in the amount of $6.2 million as an other-than-temporary impairment ("OTTI") charge based on the significant decline in the market value of the security caused by potential deterioration of Freddie Mac's financial condition, and the then current lack of clarity about the impact of an announced plan (which was approved by the House and Senate and signed into law by the President) that provided support for Freddie Mac as well as other GSE's. On September 7, 2008, the Secretary of the Treasury announced a decision to place Freddie Mac into conservatorship and as part of that decision the dividend payments on existing preferred shares would be terminated for an unspecified period of time. As a result of that decision we took an additional $8.1 million OTTI charge in the third quarter of 2008 to write off substantially all of

the remaining investment in this Freddie Mac security. The preferred stock issue was purchased in 2003 and acquired by the Company in the 2004 merger with Dutchfork Bankshares. This Freddie Mac preferred stock, which has a current cost basis of $3.0 thousand, is included in the available-for-sale securities portfolio. If at some time in the future quarterly dividend payments are resumed these securities may recover some or all of their value. We had operating earnings for the nine months ended September 30, 2008 of $3.5 million or $1.09 per share as compared to $2.7 million or $0.82 per share for the nine months ended September 30, 2007.

Another significant decision that impacted our results for the nine and three months ended September 30, 2008 was the implementation of a leverage strategy during the second quarter of 2008 whereby we acquired approximately $63.2 million in certain non-agency mortgage backed securities and collateralized mortgage obligations. We initiated this strategy because we believe the pricing levels of these securities and related funding opportunities provided the ability to realize significant interest rate spreads not typically available in leverage strategies. The weighted average yield on the investment securities purchased was approximately 6.82%. All of the mortgage assets acquired were classified as prime or ALT-A securities and represent the senior or super-senior tranches of the securities. The assets acquired as part of this strategy have been classified as held-to-maturity in the investment portfolio. The securities were acquired on the open market through securities dealers. Prior to initiating each transaction, we performed a thorough analysis, evaluating the associated credit risk, interest rate risk, liquidity and capital risk as well as related funding options. We continue to perform an evaluation of these securities and the related risk on a monthly basis. The funding for this strategy was provided through Federal Home Loan Bank Advances in the amount of $36.0 million and brokered certificates of deposit in the amount of $23.0 million. The weighted average cost of funding was approximately 4.28%. We believe this opportunity existed as a result of the ongoing volatility in this market sector and the economic value of these securities was not reflected at the pricing levels.

The increase in operating earnings is primarily due to an increase in net interest income resulting primarily from an increase in the level of average earning assets for the nine months ended September 30, 2008, as compared to the same period in 2007, reflecting the continued growth of our bank including the above mentioned leverage strategy. Average earning assets were $537.1 million during the nine months ended September 30, 2008, as compared to $469.2 million during the nine months ended September 30, 2007, an increase of $67.9 million. This increase in average earning assets was the primary factor responsible for the increase in net interest income of $1.6 million in the first nine months of 2008 as compared to the first nine months of 2007. As a result of the OTTI charge, we had a non-interest income loss during the first nine months of 2008 of $10.3 million. Non-interest income (excluding the OTTI charge and gains and losses on sale of securities) was $4.0 million for the nine months ended September 30, 2008 as compared to $3.5 million for the same period in 2007. This increase of $504,000, or 14.2%, also contributed to the increase in operating income in the first nine months of 2008 as compared to the same period in 2007. Non-interest expense increased by $685,000, or 6.5%, in the first nine months of 2008, as compared to the same period in 2007.

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, 2008 and 2007, along with average balances and the related interest income and interest expense amounts.

Net interest income was $12.9 million for the nine months ended September 30, 2008 as compared to $11.3 million for the nine months ended September 30, 2007. This increase was primarily due to an increase in the level of earning assets. The yield on earning assets decreased by 35 basis points during the nine months ended September 30, 2008 as compared to the same period in 2007. The cost of interest-bearing liabilities decreased by 44 basis points during these two periods. Interest rates decreased significantly during the last quarter of 2007 and first quarter of 2008. The larger decline in our funding cost as compared to our earning asset yields results from our balance sheet mix being liability sensitive. The net interest margin on a taxable equivalent basis was 3.27% for the nine months ended September 30, 2008 as compared to 3.30% during the same period in 2007.

Reconciliations

The following is a reconciliation for both the nine- and three-month periods ended September 30, 2008 and 2007, of net income (loss) as reported for generally accepted accounting principles ("GAAP") and the non-GAAP measure referred to throughout our discussion of "operating earnings".

                                             Three months ended          Nine months ended
                                                September 30,              September 30,
(Dollars in thousands)                        2008          2007         2008          2007
Net income (loss), As Reported (GAAP)      $    (3,946 )  $  1,148    $    (6,305 )  $  2,767
Add: Income tax expense (benefit)               (2,686 )       517         (3,123 )     1,152
                                                (6,632 )     1,665         (9,428 )     3,919
Non-operating items:
(Gain) loss on sale of securities                    -           -             28         (74 )
Other-than-temporary-impairment charge           8,163           -         14,325           -
Pre-tax operating earnings (loss)                1,531       1,665          4,925       3,845
Related income tax expense                         393         517          1,406       1,131
Operating earnings, (net income,
excluding non operating items)             $     1,138    $  1,148    $     3,519    $  2,714

The following is a reconciliation for both the nine-and three-month periods ended September 30, 2008 and 2007, of non-interest income (loss) as reported for generally accepted accounting principles (GAAP) and the non-GAAP measure referred to throughout our discussion regarding non-interest income (loss).

                                             Three months ended          Nine months ended
                                                September 30,              September 30,
(Dollars in thousands)                        2008          2007         2008          2007
Non-interest income (loss), As Reported
(GAAP)                                     $    (6,838 )  $  1,363    $   (10,317 )  $  3,606
Non-operating items:
(Gain) loss on sale of securities                    -           -             28         (74 )
Other-than-temporary-impairment charge           8,163           -         14,325           -
Operating non-interest income              $     1,325    $  1,363    $     4,036    $  3,532

Our management believes that the non-GAAP measures above are useful because they enhance the ability of investors and management to evaluate and compare our operating results from period to period in a meaningful manner. These non-GAAP measures should not be considered as an alternative to any measure of performance as promulgated under GAAP, and investors should consider the OTTI charge in the second and third quarters of 2008 when assessing the performance of the Company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results as reported under GAAP.

Provision and Allowance for Loan Losses

At September 30, 2008, the allowance for loan losses was $3.7 million, or 1.13% of total loans, as compared to $3.5 million, or 1.14% of total loans, at December 31, 2007. Our provision for loan losses was $723,000 for the nine months ended September 30, 2008, as compared to $360,000 for the nine months ended September 30, 2007. The increase in the provision between the two periods is directly a result of the increased charge-offs primarily on one-to-four family residential property loans to several borrowers that had a number of residential investment property loans. These loans have been placed in non-accrual status and have been written down to fair value. Our provision is made based on our assessment of general loan loss risk and asset quality. The allowance for loan losses represent an amount which we believe will be adequate to absorb probable losses on existing loans that may become uncollectible. Our judgment as to the adequacy of the allowance for loan losses is based on a number of assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate. Our determination of the allowance for loan losses is based on evaluations of the collectibility of loans, including consideration of factors such as the balance of impaired loans, the quality, mix, and size of our overall loan portfolio, economic conditions that may affect the borrower's ability to repay, the amount and quality of collateral securing the loans, our historical loan loss experience, and a review of specific problem loans. We also

consider subjective issues such as changes in the lending policies and procedures, changes in the local/national economy, changes in volume or type of credits, changes in volume/severity of problem loans, quality of loan review and board of director oversight, 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.

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 ratings of loans within the portfolio. 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. 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.

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.

At September 30, 2008, we had $132,000 in loans delinquent more than 90 days and still accruing interest, and loans totaling $1.3 million that were delinquent 30 days to 89 days and still accruing interest. Closed-end installment loans with payments scheduled monthly are considered past due 30 days or more when the borrower is in arrears two or more monthly payments. Due to the current loan to collateral values or other factors it is anticipated that all of the principal and interest will be collected on those loans greater than 90 days or more delinquent and still accruing interest. We had sixteen loans in a nonaccrual status in the amount of $1.7 million at September 30, 2008. Our management . . .