UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 (Mark
One)
 
 X
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
 
 For the
quarterly period ended March 31, 2008
 
 TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
 For the
transition period from    to
 
 COMMISSION
FILE NUMBER 1-5735
 
 PROVIDENT COMMUNITY
BANCSHARES, INC.
 (Exact name
of registrant as specified in its Charter)
 
 Delaware
              57-1001177(State
      or other Jurisdiction of
                Incorporation
      or Organization)
              (I.R.S.
      Employer
                Identification
      No.)
 2700 Celanese
Road,Rock
Hill,South
Carolina29732
 (Address of
Principal Executive Offices)
 
 (803)-325-9400
 (Registrant’s
telephone number, including area code)
 
 Not
Applicable
 (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__
 
 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.  (Check
one):
 
 Large
accelerated filer □Accelerated filer □ Non-accelerated filer □ Smaller Reporting Company
■
 
 Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act.)
 Yes           No X
 
 The
Corporation had 1,781,091 shares, $0.01 par value, of common stock issued and
outstanding as of May 5, 2008.
 
 
 
 PROVIDENT
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
  INDEX
 Part
      I.
              Financial
      Information
              PageItem
      1.    Financial Statements (unaudited)Consolidated
      Balance Sheets as of March 31, 2008and
      December 31, 2007
              3Consolidated
      Statements of Income for the threemonths
      ended March 31, 2008 and 2007
              4Consolidated
      Statements of Cash Flows for the threemonths
      ended March 31, 2008 and 2007
              5Consolidated
      Statements of Shareholders’ Equity andComprehensive
      Income (Loss) for the three monthsended
      March 31, 2008 and 2007
              6Notes
      to Consolidated Financial Statements
              7-12Item
      2.    Management’s Discussion and Analysis
    ofFinancial Condition and Results of Operations
              13-23Item
      3.    Quantitative and Qualitative
    Disclosuresabout Market Risk
              23Item
      4T.  Controls and Procedures
              23Part
      II.
              Other
      InformationItem
      1.    Legal Proceedings
              24Item
      1A.  Risk Factors
              24Item
      2.    Unregistered Sales of Equity Securities and Use of
      Proceeds
              24Item
      3.    Defaults Upon Senior Securities
              25Item
      4.    Submission of Matters to a Vote of Security
      Holders
              25Item
      5.    Other Information
              25Item
      6.    Exhibits
              25Signatures
              26
  
 Part
1.    Financial Information
 PROVIDENT
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 March
31, 2008 and December 31, 2007
  March
      31,
              
              
              December
      31,ASSETS
              
              2008
              
              
              2007(Unaudited)
              
              
              (Audited)(DOLLARS
      IN THOUSANDS)Cash
      and due from banks
              
              $
              10,509
              
              
              $
              11,890Investment
      and mortgage-backed securitiesHeld
      to maturity
              
              
              3,123
              
              
              
              3,126Available
      for sale
              
              
              92,580
              
              
              
              108,061Total
      investment and mortgage-backed securities
              
              
              95,703
              
              
              
              111,187Loans,
      net
              
              
              274,493
              
              
              
              256,487Office
      properties and equipment, net
              
              
              5,099
              
              
              
              5,145Federal
      Home Loan Bank Stock, at cost
              
              
              3,839
              
              
              
              3,826Federal
      Reserve Stock, at cost
              
              
              599
              
              
              
              599Accrued
      interest receivable
              
              
              2,060
              
              
              
              2,625Intangible
      assets
              
              
              3,157
              
              
              
              3,261Cash
      surrender value of life insurance
              
              
              9,275
              
              
              
              9,175Other
      assets
              
              
              3,007
              
              
              
              3,446TOTAL
      ASSETS
              
              $
              407,741
              
              
              $
              407,641LIABILITIESDeposits
              
              $
              276,071
              
              
              $
              270,399Advances
      from the Federal Home Loan Bank
              
              
              69,000
              
              
              
              69,500Securities
      sold under agreements to repurchase
              
              
              20,668
              
              
              
              24,131Floating
      rate junior subordinated deferrable interest debentures
              
              
              12,372
              
              
              
              12,372Accrued
      interest payable
              
              
              692
              
              
              
              742Other
      liabilities
              
              
              1,770
              
              
              
              3,184TOTAL
      LIABILITIES
              
              
              380,573
              
              
              
              380,328Commitments
      and contingencies-Note 4SHAREHOLDERS'
      EQUITYSerial
      preferred stock, no par value,authorized
      - 500,000 shares, issuedand
      outstanding - None
              
              
              --
              
              
              
              --Common
      stock - $0.01 par value,authorized - 5,000,000 shares,issued
      and outstanding - 1,781,091 shares at 3/31/08 and 1,794,866 at
      12/31/07
              
              
              20
              
              
              
              20Additional
      paid-in capital
              
              
              12,813
              
              
              
              12,781Accumulated
      other comprehensive gain
              
              
              175
              
              
              
              191Retained
      earnings, substantially restricted
              
              
              20,430
              
              
              
              20,276Treasury
      stock, at cost
              
              
              (6,270
              )
              
              
              (5,955
              )TOTAL
      SHAREHOLDERS' EQUITY
              
              
              27,168
              
              
              
              27,313TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
              
              $
              407,741
              
              
              $
              407,641
 See
notes to consolidated financial statements.
  3
 PROVIDENT
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF INCOME Three
Months Ended March 31, 2008 and 2007 (unaudited)
 Three
      Months EndedMarch
      31
                  
                  
                  March
      312008
                  
                  
                  2007(DOLLARS
      IN THOUSANDS EXCEPT PER SHARE)Interest
      Income:Loans
                  
                  $
                  4,622
                  
                  
                  $
                  4,776Deposits
      and federal funds sold
                  
                  
                  16
                  
                  
                  
                  27Mortgage-backed
      securities
                  
                  
                  676
                  
                  
                  
                  290Interest
      and dividends oninvestment
      securities
                  
                  
                  861
                  
                  
                  
                  1,326Total
      Interest Income
                  
                  
                  6,175
                  
                  
                  
                  6,419Interest
      Expense:Deposit
      accounts
                  
                  
                  2,462
                  
                  
                  
                  2,389Floating
      rate junior subordinated deferrable interest debentures
                  
                  
                  209
                  
                  
                  
                  223Advances
      from the FHLB and other borrowings
                  
                  
                  1,003
                  
                  
                  
                  1,073Total
      Interest Expense
                  
                  
                  3,674
                  
                  
                  
                  3,685Net
      Interest Income
                  
                  
                  2,501
                  
                  
                  
                  2,734Provision
      for loan losses
                  
                  
                  310
                  
                  
                  
                  160Net
      Interest Income AfterProvision
      for Loan Losses
                  
                  
                  2,191
                  
                  
                  
                  2,574Non-Interest
      Income:Fees
      for financial services
                  
                  
                  751
                  
                  
                  
                  701Other
      fees, net
                  
                  
                  22
                  
                  
                  
                  22Net
      gain on sale of investments
                  
                  
                  112
                  
                  
                  
                  --Total
      Non-Interest Income
                  
                  
                  885
                  
                  
                  
                  723Non-Interest
      Expense:Compensation
      and employee benefits
                  
                  
                  1,312
                  
                  
                  
                  1,182Occupancy
      and equipment
                  
                  
                  622
                  
                  
                  
                  583Deposit
      insurance premiums
                  
                  
                  7
                  
                  
                  
                  7Professional
      services
                  
                  
                  100
                  
                  
                  
                  111Advertising
      and public relations
                  
                  
                  61
                  
                  
                  
                  69Loan
      operations
                  
                  
                  35
                  
                  
                  
                  40Intangible
      amortization
                  
                  
                  104
                  
                  
                  
                  159Items
      processing
                  
                  
                  50
                  
                  
                  
                  56Telephone
                  
                  
                  49
                  
                  
                  
                  45Other
                  
                  
                  182
                  
                  
                  
                  187Total
      Non-Interest Expense
                  
                  
                  2,522
                  
                  
                  
                  2,439Income
      Before Income Taxes
                  
                  
                  554
                  
                  
                  
                  858Income
      tax expense
                  
                  
                  134
                  
                  
                  
                  209Net
      Income
                  
                  $
                  420
                  
                  
                  $
                  649Basic
      Net Income Per Common Share
                  
                  $
                  0.24
                  
                  
                  $
                  0.36Diluted
      Net Income Per Common Share
                  
                  $
                  0.23
                  
                  
                  $
                  0.35Dividend
      Per Common Share
                  
                  $
                  0.115
                  
                  
                  $
                  0.11Weighted
      Average Number ofCommon
      Shares OutstandingBasic
                  
                  
                  1,784,477
                  
                  
                  
                  1,827,373Diluted
                  
                  
                  1,804,346
                  
                  
                  
                  1,862,194
 See
notes to consolidated financial statements.
  4
 PROVIDENT
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS Three
Months Ended March 31, 2008 and 2007 (unaudited)
  Three
      Months EndedMarch
      31,
                
                
                March
      31,2008
                
                
                2007(IN
      THOUSANDS)OPERATING
      ACTIVITIES:Net
      income
                
                $
                420
                
                
                $
                649Adjustments
      to reconcile net income tonet
      cash provided by operating activities:Provision
      for loan losses
                
                
                310
                
                
                
                160Amortization
      of intangibles
                
                
                104
                
                
                
                159Depreciation
      expense
                
                
                172
                
                
                
                139Recognition
      of deferred income, net of costs
                
                
                (125
                )
                
                
                (118
                )Deferral
      of fee income, net of costs
                
                
                108
                
                
                
                197Stock
      compensation expense
                
                
                --
                
                
                
                11Gain
      on investment transactions
                
                
                (112
                )
                
                
                --Changes
      in operating assets and liabilities:Decrease
      in accrued interest receivable
                
                
                565
                
                
                
                169Increase
      in cash surrender value of life insurance
                
                
                (100
                )
                
                
                (67
                )Decrease
      in other assets
                
                
                439
                
                
                
                164Increase
      (decrease) in other liabilities
                
                
                (1,414
                )
                
                
                84Decrease
      in accrued interest payable
                
                
                (50
                )
                
                
                (99
                )Net
      cash provided by operating activities
                
                
                317
                
                
                
                1,448INVESTING
      ACTIVITIES:Purchase
      of investment and mortgage-backed securities:Available
      for sale
                
                
                (14,242
                )
                
                
                (21,800
                )Proceeds
      from sale of investment and mortgage-backed
      securities available for sale
                
                
                5,333
                
                
                
                --Proceeds
      from maturity of investment and mortgage-backed
      securities:Available
      for sale
                
                
                22,980
                
                
                
                22,109Held
      to maturity
                
                
                3
                
                
                
                6Principal
      repayments on mortgage-backed securities:Available
      for sale
                
                
                1,506
                
                
                
                848Purchase
      of bank owned life insurance
                
                
                --
                
                
                
                (3,200
                )Net
      increase in loans
                
                
                (18,299
                )
                
                
                (5,279
                )(Purchase)
      redemption of FHLB stock
                
                
                (13
                )
                
                
                517Purchase
      of office properties and equipment
                
                
                (126
                )
                
                
                --Net
      cash used by investing activities
                
                
                (2,858
                )
                
                
                (6,799
                )FINANCING
      ACTIVITIES:Proceeds
      from the dividend reinvestment plan
                
                
                30
                
                
                
                28Dividends
      paid in cash
                
                
                (206
                )
                
                
                (200
                )Proceeds
      from the exercise of stock options
                
                
                2
                
                
                
                11Split
      dollar post retirement liability recapitalization
                
                
                (60
                )
                
                
                --Share
      repurchase program
                
                
                (315
                )
                
                
                (99
                )Repayment
      of  term borrowings
                
                
                (500
                )
                
                
                (8,500
                )Increase
      (decrease)  in other borrowings
                
                
                (3,463
                )
                
                
                1,163Increase
      in deposit accounts
                
                
                5,672
                
                
                
                15,977Net
      cash provided by financing activities
                
                
                1,160
                
                
                
                8,380NET
      INCREASE (DECREASE) IN CASHAND
      CASH EQUIVALENTS
                
                
                (1,381
                )
                
                
                3,029CASH
      AND CASH EQUIVALENTSAT
      BEGINNING OF PERIOD
                
                
                11,890
                
                
                
                9,124CASH
      AND CASH EQUIVALENTSAT
      END OF PERIOD
                
                $
                10,509
                
                
                $
                12,153SUPPLEMENTAL
      DISCLOSURES:Cash
      paid for:Income
      taxes
                
                $
                273
                
                
                $
                9Interest
                
                
                3,724
                
                
                
                3,601Non-cash
      transactions:Loans
      foreclosed
                
                
                --
                
                
                
                --
 See
notes to consolidated financial statements.
  5
 PROVIDENT
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) Three
Months Ended March 31, 2008 and 2007 (unaudited)
  Retained
                
                
                AccumulatedAdditional
                
                
                Earnings,
                
                
                Other
                
                
                
                
                
                TotalCommon
      Stock
                
                
                Paid-in
                
                
                Substantially
                
                
                Comprehensive
                
                
                Treasury
      Stock
                
                
                Shareholders'Shares
                
                
                Amount
                
                
                Capital
                
                
                Restricted
                
                
                Income (loss)
                
                
                at Cost
                
                
                Equity(Dollars
      in Thousands, Except Share Data)BALANCE
      AT DECEMBER 31, 2006
                
                $
                1,830,528
                
                
                $
                20
                
                
                $
                12,506
                
                
                $
                18,912
                
                
                $
                (610
                )
                
                $
                (4,861
                )
                
                $
                25,967Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                649
                
                
                
                
                
                
                
                
                
                
                
                649Other
      comprehensive income, net of tax onunrealized
      holding gains on securities available for salearising
      during period
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                187
                
                
                
                
                
                
                
                187Less
      reclassification adjustment for gains included
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                --
                
                
                
                
                
                
                
                --in
      net incomeComprehensive
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                836Stock
      option activity, net
                
                
                --
                
                
                
                
                
                
                
                11
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                11Dividend  reinvestment
      plan contributions
                
                
                1,377
                
                
                
                
                
                
                
                28
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                28Share
      repurchase program
                
                
                (5,061
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (99
                )
                
                
                (99
                )Cash
      dividend ($.11 per share)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (200
                )
                
                
                
                
                
                
                
                
                
                
                (200
                )BALANCE
      AT MARCH 31, 2007
                
                $
                1,826,844
                
                
                $
                20
                
                
                $
                12,545
                
                
                $
                19,361
                
                
                $
                (423
                )
                
                $
                (4,960
                )
                
                $
                26,543BALANCE
      AT DECEMBER 31, 2007
                
                $
                1,794,866
                
                
                $
                20
                
                
                $
                12,781
                
                
                $
                20,276
                
                
                $
                191
                
                
                $
                (5,955
                )
                
                $
                27,313Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                420
                
                
                
                
                
                
                
                
                
                
                
                420Other
      comprehensive loss, net of tax onunrealized
      holding losses on securities available for salearising
      during period
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (101
                )
                
                
                
                
                
                
                (101
                )Less
      reclassification adjustment for gains included
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                85
                
                
                
                
                
                
                
                85in
      net incomeComprehensive
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                404Stock
      option activity, net
                
                
                1,424
                
                
                
                
                
                
                
                2
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2Dividend  reinvestment
      plan contributions
                
                
                1,672
                
                
                
                
                
                
                
                30
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                30Cumulative
      effect of change in accounting principal
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (60
                )
                
                
                
                
                
                
                
                
                
                
                (60
                )Share
      repurchase program
                
                
                (16,871
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (315
                )
                
                
                (315
                )Cash
      dividend ($.115 per share)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (206
                )
                
                
                
                
                
                
                
                
                
                
                (206
                )BALANCE
      AT MARCH 31, 2008
                
                $
                1,781,091
                
                
                $
                20
                
                
                $
                12,813
                
                
                $
                20,430
                
                
                $
                175
                
                
                $
                (6,270
                )
                
                $
                27,168
  6
 PROVIDENT
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 1.           Presentation of Consolidated
Financial Statements
 
 The
accompanying unaudited consolidated financial statements of Provident Community
Bancshares, Inc. (the “Corporation”) were prepared in accordance with
instructions for Form 10-Q and, therefore, do not include all disclosures
necessary for a complete presentation of consolidated financial condition,
results of operations, and cash flows in conformity with accounting principles
generally accepted in the United States of America. However, all adjustments
which are, in the opinion of management, necessary for the fair presentation of
the interim consolidated financial statements have been included. All such
adjustments are of a normal and recurring nature. The results of operations for
the three months ended March 31, 2008 are not necessarily indicative of the
results which may be expected for the entire calendar year. Certain amounts in
the prior year’s financial statements have been reclassified to conform to
current year classifications.
 
 Recently
Issued Accounting Standards
 
 The following
is a summary of recent authoritative pronouncements that may affect accounting,
reporting, and disclosure of financial information by the
Corporation:
 
 In December
2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (“SFAS 141(R)”)
which replaces SFAS 141. SFAS 141(R) establishes principles and requirements for
how an acquirer in a business combination recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any controlling interest; recognizes and measures goodwill acquired in the
business combination or a gain from a bargain purchase; and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. FAS 141(R) is
effective for acquisitions by the Corporation taking place on or after January
1, 2009. Early adoption is prohibited. Accordingly, a calendar year-end company
is required to record and disclose business combinations following existing
accounting guidance until January 1, 2009. The Corporation will assess the
impact of SFAS 141(R) if and when a future acquisition occurs.
 
 In December
2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements – an amendment of ARB No. 51” (“SFAS 160”). SFAS 160
establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. Before
this statement, limited guidance existed for reporting noncontrolling interests
(minority interest). As a result, diversity in practice exists. In some cases
minority interest is reported as a liability and in others it is reported in the
mezzanine section between liabilities and equity. Specifically, SFAS 160
requires the recognition of a noncontrolling interest (minority interest) as
equity in the consolidated financials statements and separate from the parent’s
equity. The amount of net income attributable to the noncontrolling interest
will be included in consolidated net income on the face of the income statement.
SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary
that do not result in deconsolidation are equity transactions if the parent
retains its controlling financial interest. In addition, this statement requires
that a parent recognize gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of the
noncontrolling equity investment on the deconsolidation date. SFAS 160 also
includes expanded disclosure requirements regarding the interests of the parent
and its noncontrolling interests. SFAS 160 is effective for the Corporation on
January 1, 2009.   Earlier adoption is prohibited. The
Corporation is currently evaluating the impact, if any, the adoption of SFAS 160
will have on its financial position, results of operations and cash
flows.
 
 7
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS 161”).  SFAS 161 requires enhanced
disclosures about an entity’s derivative and hedging activities and thereby
improving the transparency of financial reporting.  It is intended to
enhance the current disclosure framework in SFAS 133 by requiring that
objectives for using derivative instruments be disclosed in terms of underlying
risk and accounting designation. This disclosure better conveys the purpose of
derivative use in terms of the risks that the entity is intending to manage.
SFAS 161 is effective for the Corporation on January 1, 2009. This pronouncement
does not impact accounting measurements but will result in additional
disclosures if the Corporation is involved in material derivative and hedging
activities at that time.
 
 In February
2008, the FASB issued FASB Staff Position No. 140-3, “Accounting for Transfers
of Financial Assets and Repurchase Financing Transactions” (“FSP 140-3”). 
This FSP provides guidance on accounting for a transfer of a financial asset and
the transferor’s repurchase financing of the asset.  This FSP presumes that
an initial transfer of a financial asset and a repurchase financing are
considered part of the same arrangement (linked transaction) under SFAS No. 140.
However, if certain criteria are met, the initial transfer and repurchase
financing are not evaluated as a linked transaction and are evaluated separately
under Statement 140.  FSP 140-3 will be effective for financial statements
issued for fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years and earlier application is not permitted. Accordingly,
this FSP is effective for the Corporation on January 1, 2009.  The
Corporation is currently evaluating the impact, if any, the adoption of FSP
140-3 will have on its financial position, results of operations and cash
flows.
 
 In April
2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the
Useful Life of Intangible Assets” (“FSP 142-3”).  This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, “Goodwill and Other Intangible Assets”.  The intent of this
FSP is to improve the consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of expected cash flows used
to measure the fair value of the asset under SFAS No. 141(R), “Business
Combinations,”and
other U.S. generally accepted accounting principles.  This FSP is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years and early
adoption is prohibited.  Accordingly, this FSP is effective for the
Corporation on January 1, 2009.  The Corporation does not believe the
adoption of FSP 142-3 will have a material impact on its financial position,
results of operations or cash flows.
 
 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
Corporation’s financial position, results of operations or cash
flows.
 
 2.        
Income Per
Share
 
 Basic income
per share amounts for the three months ended March 31, 2008 and 2007 were
computed based on the weighted average number of common shares outstanding
during the period. Diluted income per share adjusts for the dilutive effect of
outstanding common stock options during the periods utilizing the treasury stock
method. Common stock equivalents included in the diluted earnings per share
calculation for the three months ended March 31, 2008 and 2007 were 19,869 and
34,821, respectively.
 
 3.         
Assets
Pledged
 
 Approximately
$73,187,000 and $74,410,000 of marketable debt securities at March 31, 2008 and
December 31, 2007, respectively, were pledged by Provident Community Bank, N.A.
(the “Bank”) as collateral to secure deposits of the State of South Carolina,
and Union, Laurens and York
  8
 counties
along with additional borrowings and repurchase agreements. The Bank pledges as
collateral for Federal Home Loan Bank advances commercial and residential real
estate mortgage loans under a collateral agreement with the Federal Home Loan
Bank whereby the Bank maintains, free of other encumbrances, qualifying
mortgages (as defined) with unpaid principal balances equal to, when discounted
at 75% of the unpaid principal balances, 100% of total advances. As part of the
total assets pledged, the Bank will also pledge securities to cover additional
advances from the Federal Home Loan Bank that exceed the qualifying mortgages
balance along with security repurchase lines with various brokerage
houses.
 
 4.          
Contingencies and Loan
Commitments
 
 In the
ordinary course of business, the Bank enters into financial instruments with
off-balance-sheet risk to meet the financing needs of its customers. These
instruments expose the Bank to credit risk in excess of the amount recognized on
the balance sheet.
 
 The Bank’s
exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit is represented by the
contractual amount of those instruments. The Bank uses the same credit policies
in making commitments and conditional obligations as it does for
on-balance-sheet instruments. Total credit exposure at March 31, 2008 related to
these items is summarized below:
 
 Loan
      Commitments:
              
              Contract
      AmountApproved
      loan commitments
              
              $
              2,377,380Unadvanced
      portions of loans and credit lines
              
              
              58,795,000Total
      loan commitments
              
              $
              61,172,380
  Loan
commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Loan
commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customer’s
creditworthiness on a case-by-case basis. The amount of collateral obtained upon
extension of credit is based on management’s credit evaluation of the counter
party. Collateral held is primarily residential and commercial property.
Commitments outstanding at March 31, 2008 consisted of fixed and adjustable rate
loans at rates ranging from 6.5% to 8.5%. Commitments to originate loans
generally expire within 30 to 60 days.
 
 Commitments
to fund loans, including credit lines (principally variable rate, consumer lines
secured by real estate and overdraft protection) totaled approximately
$146,555,000 at March 31, 2008. Of these lines, the outstanding loan balances
totaled approximately $87,760,000.
 
 5.          
Fixed/Floating Rate
Junior Subordinated Deferrable Interest Debentures
 
 On July 18,
2006, the Corporation sponsored the creation of Provident Community Bancshares
Capital Trust I (“Capital Trust I”). The Corporation is the owner of all of the
common securities of Capital Trust I. On July 21, 2006, Capital Trust I issued
$4,000,000 in the form of fixed/floating rate capital securities through a
pooled trust preferred securities offering. The proceeds from this issuance,
along with the Corporation’s $124,000 capital contribution for Capital Trust I’s
common securities, were used to acquire $4,124,000 aggregate principal amount of
the Corporation’s floating rate junior subordinated deferrable interest
debentures due October 1, 2036, which constitute the sole asset of Capital Trust
I. The interest rate on the debentures and the capital securities will be equal
to 7.393% for the first five years. Thereafter, the interest rate is variable
and
  9
 adjustable
quarterly at 1.74% over the three-month LIBOR. The debentures are subject to
redemption at par at the option of the Corporation, subject to prior regulatory
approval, in whole or in part on any interest payment date after October 1,
2011. The debentures are also subject to redemption prior to October 1, 2011 at
up to 103.7% of par after the occurrence of certain events.
 
 On November
28, 2006, the Corporation sponsored the creation of Provident Community
Bancshares Capital Trust (“Capital Trust II”). The Corporation is the owner of
all of the common securities of the Trust. On December 15, 2006, the Trust
issued $8,000,000 in the form of floating rate capital securities through a
pooled trust preferred securities offering. The proceeds of Capital Trust II
were utilized for the redemption of Union Financial Bancshares Statutory Trust
issued on December 18, 2001. The proceeds from this issuance, along with the
Corporation’s $248,000 capital contribution for the Trust’s common securities,
were used to acquire $8,247,000 aggregate principal amount of the Corporation’s
floating rate junior subordinated deferrable interest debentures due March 1,
2037, which constitute the sole asset of the Capital Trust II. The interest rate
on the debentures and the capital securities is variable and adjustable
quarterly at 1.74% over the three-month LIBOR. The debentures are subject to
redemption at par at the option of the Corporation, subject to prior regulatory
approval, in whole or in part on any interest payment date after March 1, 2012.
The debentures are also subject to redemption prior to March 1, 2012 at 103.5%
of par after the occurrence of certain events.
 
 A summary of
the Subordinated Deferrable Interest Debentures issued and outstanding
follows:
  Amount Outstanding at
                March 31,Name
              
              2008
              
              2007
              
              Rate
              
              Prepayment
                Option
      Date
              
              Maturity
              
              Distribution
                Payment
                FrequencyProvident
      Community Bancshares Capital Trust I
              
              4,000,000
              
              4,000,000
              
              7.39%
              
              October
      1, 2011
              
              October
      1, 2036
              
              QuarterlyProvident
      Community Bancshares Capital Trust II
              
              8,000,000
              
              8,000,000
              
              4.82%
              
              March
      1, 2012
              
              March
      1, 2037
              
              QuarterlyTotal
              
              $12,000,000
              
              $12,000,000
  6.          
Fair Value
Measurements
 
 Effective
January 1, 2008, the Corporation adopted SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”) which provides a framework for measuring and disclosing fair value
under generally accepted accounting principles. SFAS 157 requires disclosures
about the fair value of assets and liabilities recognized in the balance sheet
in periods subsequent to initial recognition, whether the measurements are made
on a recurring basis (for example, available-for-sale investment securities) or
on a nonrecurring basis (for example, impaired loans).
 
 SFAS 157
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. SFAS 157 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:
 
 10
 Level
      1
            Quoted
      prices in active markets for identical assets or liabilities. Level 1
      assets and liabilities include debt and equity securities and derivative
      contracts that are traded in an active exchange market, as well as U.S.
      Treasury, other U.S. Government and agency mortgage-backed debt securities
      that are highly liquid and are actively traded in over-the-counter
      markets.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 2
      assets and liabilities include debt securities with quoted prices that are
      traded less frequently than exchange-traded instruments and derivative
      contracts whose value is determined using a pricing model with inputs that
      are observable in the market or can be derived principally from or
      corroborated by observable market data. This category generally includes
      certain derivative contracts and impaired loans.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. For example,
      this category generally includes certain private equity investments,
      retained residual interests in securitizations, residential mortgage
      servicing rights, and highly-structured or long-term derivative
      contracts.
 
 Available-for-sale
investment securities ($92,580,000 at March 31, 2008) are the only assets whose
fair values are measured on a recurring basis using Level 1 inputs (active
market quotes). The Corporation has no liabilities carried at fair value or
measured at fair value on a nonrecurring basis.
 
 The
Corporation is predominantly an asset based lender with real estate serving as
collateral on a substantial majority of loans. Loans which are deemed to be
impaired are primarily valued at the fair values of the underlying real estate
collateral. Such fair values are obtained using independent appraisals, which
the Corporation considers to be level 2 inputs. The aggregate carrying amount of
impaired loans at March 31, 2008 was $1,925,000.
 
 Goodwill and
other intangible assets measured at fair value on a nonrecurring basis relate to
intangible assets (deposit premium intangible) that were acquired in connection
with acquisitions and were valued at their fair market values at the time of
acquisition using level 3 inputs.  FASB Staff Position No. FAS 157-2
delays the measurement of Goodwill and other intangible assets measured at fair
value on a nonrecurring basis until the first quarter of 2009.
  11
 Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
 
 Critical Accounting
Policies
 
 The
Corporation has adopted various accounting policies which govern the application
of accounting principles generally accepted in the United States of America in
the preparation of financial statements.
 Certain
accounting policies involve significant judgments and assumptions by management
which, if incorrect, could have a material impact on the carrying value of
certain assets and liabilities. Management considers such accounting policies to
be critical accounting policies. The judgments and assumptions used by
management are based on historical experience and other factors, which are
believed to be reasonable under the circumstances. Because of the nature of the
judgments and assumptions made by management, actual results could differ from
these judgments and estimates which could have a material impact on the carrying
values of assets and liabilities and the results of operations of the
Corporation.
 The
Corporation believes the allowance for loan losses is a critical accounting
policy that requires significant judgments and estimates used in the preparation
of consolidated financial statements. Management reviews the level of the
allowance on a monthly basis and establishes the provision for loan losses based
on the composition and volume of the loan portfolio, overall portfolio quality,
delinquency levels, a review of specific problem loans, loss experience,
economic conditions, and other factors related to the collectibility of the loan
portfolio.  A portion of the allowance is established by segregating
the loans by residential mortgage, commercial and consumer and assigning
allocation percentages based on historical loss experience and delinquency
trends. The applied allocation percentages are reevaluated at least annually to
ensure their relevance in the current economic
environment.  Accordingly, increases in the size of the loan portfolio
and the increased emphasis on commercial real estate and commercial business
loans, which carry a higher degree of risk of default and, thus, a higher
allocation percentage, increases the allowance.  Additionally, a
portion of the allowance is established based on the level of classified
assets.
 
 Although the
Corporation believes that it uses the best information available to establish
the allowance for loan losses, future additions to the allowance may be
necessary based on estimates that are susceptible to change as a result of
changes in economic conditions and other factors.  In addition, the
Office of the Comptroller of the Currency, as an integral part of its
examination process, will periodically review the Corporation’s allowance for
loan losses.  Such agency may require the Corporation to recognize
adjustments to the allowance based on its judgments about information available
to it at the time of its examination.
 
 Forward Looking
Statements
 
 Management’s
discussion and analysis of financial condition and results of operations and
other portions of this Form 10-Q may contain certain “forward-looking
statements” concerning the future operations of the Corporation and the Bank.
These forward-looking statements are generally identified by the use of the
words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or
similar expressions. Management intends to take advantage of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this statement for the express purpose of availing the Corporation of
the protections of such safe harbor with respect to all forward-looking
statements contained in this report. Management’s ability to predict results or
the effect of future plans or strategies is inherently uncertain. Factors which
could effect actual results
  12
 include
interest rate trends, the general economic climate in the Corporation’s and the
Bank’s market area and the country as a whole, the ability of the Corporation
and the Bank to control costs and expenses, competitive products and pricing,
loan delinquency rates, the quality and composition of the loan and investment
portfolios, changes in accounting principles and guidelines and changes in
federal and state regulation. The Corporation provides greater detail regarding
some of these factors in its Form 10-K for the year ended December 31, 2007,
including in the Risk Factors section of that report, and in its other SEC
reports. These factors should be considered in evaluating the forward-looking
statements, and undue reliance should not be placed on such
statements.
 
 Except as
required by applicable law or regulation, the Corporation does not undertake,
and specifically disclaims any obligation, to release publicly the result of any
revisions that may be made to any forward looking statements to reflect events
or circumstances after the date of these statements or to reflect the occurrence
of anticipated or unanticipated events.
 
 Financial
Condition
 
 Assets
 Total assets
of the Corporation increased $100,000, or 0.02%, to $407,741,000 at March 31,
2008 from $407,641,000 at December 31, 2007. Investments and mortgage-backed
securities decreased approximately $15,484,000, or 13.93%, from December 31,
2007 to March 31, 2008, as proceeds from the maturity and sale of investment
securities were utilized to fund growth in higher-yielding loans. Net loans
increased approximately $18,006,000, or 7.02%, from December 31, 2007 to March
31, 2008, due primarily to growth in commercial real estate loans partially
offset by reductions in residential mortgage loans.
 
 Investment and
Mortgage-backed Securities
 Held to
Maturity-Securities classified as held to maturity consisted of the
following (in thousands):
 March
      31, 2008
                
                December
      31, 2007Amortized
                  Cost
                
                Fair
                  Value
                
                Amortized
                  Cost
                
                Fair
                  ValueMunicipal
      Securities
                $3,123
                
                $3,167
                
                $3,126
                
                $3,135
 
 13
 Available for
Sale-Securities classified as available for sale consisted of the
following (in thousands):
 
 March31,
      2008
                
                
                December 31, 2007Amortized
                
                
                Fair
                
                
                Amortized
                
                
                FairCost
                
                
                Value
                
                
                Cost
                
                
                ValueInvestment
      Securities:U.S.
      Agency Obligations
                
                $
                507
                
                
                $
                509
                
                
                $
                507
                
                
                $
                488Government
      Sponsored Enterprises
                
                
                17,999
                
                
                
                18,404
                
                
                
                40,457
                
                
                
                40,665Municipal
      Securities
                
                
                8,779
                
                
                
                9,174
                
                
                
                9,296
                
                
                
                9,601Other
                
                
                12,435
                
                
                
                11,385
                
                
                
                12,458
                
                
                
                12,093Total
      Investment Securities
                
                
                39,720
                
                
                
                39,472
                
                
                
                62,718
                
                
                
                62,847Mortgage-backed
      Securities:Fannie
      Mae
                
                
                40,876
                
                
                
                41,188
                
                
                
                27,511
                
                
                
                27,479Ginnie
      Mae
                
                
                1,182
                
                
                
                1,200
                
                
                
                1,187
                
                
                
                1,200Freddie
      Mac
                
                
                9,539
                
                
                
                9,736
                
                
                
                12,860
                
                
                
                13,080Collateralized
      Mortgage Obligations
                
                
                993
                
                
                
                984
                
                
                
                3,492
                
                
                
                3,455Total
      Mortgage-backed Securities
                
                
                52,590
                
                
                
                53,108
                
                
                
                45,050
                
                
                
                45,214Total
      Available for Sale
                
                $
                92,310
                
                
                $
                92,580
                
                
                $
                107,768
                
                
                $
                108,061
 14
 Loans
 
 Loans
increased to $274,493,000 at March 31, 2008 compared to $256,487,000 at December
31, 2007. The Corporation continues to focus on growth of the consumer and
commercial lending portfolios with specialized loan officers and
products.
 
 Loans
receivable consisted of the following (in thousands):
 March
      31,
                  2008
                
                
                December
      31,
                  2007Mortgage
      loans:Fixed
      rate residential
                
                $
                15,266
                
                
                $
                16,214Adjustable-rate
      residential
                
                
                8,599
                
                
                
                8,775Commercial
      real estate
                
                
                95,873
                
                
                
                76,864Construction
                
                
                3,683
                
                
                
                4,764Total
      mortgage loans
                
                
                123,421
                
                
                
                106,617Commercial
      loans:Commercial
      non-real estate
                
                
                30,717
                
                
                
                32,091Commercial
      lines of credit
                
                
                71,665
                
                
                
                72,170Total
      commercial loans
                
                
                102,382
                
                
                
                104,261Consumer
      loans:Home
      equity
                
                
                15,760
                
                
                
                15,185Consumer
      and installment
                
                
                38,324
                
                
                
                36,315Consumer
      lines of credit
                
                
                335
                
                
                
                346Total
      consumer loans
                
                
                54,419
                
                
                
                51,846Total
      loans
                
                
                280,222
                
                
                
                262,724Less:Undisbursed
      portion of interimconstruction
      loans
                
                
                (1,808
                )
                
                
                (2,379
                )Unamortized
      loan discount
                
                
                (446
                )
                
                
                (476
                )Allowance
      for loan losses
                
                
                (3,464
                )
                
                
                (3,344
                )Net
      deferred loan origination costs
                
                
                (11
                )
                
                
                (38
                )Total,
      net
                
                $
                274,493
                
                
                $
                256,487Weighted-average
      interest rate of loans
                
                
                6.68
                %
                
                
                7.56
                %
  Other assets
decreased $439,000, or 12.74%, to $3,007,000 at March 31, 2008 from $3,446,000
at December 31, 2007, due to the reduction of other real estate
owned.
 Liabilities
 Total
liabilities increased $245,000 to $380,573,000 at March 31, 2008 from
$380,328,000 at December 31, 2007. Deposits increased $5,672,000, or 2.1%, to
$276,071,000 at March 31, 2008 from $270,399,000 at December 31, 2007. The
overall growth includes a $512,000 increase in non-interest bearing accounts
while interest bearing accounts increased $5,160,000. Although the Corporation
continues to target lower-cost
  15
 demand
deposit accounts through media advertising and special product promotions, time
deposits continues to do well in the newer, higher growth markets.
 Deposit
accounts were as follows (in thousands):
 
 March
      31, 2008
              
              December
      31, 2007Rate
              
              
              Balance
              
              
              %
              
              
              Rate
              
              
              Balance
              
              
              %Account TypeNOW
      accounts:Commercial
      non-interest-bearing
              
              
              --
              
              
              $
              17,080
              
              
              
              6.19
              %
              
              
              --
              
              
              $
              16,568
              
              
              
              6.13
              %Non-commercial
              
              
              2.35
              %
              
              
              57,488
              
              
              
              20.82
              %
              
              
              2.14
              %
              
              
              56,282
              
              
              
              20.81
              %Money
      market checking accounts
              
              
              3.07
              %
              
              
              22,288
              
              
              
              8.07
              %
              
              
              4.44
              %
              
              
              23,160
              
              
              
              8.57
              %Regular
      savings
              
              
              0.68
              %
              
              
              12,991
              
              
              
              4.71
              %
              
              
              0.79
              %
              
              
              12,794
              
              
              
              4.73
              %Total
      demand and savings deposits
              
              
              1.96
              %
              
              
              109,847
              
              
              
              39.79
              %
              
              
              2.47
              %
              
              
              108,804
              
              
              
              40.24
              %Time
      deposits:Up to
      3.00%
              
              
              
              
              
              
              8,337
              
              
              
              3.02
              %
              
              
              
              
              
              
              5,768
              
              
              
              2.13
              %3.01 %-
      4.00%
              
              
              
              
              
              
              41,488
              
              
              
              15.03
              %
              
              
              
              
              
              
              26,265
              
              
              
              9.71
              %4.01 %-
      5.00%
              
              
              
              
              
              
              51,675
              
              
              
              18.72
              %
              
              
              
              
              
              
              34,988
              
              
              
              12.94
              %5.01 %-
      6.00%
              
              
              
              
              
              
              64,697
              
              
              
              23.43
              %
              
              
              
              
              
              
              94,548
              
              
              
              34.97
              %6.01 %-
      7.00%
              
              
              
              
              
              
              27
              
              
              
              0.01
              %
              
              
              
              
              
              
              26
              
              
              
              0.01
              %Total
      time deposits
              
              
              4.48
              %
              
              
              166,224
              
              
              
              60.21
              %
              
              
              4.67
              %
              
              
              161,595
              
              
              
              59.76
              %Total
      deposit accounts
              
              
              3.47
              %
              
              $
              276,071
              
              
              
              100.00
              %
              
              
              3.78
              %
              
              $
              270,399
              
              
              
              100.00
              %
  At March 31,
2008 and December 31, 2007, the Bank had $69,000,000 and $69,500,000,
respectively, of advances outstanding from the FHLB. The maturity of the
advances from the FHLB is as follows (in thousands):
 
 March31, 2008
                  
                  
                  
                  
                  
                  December 31,2007Wtd Avg Rate
                  
                  
                  
                  
                  
                  Wtd Avg RateContractual
      Maturity:Within
      one year - fixed rate
                  
                  $
                  --
                  
                  
                  
                  --
                  %
                  
                  $
                  --
                  
                  
                  
                  --
                  %Within
      one year - adjustable rate
                  
                  
                  4,500
                  
                  
                  
                  3.00
                  %
                  
                  
                  5,000
                  
                  
                  
                  4.88
                  %After
      one but within three years - fixed rate
                  
                  
                  5,000
                  
                  
                  
                  4.93
                  %
                  
                  
                  5,000
                  
                  
                  
                  4.93
                  %After
      one but within three years - adjustable rate
                  
                  
                  --
                  
                  
                  
                  --
                  %
                  
                  
                  7,500
                  
                  
                  
                  5.30
                  %After
      three but within five years - adjustable rate
                  
                  
                  22,000
                  
                  
                  
                  4.58
                  %
                  
                  
                  28,000
                  
                  
                  
                  4.61
                  %Greater
      than five years - adjustable rate
                  
                  
                  37,500
                  
                  
                  
                  3.89
                  %
                  
                  
                  24,000
                  
                  
                  
                  4.10
                  %Total
      advances
                  
                  $
                  69,000
                  
                  
                  
                  4.13
                  %
                  
                  $
                  69,500
                  
                  
                  
                  4.55
                  %
  The Bank
pledges as collateral for the advances its investment securities and has entered
into a blanket collateral agreement with the FHLB whereby the Bank maintains,
free of other encumbrances, qualifying loans with unpaid principal balances
equal to, when discounted at 50% to 75% of the unpaid principal balances, 100%
of total advances. Borrowings from the Federal Home Loan Bank (the “FHLB”)
decreased $500,000, or 0.72%, to $69,000,000 at March 31, 2008 from $69,500,000
at December 31, 2007 primarily to deposit growth. Securities sold under
agreement to repurchase decreased $3,463,000 to $20,668,000 at March 31, 2008
from $24,131,000 at December 31, 2007. The decreases were due to excess funds
from deposit growth and the sale and maturation of securities being used to pay
down these arrangements.
  16
 Shareholders’
Equity
 
 Shareholders’
equity decreased $145,000, or 0.53%, to $27,168,000 at March 31, 2008 from
$27,313,000  at December 31, 2007 due primarily to the repurchase of 16,871
shares at a cost of $315,000 and dividend payments of $0.115 per share at a cost
of $206,000, offset by net income of $420,000.
 
 Liquidity
 
 Liquidity is
the ability to meet demand for loan disbursements, deposit withdrawals,
repayment of debt, payment of interest on deposits and other operating expenses.
The primary sources of liquidity are deposits, loan repayments, borrowings,
maturity and sale of securities and interest payments.
 
 While
maturities and scheduled amortization of loans and securities are predictable
sources of funds, deposit outflows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition. The
primary investing activities of the Corporation are the origination of
commercial and consumer loans, and the purchase of investment and
mortgage-backed securities. These activities are funded primarily by principal
and interest payments on loans and investment securities, deposit growth,
securities sold under agreements to repurchase and FHLB advances.
 
 At March 31,
2008, the Corporation’s investment in marketable securities totaled $95,703,000,
nearly  all of which is available for sale. Approximately $73,187,000 and
$74,410,000 of debt securities at March 31, 2008 and December 31, 2007,
respectively, were pledged by the Bank as collateral to secure deposits of the
State of South Carolina, and Union, Laurens and York counties along with
additional borrowings and repurchase agreements.
 
 Outstanding
loan commitments (including commitments to fund credit lines) totaled
$146,555,000 at March 31, 2008. Management of the Corporation anticipates that
it will have sufficient funds available to meet its current loan
commitments.
 
 The
Corporation closely monitors its liquidity position on a daily basis. Time
deposits that are scheduled to mature in one year or less from March 31, 2008,
totaled $150,264,000. The Corporation relies primarily on competitive rates,
customer service, and long-standing relationships with customers to retain
deposits. From time to time, the Corporation will also offer special products to
its customers to increase retention and to attract new deposits. Based upon the
Corporation’s experience with deposit retention and current retention
strategies, management believes that, although it is not possible to predict
future terms and conditions upon renewal, a significant portion of such deposits
will remain with the Corporation. If the Corporation requires funds beyond its
ability to generate them internally, additional sources of funds are available
through FHLB advances, securities sold under agreements to repurchase and lines
of credit. At March 31, 2008, the Corporation had outstanding $69,000,000 of
FHLB borrowings and $20,668,000 of securities sold under agreements to
repurchase. At March 31, 2008, the Corporation had unused short-term lines
of credit to purchase federal funds from unrelated banks totaling $20,000,000
and the ability to borrow an additional $45,000,000 from the FHLB and secured
borrowing lines. Lines of credit are available on a one-to-ten day basis for
general purposes of the Corporation.  All of the lenders have reserved
the right to withdraw these lines at their option.
 17
 Capital
Management
  The Bank and
the Corporation are subject to various regulatory capital requirements
administered by banking regulators. Failure to meet minimum capital requirements
can initiate certain mandatory - and possibly additional discretionary - actions
by regulators that, if undertaken, could have a direct material effect on the
Corporation’s consolidated financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank’s capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weights and other factors.
 Quantitative
measures established by regulations to ensure capital adequacy require the Bank
and the Corporation to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets
(as defined in the regulations). Management believes, as of March 31, 2008, that
the Bank and the Corporation met the capital adequacy requirements to which they
are subject.
 As of March
31, 2008, the Bank was "well capitalized" under the regulatory framework for
prompt corrective action based on its capital ratio calculations. In order to be
"well capitalized", the Bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the following
table.
 Under present
regulations of the Office of the Comptroller of the Currency, the Bank must have
core capital (leverage requirement) equal to 4.0% of assets, of which 1.5% must
be tangible capital, excluding intangible assets. The Bank must also maintain
risk-based regulatory capital as a percent of risk weighted assets at least
equal to 8.0%.  In measuring compliance with capital standards,
certain adjustments must be made to capital and total assets.
 The following
tables present the total risk-based, Tier 1 risk-based and Tier 1 leverage
requirements for the Corporation and the Bank (dollars in
thousands).
 March 31, 2008Actual
            
            
            Regulatory Minimum
            
            
            “Well Capitalized”Amount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio$
            
            
            
            %
            
            
            $
            
            
            
            %
            
            
            $
            
            
            
            %Leverage
      ratioCorporation
            
            
            32,802
            
            
            
            8.02
            %
            
            
            16,354
            
            
            
            4.00
            %
            
            
            n/a
            
            
            
            n/aBank
            
            
            35,528
            
            
            
            8.69
            %
            
            
            16,351
            
            
            
            4.00
            %
            
            
            20,439
            
            
            
            5.00
            %Tier 1
      capital ratioCorporation
            
            
            32,802
            
            
            
            10.54
            %
            
            
            12,445
            
            
            
            4.00
            %
            
            
            n/a
            
            
            
            n/aBank
            
            
            35,528
            
            
            
            11.43
            %
            
            
            12,430
            
            
            
            4.00
            %
            
            
            18,645
            
            
            
            6.00
            %Total
      risk-based capital ratioCorporation
            
            
            39,300
            
            
            
            12.63
            %
            
            
            24,890
            
            
            
            8.00
            %
            
            
            n/a
            
            
            
            n/aBank
            
            
            38,992
            
            
            
            12.55
            %
            
            
            24,860
            
            
            
            8.00
            %
            
            
            31,075
            
            
            
            10.00
            %
 During fiscal
2003, the Corporation implemented a share repurchase program under which the
Board of Directors of the Corporation authorized the repurchase of up to 5% of
the outstanding shares or 98,000 shares. The program
  18
 was expanded
by an additional 5%, or 98,000 shares, in fiscal 2004, by an additional 5%, or
95,000 shares in fiscal 2005 and by an additional 5%, or 92,000 shares in fiscal
2006. The shares are to be repurchased, either through open market purchases or
privately negotiated transactions, depending on market conditions and other
factors. Repurchased shares will be held in treasury and will be available for
the Corporation’s benefit plans. During the three months ended March 31, 2008,
the Corporation repurchased 16,871 shares. As of March 31, 2008, the Corporation
had repurchased a total of 346,131 shares and had 38,869 shares available for
repurchase under these authorizations.
 Off-Balance Sheet
Risk
 In the normal
course of operations, the Corporation engages in a variety of financial
transactions that, in accordance with generally accepted accounting principles,
are not recorded in its financial statements. These transactions involve, to
varying degrees, elements of credit, interest rate and liquidity risk. Such
transactions are used primarily to manage customer’s requests for funding and
take the form of  legally binding agreements to lend money to
customers at predetermined interest rates for a specified period of time.
Outstanding loan commitments (including commitments to fund credit lines)
totaled $146,555,000 at March 31, 2008. Each customer's credit worthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Corporation upon extension of credit, is based on the credit
evaluation of the borrower. Collateral varies but may include accounts
receivable, inventory, property, plant and equipment, commercial and residential
real estate. The credit risk on these commitments is managed by subjecting each
customer to normal underwriting and risk management processes. For the
period ended March 31, 2008, the Corporation did not engage in any off-balance
sheet transactions reasonably likely to have a material effect on its financial
condition, results of operation and cash flows.
 Results of operations for
the three months endedMarch31, 2008and 2007
 
 General
 Net income
decreased $229,000, or 35.29%, to $420,000 for the three months ended March 31,
2008 as compared to $649,000 for the same period in 2007 as decreases in net
interest income along with an increase in the provision for loan losses
were partially offset by an increase in non-interest income. The decrease in net
income for the period was due primarily to a compression of the net interest
margin caused by declining interest rates along with an increase in the
provision for loan losses due to loan growth and the increase in nonperforming
loans.
  19
 Average Yields and
Rates
 (dollars
in thousands)
   Three
      Months Ended March31,2008
                
                
                
                
                
                
                
                
                2007Average
                    Balance
                
                
                Interest
                
                
                Average
                    Yield/Cost
                
                
                Average
                    Balance
                
                
                Interest
                
                
                Average
                    Yield/CostInterest-earning
      assets:Loans
      (1)
                
                $
                264,990
                
                
                $
                4,622
                
                
                
                6.98
                %
                
                $
                235,666
                
                
                $
                4,776
                
                
                
                8.11
                %Mortgage-backed
      securities
                
                
                50,735
                
                
                
                676
                
                
                
                5.33
                %
                
                
                24,636
                
                
                
                290
                
                
                
                4.70
                %Investment
      securities
                
                
                62,008
                
                
                
                861
                
                
                
                5.55
                %
                
                
                100,541
                
                
                
                1,326
                
                
                
                5.28
                %Other
      interest-earning assets
                
                
                1,898
                
                
                
                16
                
                
                
                3.33
                %
                
                
                2,240
                
                
                
                27
                
                
                
                4.78
                %Total
      interest-earning assets
                
                
                379,631
                
                
                
                6,175
                
                
                
                6.51
                %
                
                
                363,083
                
                
                
                6,419
                
                
                
                7.07
                %Non-interest-earning
      assets
                
                
                32,380
                
                
                
                
                
                
                
                
                
                
                
                29,421Total
      assets
                
                $
                412,011
                
                
                
                
                
                
                
                
                
                
                $
                392,504Interest-bearing
      liabilities:Deposits
                
                
                271,787
                
                
                
                2,462
                
                
                
                3.62
                %
                
                
                261,387
                
                
                
                2,389
                
                
                
                3.66
                %Floating
      rate junior subordinated
                    deferrable
      interest debentures
                
                
                12,372
                
                
                
                209
                
                
                
                6.76
                %
                
                
                12,372
                
                
                
                223
                
                
                
                7.20
                %FHLB
      advances and other borrowings
                
                
                97,404
                
                
                
                1,003
                
                
                
                4.12
                %
                
                
                89,655
                
                
                
                1,073
                
                
                
                4.79
                %Total
      interest-bearing liabilities
                
                
                381,563
                
                
                
                3,674
                
                
                
                3.85
                %
                
                
                363,414
                
                
                
                3,685
                
                
                
                4.06
                %Non-interest-bearing
      liabilities
                
                
                2,982
                
                
                
                
                
                
                
                
                
                
                
                2,696Total
      liabilities
                
                
                384,545
                
                
                
                
                
                
                
                
                
                
                
                366,110Shareholders’
      equity
                
                
                27,466
                
                
                
                
                
                
                
                
                
                
                
                26,394Total
      liabilities and shareholders’ equity
                
                $
                412,011
                
                
                
                
                
                
                
                
                
                
                $
                392,504Net
      interest income/spread
                
                
                
                
                
                $
                2,501
                
                
                
                2.66
                %
                
                
                
                
                
                $
                2,734
                
                
                
                3.02
                %Net
      yield on earning assets
                
                
                
                
                
                
                
                
                
                
                2.64
                %
                
                
                
                
                
                
                
                
                
                
                3.01
                %
  (1) Average
balances of loans include non-accrual loans.
 Interest
Income
 Interest
income decreased $244,000, or 3.80%, to $6,175,000 for the three months ended
March 31, 2008 as compared to the same period in 2007. Interest income on loans
decreased by 3.22%, or $154,000, to $4,622,000 for the three months ended March
31, 2008 from $4,776,000 for the three months ended March 31, 2007, due to
declining market interest rates, offset by higher average balance of loans.
Interest on deposits and federal funds sold, combined with interest and
dividends on investment and mortgage-backed securities decreased $90,000 for the
three months ended March 31, 2008 to $1,553,000 from $1,643,000 during the same
period in 2007 due to lower average balances, offset by higher investment yields
as a result of a higher concentration of mortgage-backed
securities.
  20
 Interest
Expense
 Interest
expense decreased $11,000, or 0.30%, to $3,674,000 for the three months ended
March 31, 2008 as compared to the three months ended March 31, 2007. Interest
expense on deposit accounts increased $73,000, or 3.06%, to $2,462,000 for the
three months ended March 31, 2008 from $2,389,000 during the same period in 2007
due primarily to higher average balances due to the overall growth in deposits.
The Corporation continues to target lower cost demand deposit accounts versus
traditional higher cost certificates of deposits in order to reduce overall
funding costs. Interest expense on borrowings decreased $70,000, or 6.52%, for
the three months ended March 31, 2008 as compared to the same period in the
previous year due to lower market interest rates, offset by higher average
balances. Interest expense on floating rate junior subordinated deferrable
interest debentures decreased $14,000, or 6.28%, to $209,000 for the three
months ended March 31, 2008 from $223,000 during the same period in 2007 due to
lower market rates.
 Provision for Loan
Losses
 
 During the
three months ended March 31, 2008, the provision for loan losses was $310,000 as
compared to $160,000 for the same period in the previous year. The provision
reflects the growth in the loan portfolio of $18 million and the Corporation’s
continued movement from longer-term, fixed-rate residential mortgage loans to
shorter-term, floating-rate consumer and commercial loans. Consumer and
commercial loans carry higher risk weighted rates in the reserve calculation as
compared to residential mortgage loans. During the three months ended March 31,
2008, bad debt charge-offs, net of recoveries, was $190,000 as compared to
$8,000 for the same period in the previous year. The increase in bad debt
charge-offs over the previous year relates to additional write-downs required in
the disposition of commercial loans during the three months ended March 31,
2008. Real estate acquired in foreclosure and loans classified as
substandard and impaired decreased $1,005,000 from $5,842,000 at December 31,
2007 to $4,837,000 at March 31, 2008. The decrease was due primarily to the sale
of property held in other real estate owned for $800,000. The Corporation’s loan
loss allowance at March 31, 2008 was approximately 1.24% of the Corporation’s
outstanding loan portfolio and 87.43% of non-performing loans compared to 1.28%
of the Corporation’s outstanding loan portfolio and 88.37% of non-performing
loans at December 31, 2007.
 
 The changes
in the allowance for loan losses consisted of the following (in
thousands):
 
 Balance
      at beginning of period
              $3,344Provision
      for loan losses
              310
 Charge-offs,
      net
              (190)Balance
      at end of period
              $3,464
  The Bank
increases its allowance for loan losses by charging provisions for loan losses
against income.  The allowance for loan losses is maintained at an
amount management considers adequate to absorb losses inherent in the portfolio.
Although management believes that it uses the best information available to make
such determinations, future adjustments to the allowance for loan losses may be
necessary and results of operations could be affected significantly and
adversely if circumstances substantially differ from the assumptions used in
making the determinations.
 21
 The following
table sets forth information with respect to the Bank’s non-performing assets at
the dates indicated (dollars in thousands):
 
 Non-accruing
      loans which arecontractually
      past due 90 daysor
      more:
              
              March
      31,
                2008
              
              December
      31,
                2007Residential
      real estate
              
              $
              570
              
              
              $
              356Commercial
              
              
              3,041
              
              
              
              2,445Consumer
              
              
              351
              
              
              
              171Total
      non-accruing loans
              
              
              3,962
              
              
              
              2,972Real
      estate acquired throughforeclosure
      and repossessed assets
              
              
              28
              
              
              
              856Total
      non-performing assets
              
              $
              3,990
              
              
              $
              3,828Percentage
      of loans receivable
              
              
              1.45
              %
              
              
              1.49
              %Percentage
      of allowance for loan lossesto
      total loans outstanding
              
              
              1.24
              %
              
              
              1.28
              %Allowance
      for loan losses
              
              $
              3,464
              
              
              $
              3,344
 Non-performing
assets increased $162,000 from December 31, 2007 to March 31, 2008.
Non-performing loans increased $990,000 from December 31, 2007 to March 31, 2008
due primarily to three commercial loans totaling $625,000 becoming 90 days
delinquent. These loans are well supported by commercial real estate that
should reduce the exposure to loss for the Corporation. Commercial non-accruing
loans at March 31, 2008 and December 31, 2007 included one commercial real
estate loan for $1.7 million that also existed at December 31, 2006.
Non-accruing loans at March 31, 2008 were allocated specific impairment reserves
of $657,000 compared to $591,000 at December 31, 2007.
 
 The allowance
for loan loss calculation includes a segmentation of loan categories subdivided
by residential mortgage, commercial and consumer loans. Each category is rated
for all loans including performing groups. The weight assigned to each category
is developed from current delinquent loan trends and previous loan loss
experience and as the loss experience changes, the category weight is adjusted
accordingly. In addition to loan loss experience, management’s evaluation of the
loan portfolio includes the market value of the underlying collateral, growth
and composition of the loan portfolio, delinquency trends and economic
conditions. Management evaluates the carrying value of loans periodically and
the allowance for loan loss calculation will adjust
accordingly.
 Non-Interest
Income
 
 Total
non-interest income increased $162,000, or 22.41%, to $885,000 for the three
months ended March 31, 2008 from $723,000 for the same period in the previous
year. Fees from financial services increased $50,000, or 7.13%, to $751,000 for
the three months ended March 31, 2008 from $701,000 for the same period in the
previous year. The change was from an increase in the number of transaction
accounts. During the quarter ending March 31, 2008 the Corporation sold
approximately $5.2 million in investment securities at a gain of $112,000 in
order to improve yield spreads and to fund growth in higher-yielding
loans.
 22
 Non-Interest
Expense
 For the three
months ended March 31, 2008, total non-interest expense increased $83,000, or
3.40%, to $2,522,000 from $2,439,000 for the same period in 2007. Compensation
and employee benefits increased $130,000, or 11.00%, to $1,312,000 for the three
months ended March 31, 2008 from $1,182,000 for the same period in 2007 due
primarily to higher compensation and benefits costs for normal merit salary
increases. Occupancy and equipment expense increased $39,000, or 6.69%, to
$622,000 for the three months ended March 31, 2008 from $583,000 for the same
period in 2007, due primarily to higher equipment expense. Intangible
amortization expense decreased $55,000, or 34.59%, to $104,000 for the three
months ended March 31, 2008 from $159,000 for the same period in 2007, due to
deposit premiums related to branch acquisitions becoming fully
amortized.
 
 Item
3.  Quantitative and Qualitative
Disclosures about Market Risk
 Not
applicable as the registrant is a smaller reporting company.
 
 Item
4T. Controls and
Procedures
 
 The
Corporation’s management, including the Corporation’s principal executive
officer and principal financial officer, have evaluated the effectiveness of the
Corporation’s “disclosure controls and procedures,” as such term is defined in
Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended, (the “Exchange Act”). Based upon their evaluation, the principal
executive officer and principal financial officer concluded that, as of the end
of the period covered by this report, the Corporation’s disclosure controls and
procedures were effective for the purpose of ensuring that the information
required to be disclosed in the reports that the Corporation files or submits
under the Exchange Act with the Securities and Exchange Commission (the “SEC”)
(1) is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and (2) is accumulated and
communicated to the Corporation’s management, including its principal executive
and principal financial officers, as appropriate to allow timely decisions
regarding required disclosure.
 
 There has
been no change in the Corporation’s internal control over financial reporting
identified in connection with the evaluation required by Rule 13(a)-15(e) that
occurred during the Corporation’s last fiscal quarter that has materially
affected or is reasonably likely to materially affect, the Corporation’s
internal control over financial reporting.
 23
 PART
II - OTHER INFORMATION
 Item  1.     
  Legal
Proceedings
 The
Corporation is not involved in any legal proceedings. The Bank is not involved
in any pending legal proceedings other than routine legal proceedings occurring
in the normal course of business. Management believes that these proceedings are
immaterial to the Corporation’s financial condition and results of
operations.
 Item  1A.     
Risk
Factors
 
 In addition
to the other information set forth in this report, you should carefully consider
the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on
Form 10-K for the year ended December 31, 2007, which could materially affect
our business, financial condition or future results. The risks described in our
Annual Report on Form 10-K are not the only risks that we face. Additional risks
and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial
condition and/or operating results.
 Item  2.        Unregistered Sales of Equity
Securities and Use of Proceeds
 
 The following
table provides certain information with regard to shares repurchased by the
Corporation during the first quarter of 2008.
 
 Period
            (a)
              Total
      Number of Shares Purchased
            (b)
              Average
      Price Paid per share
            (c)
              Total
      Number of Shares Purchased as part of Publicly Announced
      Programs
            (d)
              Maximum
      Number of Shares that may be purchased under
  ProgramJanuary
      1, 2008 through January 31, 2008
            10,877
            $18.89
            10,877
            44,863February
      1, 2008 through February 29, 2008
            3,494
            $18.25
            3,494
            41,369March
      1, 2008 through March 31, 2008
            2,500
            $18.17
            2,500
            38,869Total
            16,871
            $18.65
            16,871
            N/A
 
 In May 2005,
the Corporation implemented a share repurchase program under which the
Corporation may repurchase up to 5% of the outstanding shares or 98,000 shares.
In August 2006, the program was expanded by an additional 5% or 92,000 shares.
The repurchase program will continue until it is completed or terminated by the
Board of Directors.
 24
 Item  3.        Defaults upon Senior
Securities
 Not
applicable.
 Item  4.        Submission of Matters to a
Vote of Security Holders
 
 None
 Item
5.         Other
Information
 
 None
 
 Item  6.        Exhibits
 
 31(a)            Rule
13a-14(a)/15d-14(a) Certification of Chief Executive Officer
 
 31(b)            Rule
13a-14(a)/15d-14(a) Certification of Chief Financial Officer
 
 32(a) Chief
Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
 
 32(b) Chief
Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
 25
 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.
 PROVIDENT COMMUNITY
BANCSHARES, INC.
 (Registrant)
 Date:  
      May
      7, 2008
                By:/s/ 
      Dwight V. Neese
                  Dwight
      V. Neese, President and
                  Chief
      Executive OfficerDate:  
      May
      7, 2008
                By:
      /s/  Richard H.
      Flake
                  Richard
      H. Flake, Executive Vice President
                  and
      Chief Financial Officer
   26