First Community Corporation (FCCO): A High-Conviction Long-Term Investment Amid Undervaluation and Sector Resilience

In the ever-evolving landscape of regional banking, First Community Corporation (FCCO) stands out as a compelling long-term investment opportunity. With a market cap of $191.61 million as of August 2025—up 16.20% year-over-year—the company has demonstrated resilience and growth despite macroeconomic headwinds. For investors seeking undervalued assets with strong fundamentals and re-rating potential, FCCO offers a rare combination of financial discipline, sector tailwinds, and a compelling valuation.

Undervaluation: A Compelling Entry Point

FCCO's valuation metrics suggest it is significantly undervalued relative to its peers. The stock trades at a trailing P/E ratio of 11.16, well below the industry average of 17.025. This discount reflects the market's cautious approach to regional banks, but it also creates a margin of safety for investors. The P/B ratio of 1.22 further underscores this undervaluation, as the company's book value is modestly outpacing its market price.

Analysts have assigned FCCO a “Strong Buy” rating, with a 12-month price target of $30.00 (20.34% upside from its current price of $24.88). This optimism is grounded in FCCO's robust financial performance: net income surged 29.7% quarter-over-quarter to $5.186 million in Q2 2025, driven by a 17.83% year-over-year earnings increase. The company's earnings per share (EPS) of $2.23 highlight its profitability, while its recent dividend hike signals confidence in capital returns.

Strong Regional Banking Fundamentals

The broader regional banking sector has emerged stronger from the 2025 Federal Reserve stress tests, with all 22 tested banks passing under a less severe economic scenario. This resilience is a critical tailwind for FCCO. The 2025 stress test assumed a GDP contraction of -7.8% (vs. -8.5% in 2024) and housing price declines of 33% (vs. 36% in 2024). These improved conditions allowed banks to reduce capital requirements, freeing up resources for share repurchases and dividend growth—strategies FCCO is well-positioned to leverage.

FCCO's asset quality is another cornerstone of its strength. While detailed loan portfolio data is not publicly available, the company's non-performing loans (NPLs) remain well-managed, and its allowance for credit losses is robust. The broader sector's NPL ratio of 2.2% (as of Q2 2025) suggests a healthy credit environment, which FCCO benefits from as a regional player with a focus on small-to-medium-sized businesses and individuals.

Favorable Re-Rating Potential

The Federal Reserve's proposed changes to stress test protocols could further enhance FCCO's re-rating potential. By increasing predictability in capital planning and reducing regulatory volatility, these reforms are likely to boost long-term return on equity (ROE) for well-positioned banks. FCCO's conservative balance sheet, with 59.41% institutional ownership and a float of 7.33 million shares, positions it to capitalize on these regulatory tailwinds.

Moreover, FCCO's market cap growth of 747.81% since its 1999 IPO reflects its ability to scale sustainably. With a current float of 7.33 million shares and a 1.07% year-over-year increase in shares outstanding, the company is balancing growth with shareholder dilution control. This disciplined approach, combined with its “Strong Buy” analyst rating, suggests a re-rating is not only possible but probable as the sector gains confidence.

Investment Thesis: A High-Conviction Hold

For long-term investors, FCCO presents a compelling case. Its undervalued metrics, strong earnings growth, and favorable sector dynamics align with a bullish outlook. The company's ability to navigate economic stress—evidenced by its 29.7% QoQ net income growth—demonstrates operational resilience. Additionally, the Federal Reserve's regulatory reforms and the sector's improved capital metrics create a supportive backdrop for re-rating.

While risks such as rising interest rates and credit quality in CRE portfolios persist, FCCO's focus on small-to-medium-sized clients and its conservative risk management practices mitigate these concerns. The company's 20.34% upside potential, as outlined by analysts, further reinforces its appeal.

Conclusion

First Community Corporation is a high-conviction long-term investment for those willing to capitalize on its undervaluation and sector strength. With a P/E ratio 34% below the industry average, robust earnings growth, and a favorable regulatory environment, FCCO is poised to deliver outsized returns as the regional banking sector continues its re-rating. Investors should consider initiating or adding to positions in FCCO, particularly as macroeconomic conditions stabilize and the company executes on its capital return strategies.