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 September 30, 2007

           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              (I.R.S. Employer
           Incorporation or Organization)             Identification No.)


               2700 Celanese Road, Rock Hill, South Carolina 29732
               ---------------------------------------------------
                    (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
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, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):

Large accelerated filer      Accelerated filer       Non-accelerated filer  X
                       -----                  -----                       -----

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 1,795,905  shares,  $0.01 par value, of common stock issued
and outstanding as of November 2, 2007.


<PAGE>


              PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

                                      INDEX
Part I.   Financial Information                                            Page
          ---------------------                                            ----

          Item 1.  Financial Statements (unaudited)

          Consolidated Balance Sheets as of September 30, 2007
          and December 31, 2006                                               3

          Consolidated Statements of Income for the three and nine
          months ended September 30, 2007 and 2006                            4

          Consolidated Statements of Cash Flows for the nine
          months ended September 30, 2007 and 2006                            5

          Consolidated Statements of Shareholders' Equity and
          Comprehensive Income (Loss) for the nine months
          ended September 30, 2007 and 2006                                   6

          Notes to Consolidated Financial Statements                       7-11

          Item 2.  Management's Discussion and Analysis of
          Financial Condition and Results of Operations                   12-26

          Item 3.  Quantitative and Qualitative Disclosures
          about Market Risk                                               26-27

          Item 4.  Controls and Procedures                                27-28

Part II.  Other Information
          -----------------

          Item 1.  Legal Proceedings                                         28

          Item 1A. Risk Factors                                              28

          Item 2.  Unregistered Sales of Equity Securities and Use
          of Proceeds                                                        28

          Item 3.  Defaults Upon Senior Securities                           29

          Item 4.  Submission of Matters to a Vote of Security Holders       29

          Item 5.  Other Information                                         29

          Item 6.  Exhibits                                                  29

          Signatures                                                         30

<PAGE>

<TABLE>
<CAPTION>

Part 1.    Financial Information
PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2007 and December 31, 2006

                                                                              September 30,       December 31,
                                                                                  2007                2006
ASSETS                                                                         (Unaudited)         (Audited)
                                                                             ----------------    ---------------
                                                                                   (DOLLARS IN THOUSANDS)
<S>                                                                                   <C>               <C>
Cash and due from banks                                                    $          10,717   $          9,124
Investment and mortgage-backed securities
  Held to maturity                                                                     3,130              3,182
  Available for sale                                                                 131,174            119,003
                                                                             ----------------    ---------------
Total investment and mortgage-backed securities                                      134,304            122,185
                                                                             ----------------    ---------------
Loans, net                                                                           241,957            231,886
Office properties and equipment, net                                                   5,393              5,708
Federal Home Loan Bank Stock, at cost                                                  4,524              3,983
Federal Reserve Stock, at cost                                                           539                539
Accrued interest receivable                                                            2,803              2,717
Intangible assets                                                                      3,365              3,741
Cash surrender value of life insurance                                                 9,068              5,613
Other assets                                                                           2,410              2,134
                                                                             ----------------    ---------------
TOTAL ASSETS                                                               $         415,080   $        387,630
                                                                             ================    ===============

LIABILITIES

Deposits
   Interest-bearing                                                        $         244,755   $        231,722
   Noninterest-bearing                                                                18,361             16,718
Advances from the Federal Home Loan Bank                                              85,250             70,000
Securities sold under agreements to repurchase                                        25,027             28,533
Floating rate junior subordinated deferrable interest debentures                      12,372             12,372
Accrued interest  payable                                                                785                784
Other liabilities                                                                      1,746              1,534
                                                                             ----------------    ---------------
TOTAL LIABILITIES                                                                    388,296            361,663
                                                                             ----------------    ---------------

Commitments and contingencies-Note 4

SHAREHOLDERS' EQUITY

Serial preferred stock, no par value,
  authorized - 500,000 shares,
  issued and outstanding - None                                                           --                 --
Common stock - $0.01 par value,
  authorized - 5,000,000 shares,
   issued and outstanding - 1,796,520 shares at 9/30/07 and 1,830,528 at 12/31/06         20                 20
Additional paid-in capital                                                            12,743             12,506
Accumulated other comprehensive loss                                                    (402)              (610)
Retained earnings, substantially restricted                                           20,270             18,912
Treasury stock, at cost                                                               (5,847)            (4,861)
                                                                             ----------------    ---------------
TOTAL SHAREHOLDERS' EQUITY                                                            26,784             25,967
                                                                             ----------------    ---------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                 $         415,080   $        387,630
                                                                             ================    ===============

See notes to consolidated financial statements.
</TABLE>


                                       3
<PAGE>

<TABLE>
<CAPTION>

PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended September 30, 2007 and 2006 (unaudited)

                                                           Three Months Ended                  Nine Months Ended
                                                   September 30,       September 30,      September 30,      September 30,
                                                        2007               2006               2007                2006
                                                   ---------------    ----------------   ----------------    ---------------
                                                (DOLLARS IN THOUSANDS EXCEPT PER SHARE) (DOLLARS IN THOUSANDS EXCEPT PER SHARE)
<S>                                                         <C>               <C>                <C>                <C>
Interest Income:
  Loans                                          $          4,793   $           4,387  $          14,373   $         12,306
  Deposits and federal funds sold                              28                   9                110                 38
  Mortgage-backed securities                                  355                 248                951                808
  Interest and dividends on
   investment securities                                    1,398               1,374              4,020              4,062
                                                   ---------------    ----------------   ----------------    ---------------
Total Interest Income                                       6,574               6,018             19,454             17,214
                                                   ---------------    ----------------   ----------------    ---------------

Interest Expense:
  Deposit accounts                                          2,469               2,037              7,254              5,647
  Floating rate junior subordinated deferrable
   interest debentures                                        227                 249                673                596
  Advances from the FHLB and other borrowings               1,165               1,181              3,332              3,084
                                                   ---------------    ----------------   ----------------    ---------------
Total Interest Expense                                      3,861               3,467             11,259              9,327
                                                   ---------------    ----------------   ----------------    ---------------

Net Interest Income                                         2,713               2,551              8,195              7,887
  Provision for loan losses                                    20                  45                265                355
                                                   ---------------    ----------------   ----------------    ---------------
Net Interest Income After
   Provision for Loan Losses                                2,693               2,506              7,930              7,532
                                                   ---------------    ----------------   ----------------    ---------------

Non-Interest Income:
  Fees for financial services                                 760                 693              2,253              2,055
  Other  fees, net                                             23                  24                 66                 88
  Net gain (loss) on sale of investments                       (1)                  3                 (2)               (10)
                                                   ---------------    ----------------   ----------------    ---------------
Total Non-Interest Income                                     782                 720              2,317              2,133
                                                   ---------------    ----------------   ----------------    ---------------

Non-Interest Expense:
  Compensation and employee benefits                        1,313               1,095              3,776              3,327
  Occupancy and equipment                                     609                 465              1,902              1,477
  Deposit insurance premiums                                    8                   8                 22                 23
  Professional services                                        90                 107                316                330
  Advertising/public relations                                 36                 118                203                214
  Loan operations                                              48                  30                116                 60
  Deposit premium intangible                                  104                 159                375                477
  Items processing                                             53                  46                164                145
  Telephone                                                    47                  38                139                128
  Other                                                       197                 228                644                673
                                                   ---------------    ----------------   ----------------    ---------------
Total Non-Interest Expense                                  2,505               2,294              7,657              6,854
                                                   ---------------    ----------------   ----------------    ---------------

Income Before Income Taxes                                    970                 932              2,590              2,811
Income tax expense                                            243                 281                613                822
                                                   ---------------    ----------------   ----------------    ---------------
Net Income                                       $            727   $             651  $           1,977   $          1,989
                                                   ===============    ================   ================    ===============

Basic Net Income Per Common Share                $           0.40   $            0.35  $            1.09   $           1.06
                                                   ===============    ================   ================    ===============

Diluted Net Income Per Common Share              $           0.40   $            0.35  $            1.07   $           1.05
                                                   ===============    ================   ================    ===============

Dividend Per Common Share                        $          0.115   $            0.11  $            0.34   $           0.32
                                                   ===============    ================   ================    ===============

Weighted Average Number of
  Common Shares Outstanding

Basic                                                   1,801,405           1,846,643          1,816,085          1,876,630

Diluted                                                 1,839,097           1,876,417          1,852,923          1,901,830

See notes to consolidated financial statements.
</TABLE>


                                       4
<PAGE>

<TABLE>
<CAPTION>

PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2007 and 2006 (unaudited)

                                                                        Nine Months Ended
                                                               September 30,       September 30,
                                                                    2007                2006
                                                              -----------------   -----------------
                                                                     (DOLLARS IN THOUSANDS)

OPERATING ACTIVITIES:
<S>                                                                       <C>                <C>
Net income                                                              $1,977              $1,989
Adjustments to reconcile net income to
  net cash provided (used) by operating activities:
  Provision for loan losses                                                265                 355
  Amortization of intangibles                                              376                 477
  Depreciation expense                                                     485                 456
  Recognition of deferred income, net of costs                            (401)               (388)
  Stock compensation expense                                                34                  34
  Deferral of fee income, net of costs                                     486                 407
  (Gain) loss on investment transactions                                    (2)                 10
  Loss on writedown of fixed asset                                         135                  --
  Changes in operating assets and liabilities:
   (Increase) decrease in accrued interest receivable                      (86)                 54
   Increase in cash surrender value of life insurance                   (3,455)                 --
   Increase in other assets                                               (276)               (281)
   Increase in other liabilities                                           212                 208
   Increase in accrued interest payable                                      1                 196
                                                              -----------------   -----------------

Net cash (used) provided by operating activities                          (249)              3,517
                                                              -----------------   -----------------

INVESTING ACTIVITIES:

Purchase of investment and mortgage-backed securities:
   Available for sale                                                  (50,701)             (9,218)
Proceeds from sale of investment and mortgage-
    backed securities                                                    8,840              18,257
Proceeds from maturity of investment and mortgage-
    backed securities:
   Available for sale                                                   26,260              12,126
Principal repayments on mortgage-backed securities:
   Available for sale                                                    3,661               4,724
Net increase in loans                                                  (10,423)            (25,226)
(Purchase) redemption of FHLB stock                                       (541)                313
Purchase of office properties and equipment                               (306)               (940)
                                                              -----------------   -----------------

Net cash (used) provided by investing activities                       (23,210)                 36
                                                              -----------------   -----------------

FINANCING ACTIVITIES:

Proceeds from the dividend reinvestment plan                                87                  85
Dividends paid in cash                                                    (619)               (604)
Proceeds from the exercise of stock options                                150                   3
Share repurchase program                                                  (986)             (1,326)
Proceeds from the issuance of trust preferred securities                    --               4,124
Increase (decrease) of  term borrowings                                 15,250              (8,815)
Increase (decrease) in other borrowings                                 (3,506)              5,000
Increase in deposit accounts                                            14,676                 404
                                                              -----------------   -----------------

Net cash  (used) provided by financing activities                       25,052              (1,129)
                                                              -----------------   -----------------

NET INCREASE  IN CASH
   AND CASH EQUIVALENTS                                                  1,593               2,424

CASH AND CASH EQUIVALENTS
   AT BEGINNING OF PERIOD                                                9,124               8,380
                                                              -----------------   -----------------

CASH AND CASH EQUIVALENTS
   AT END OF PERIOD                                                    $10,717             $10,804
                                                              =================   =================

SUPPLEMENTAL DISCLOSURES:

Cash paid for:
  Income taxes                                                            $977                $791
  Interest                                                              11,258               9,131

Non-cash transactions:
  Loans foreclosed                                                          --                $188

See notes to consolidated financial statements.
</TABLE>

                                       5
<PAGE>

<TABLE>
<CAPTION>

                               PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
                             Nine Months Ended September 30, 2007 and 2006 (unaudited)


                                                                                     Accumulated
                                                                        Retained        Other
                                                            Additional  Earnings,   Comprehensive  Treasury    Total
                                           Common Stock      Paid-in   Substantially   Income        Stock   Shareholders'
                                          Shares    Amount   Capital   Restricted      (loss)       At Cost    Equity
                                         ---------- ------- ---------- ------------- ----------    -------- -------------
                                                            (Dollars in Thousands, Except Share Data)

<S>                                          <C>      <C>       <C>         <C>           <C>         <C>          <C>
BALANCE AT DECEMBER 31, 2005             1,905,897  $    20 $   12,346    $16,916        ($612)     ($3,337)      $25,333

Net income                                                                  1,989                                   1,989

  Other comprehensive loss, net of tax on
     unrealized holding losses on
     securities available for sale
     arising during period                                                                 (98)                       (98)
  Less reclassification adjustment for
     losses included in net income                                                          (7)                        (7)
                                                                                     ----------             -------------

  Comprehensive income                                                                                              1,884

Stock option activity, net                   2,203                  37                                                 37

Dividend reinvestment plan contributions     4,864                  85                                                 85

Share repurchase program                   (74,058)                                                  (1,326)       (1,326)

Cash dividend ($0.32 per share)                                              (604)                                   (604)

                                         --------------------------------------------------------------------------------

BALANCE AT SEPTEMBER 30, 2006            1,838,906  $    20 $   12,468    $18,301        ($717)     ($4,663)      $25,409
                                         ================================================================================

BALANCE AT DECEMBER 31, 2006             1,830,528  $    20 $   12,506    $18,912        ($610)     ($4,861)      $25,967

Net income                                                                  1,977                                   1,977

  Other comprehensive income, net of tax
     on unrealized holding gains on
     securities available for sale
     arising during period                                                                 208                        208
  Less reclassification adjustment for
     losses included in net income                                                          --                         --
                                                                                     ----------             -------------

  Comprehensive income                                                                                              2,185

Stock option activity, net                   9,172                 150                                                150

Dividend reinvestment plan contributions     4,324                  87                                                 87

Share repurchase program                   (47,504)                                                    (986)         (986)

Cash dividend ($0.34 per share)                                              (619)                                   (619)

                                         --------------------------------------------------------------------------------

BALANCE AT SEPTEMBER 30, 2007            1,796,520  $    20 $   12,743    $20,270        ($402)     ($5,847)      $26,784
                                         ================================================================================

See notes to consolidated financial statements,
</TABLE>


                                       6
<PAGE>


                  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 nine months ended September 30, 2007 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 February  2006,  FASB issued SFAS No.  155,  "Accounting  for Certain  Hybrid
Financial  Instruments--an  amendment of FASB  Statements No. 133 and 140." This
Statement  amends SFAS No.  133,  "Accounting  for  Derivative  Instruments  and
Hedging  Activities," and SFAS No. 140,  "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." This Statement resolves
issues addressed in SFAS No. 133  Implementation  Issue No. D1,  "Application of
Statement 133 to Beneficial Interests in Securitized  Financial Assets." FAS No.
155 permits fair value  re-measurement for any hybrid financial  instrument that
contains  an embedded  derivative  that  otherwise  would  require  bifurcation,
clarifies which interest  only-strips and principal-only  strips are not subject
to the  requirements  of Statement  133,  establishes a requirement  to evaluate
interests  in  securitized  financial  assets  to  identify  interests  that are
freestanding  derivatives or that are hybrid financial  instruments that contain
an embedded derivative requiring  bifurcation,  clarifies that concentrations of
credit  risk in the form of  subordination  are not  embedded  derivatives,  and
amends  Statement  140 to eliminate  the  prohibition  on a  qualifying  special
purpose entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. SFAS No.
155 is  effective  for all  financial  instruments  acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15, 2006.
The  adoption  of SFAS No. 155 did not have a material  impact on its  financial
position, results of operations and cash flows.

In March  2006,  the FASB  issued SFAS No. 156,  "Accounting  for  Servicing  of
Financial Assets--an amendment of FASB Statement No. 140." This Statement amends
FASB No. 140,  "Accounting  for Transfers and Servicing of Financial  Assets and
Extinguishments  of Liabilities,"  with respect to the accounting for separately
recognized servicing assets and servicing liabilities.  SFAS No. 156 requires an
entity to  recognize  a  servicing  asset or  servicing  liability  each time it
undertakes  an  obligation  to  service a  financial  asset by  entering  into a
servicing  contract;  requires all separately  recognized  servicing  assets and
servicing  liabilities to be initially  measured at fair value,  if practicable;
permits an entity to choose its subsequent measurement methods for each class of
separately recognized servicing assets and servicing liabilities; at its initial
adoption,  permits a one-time reclassification of available-for-sale  securities
to trading  securities by entities with  recognized  servicing  rights,  without
calling into question the treatment of other available-for-sale securities under
Statement  No.  115,  provided  that  the   available-for-sale   securities  are

                                       7
<PAGE>


identified in some manner as offsetting the entity's exposure to changes in fair
value of servicing  assets or  servicing  liabilities  that a service  elects to
subsequently  measure at fair  value;  and  requires  separate  presentation  of
servicing assets and servicing  liabilities  subsequently measured at fair value
in the  statement  of  financial  position and  additional  disclosures  for all
separately  recognized  servicing  assets and servicing  liabilities.  An entity
should  adopt SFAS No. 156 as of the  beginning  of its first  fiscal  year that
begins after  September  15,  2006.  The adoption of SFAS No. 156 did not have a
material impact on the Corporation's  financial position,  results of operations
and cash flows.

In July 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting
for   Uncertainty  in  Income  Taxes."  FIN  48  clarifies  the  accounting  for
uncertainty in income taxes recognized in enterprises'  financial  statements in
accordance with FASB Statement No. 109,  "Accounting  for Income Taxes".  FIN 48
prescribes  a  recognition  threshold  and  measurement   attributable  for  the
financial  statement  recognition  and  measurement  of a tax position  taken or
expected  to be  taken  in a tax  return.  FIN  48  also  provides  guidance  on
derecognizing,  classification,  interest and  penalties,  accounting in interim
periods,  disclosures  and  transitions.  FIN 48 is  effective  for fiscal years
beginning  after December 15, 2006. The adoption did not have a material  impact
on the reported results of operations or financial condition of the Company.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS
157 defines fair value,  establishes  a framework  for  measuring  fair value in
generally accepted  accounting  principles,  and expands  disclosures about fair
value  measurements.   This  standard  does  not  require  any  new  fair  value
measurements,  but rather  eliminates  inconsistencies  found in  various  prior
pronouncements.  SFAS 157 is effective for the Company on January 1, 2008 and is
not expected to have a significant impact on the Company's financial statements.

In September  2006,  the FASB issued SFAS No. 158,  "Employers'  Accounting  for
Defined  Benefit  Pension and Other  Postretirement  Plans" ("SFAS 158"),  which
amends SFAS 87 and SFAS 106 to require  recognition  of the over funded or under
funded status of pension and other  postretirement  benefit plans on the balance
sheet.  Under SFAS 158, gains and losses,  prior service costs and credits,  and
any  remaining  transition  amounts under SFAS 87 and SFAS 106 that have not yet
been  recognized  through  net  periodic  benefit  cost  will be  recognized  in
accumulated  other  comprehensive  income,  net of tax  effects,  until they are
amortized as a component of net periodic cost. The measurement date--the date at
which the benefit obligation and plan assets are measured--is required to be the
company's fiscal year end. SFAS 158 is effective for publicly held companies for
fiscal years ending after  December 15, 2006,  except for the  measurement  date
provisions, which are effective for fiscal years ending after December 15, 2008.
The Company does not have a defined benefit pension plan or other postretirement
plan  affected  by SFAS No.  158.  Therefore,  SFAS No.  158 will not impact the
Company's financial conditions or results of operations.

In  September,  2006,  The FASB ratified the  consensuses  reached by the Fast's
Emerging  Issues Task Force ("EITF")  relating to EITF 06-4  "Accounting for the
Deferred   Compensation  and  Postretirement   Benefit  Aspects  of  Endorsement
Split-Dollar  Life  Insurance   Arrangements".   EITF  06-4  addresses  employer
accounting for endorsement split-dollar life insurance arrangements that provide
a benefit to an employee that extends to postretirement periods should recognize
a liability  for future  benefits in accordance  with SFAS No. 106,  "Employers'
Accounting  for  Postretirement  Benefits  Other Than  Pensions",  or Accounting
Principles Board ("APB") Opinion No. 12, "Omnibus  Opinion--1967".  EITF 06-4 is
effective for fiscal years  beginning  after December 15, 2006.  Entities should
recognize  the effects of  applying  this Issue  through  either (a) a change in
accounting principle through a cumulative-effect adjustment to retained earnings
or to other  components  of equity or net assets in the  statement  of financial
position  as of the  beginning  of the  year  of  adoption  or (b) a  change  in
accounting principle through retrospective application to all prior periods. The
Company does not believe the  adoption of EITF 06-4 will have a material  impact
on its financial position, results of operations and cash flows.

                                       8
<PAGE>


In September 2006, the FASB ratified the consensus reached related to EITF 06-5,
"Accounting for Purchases of Life  Insurance--Determining  the Amount That Could
Be Realized in Accordance with FASB Technical Bulletin No. 85-4,  Accounting for
Purchases  of Life  Insurance."  EITF 06-5  states  that a  policyholder  should
consider  any  additional  amounts  included  in the  contractual  terms  of the
insurance  policy other than the cash surrender  value in determining the amount
that could be realized under the insurance contract.  EITF 06-5 also states that
a policyholder should determine the amount that could be realized under the life
insurance   contract   assuming   the   surrender  of  an   individual-life   by
individual-life  policy (or certificate by certificate in a group policy).  EITF
06-5 is  effective  for fiscal years  beginning  after  December  15, 2006.  The
Company does not believe the  adoption of EITF 06-5 will have a material  impact
on its financial position, results of operations or cash flows.

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial  Assets and  Financial  Liabilities  - Including  an amendment of FASB
Statement No. 115." This statement  permits,  but does not require,  entities to
measure many financial  instruments  at fair value.  The objective is to provide
entities with an opportunity to mitigate  volatility in reported earnings caused
by measuring related assets and liabilities  differently without having to apply
complex hedge accounting provisions. Entities electing this option will apply it
when the  entity  first  recognizes  an  eligible  instrument  and  will  report
unrealized  gains and  losses on such  instruments  in  current  earnings.  This
statement:  1) applies to all entities;  2) specifies certain election dates; 3)
can be applied on an instrument-by-instrument  basis with some exceptions; 4) is
irrevocable;  and 5) applies only to entire instruments. One exception is demand
deposit  liabilities which are explicitly excluded as qualifying for fair value.
With respect to SFAS 115,  available-for-sale and held-to-maturity securities at
the  effective  date are eligible for the fair value option at that date. If the
fair  value  option is  elected  for those  securities  at the  effective  date,
cumulative  unrealized  gains and losses at that date shall be  included  in the
cumulative-effect  adjustment and thereafter,  such securities will be accounted
for as trading securities.  SFAS 159 is effective for the Corporation on January
1, 2008. Earlier adoption is permitted in 2007 if the Corporation also elects to
apply the provisions of SFAS 157, "Fair Value  Measurement."  The Corporation is
currently analyzing the fair value option provided under SFAS 159 and its impact
on the Corporation's financial position, results of operations and cash flows.

Other  accounting  standards  that have been  issued or  proposed by the FASB or
other standards-setting  bodies that do not require adoption until a future date
are not  expected  to  have a  material  impact  on the  consolidated  financial
statements upon adoption.

2. Income Per Share
   ----------------

Basic income per share amounts for the three and nine months ended September 30,
2007 and 2006  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 nine months ended September 30, 2007 and
2006 were 36,838 and 25,200, respectively.

3. Assets Pledged
   --------------

Approximately  $89,564,000  and  $74,387,000  of marketable  debt  securities at
September  30,  2007 and  December  31,  2006,  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 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

                                       9
<PAGE>


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 September 30,
2007 related to these items is summarized below:

         Loan Commitments:                                    Contract Amount
         -----------------                                    ---------------

               Approved loan commitments                        $   1,874,000
               Unadvanced portions of loans and credit lines       54,410,000
                                                                   ----------
               Total loan commitments                           $  56,284,000
                                                                   ==========

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 September 30, 2007 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   $134,088,000  at  September  30,  2007.  Of  these  lines,   the
outstanding loan balances totaled approximately $79,678,000.

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 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

                                       10
<PAGE>


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
(the  "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.

On November 14, 2001, the Corporation  sponsored the creation of a Trust,  which
on December 18, 2001,  issued  $8,000,000  in the form of floating  rate capital
securities through a pooled trust preferred  securities  offering.  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 December 18, 2031, which constitute the sole
asset  of the  Trust.  The  interest  rate on the  Debentures  and  the  capital
securities was variable and adjustable  quarterly at 3.60% over the  three-month
LIBOR.  On December 18,  2006,  the Trust was  redeemed  with the proceeds  from
Capital Trust II.

A  summary  of  the  Subordinated  Deferrable  Interest  Debentures  issued  and
outstanding follows:
<TABLE>
<CAPTION>

                                   Amount Outstanding
                                           at
                                      September 30,                                                 Distribution
                                  ---------------------           Prepayment                           Payment
              Name                   2007       2006     Rate     Option Date        Maturity         Frequency
--------------------------------- ---------- ---------- ------ ----------------- ----------------- ---------------
<S>                                   <C>        <C>      <C>          <C>             <C>               <C>
Union Financial Statutory
Trust I                           $       -- $8,000,000  8.99% December 18, 2006 December 18, 2031    Quarterly

Provident Community
Bancshares Capital Trust I         4,000,000      -      7.39%   October 1, 2011   October 1, 2036    Quarterly

Provident Community
Bancshares Capital Trust II        8,000,000      -      7.32%     March 1, 2012     March 1, 2037    Quarterly
                                  ----------
Total                            $12,000,000
                                 ===========
</TABLE>

                                       11
<PAGE>


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 to describe future plans and
strategies.  Management's  ability  to  predict  results or the effect of future

                                       12
<PAGE>


plans or strategies is inherently  uncertain.  Factors which could effect actual
results  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, 2006,  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 $27,450,000, or 7.08%, to $415,080,000
at September 30, 2007 from  $387,630,000  at December 31, 2006.  Investments and
mortgage-backed securities increased approximately  $12,119,000,  or 9.92%, from
December  31, 2006 to  September  30,  2007,  due to the  purchase of agency and
mortgaged-backed  securities that was funded primarily with additional  deposits
and borrowings.  Net loans increased approximately  $10,071,000,  or 4.34%, from
December 31, 2006 to September  30, 2007,  due primarily to growth in commercial
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):

                          September 30, 2007              December 31, 2006
                          ------------------              -----------------

                       Amortized           Fair        Amortized          Fair
                         Cost              Value          Cost            Value
                         ----              -----          ----            -----

Municipal Securities     $3,130            $3,148        $3,182           $3,239
                         ======            ======        ======           ======



                                       13
<PAGE>


Available for Sale-Securities  classified as available for sale consisted of the
following (in thousands):

                                       September 30, 2007     December 31, 2006
                                       ------------------     -----------------

                                      Amortized    Fair      Amortized    Fair
                                         Cost      Value        Cost      Value
Investment Securities:                   ----      -----        ----      -----
  U.S. Agency Obligations             $    508  $    480      $   515   $    500
  Government Sponsored Enterprises      72,950    72,650       73,511     72,638
  Municipal Securities                   9,298     9,597       10,594     10,970
  Other                                 12,666    12,497       14,533     14,644
                                       -------   -------      -------    -------
Total Investment Securities             95,422    95,224       99,153     98,752
                                       -------   -------      -------    -------
Mortgage-backed Securities:
  Fannie Mae                            18,067    17,744       13,243     12,813
  Ginnie Mae                             1,194     1,195           55         57
  Freddie Mac                           13,467    13,441        3,111      3,109
  Collateralized Mortgage Obligations    3,642     3,570        4,380      4,272
                                       -------   -------      -------    -------
Total Mortgage-backed Securities        36,370    35,950       20,789     20,251
                                       -------   -------      -------    -------
Total Available for Sale              $131,792  $131,174     $119,942   $119,003
                                       =======   =======      =======    =======





                                       14
<PAGE>


Loans
-----

Loans  increased to  $241,957,000 at September 30, 2007 compared to $231,886,000
at  December  31,  2006.  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):

                                                 September 30, December 31,
                                                      2007        2006
                                                    --------    ---------
Mortgage loans:
  Fixed rate residential                            $ 16,652    $ 19,187
  Adjustable-rate residential                          9,150      10,295
  Commercial real estate                              72,028      62,450
  Construction                                         4,934       5,787
                                                    --------    ---------
Total mortgage loans                                 102,764      97,719
                                                    --------    ---------
Commercial loans:
  Commercial non-real estate                          31,846      42,093
  Commercial lines of credit                          64,431      51,469
                                                    --------    ---------
Total commercial loans                                96,277      93,562
                                                    --------    ---------
Consumer loans:
  Home equity                                         14,892      15,936
  Consumer and installment                            34,266      29,827
  Consumer lines of credit                               355         373
                                                    --------    ---------
Total consumer loans                                  49,513      46,136
                                                    --------    ---------
Total loans                                          248,554     237,417
                                                    --------    ---------
Less:
  Undisbursed portion of interim
   construction loans                                 (3,138)     (2,238)
   Unamortized loan discount                            (498)       (607)
  Allowance for loan losses                           (2,955)     (2,754)
  Net deferred loan origination costs                     (6)         68
                                                    --------    ---------

Total, net                                          $241,957    $231,886
                                                    ========    =========

Weighted-average interest rate of loans                 7.93%       8.14%

Cash  surrender  value of life insurance  increased  $3,455,000,  or 61.55%,  to
$9,068,000 at September 30, 2007 from $5,613,000 at December 31, 2006 due to the
purchase of $3,200,000  in additional  bank-owned  life  insurance  that will be
utilized to offset the rapidly rising costs of providing employee benefits.

Other assets increased $276,000,  or 12.93%, to $2,410,000 at September 30, 2007
from  $2,134,000  at December  31, 2006,  due  primarily to an increase in a net
deferred tax receivable  that was related to the  mark-to-market  adjustment for
investments available for sale.


                                       15
<PAGE>


Liabilities
-----------

Total liabilities increased $26,633,000,  or 7.36%, to $388,296,000 at September
30, 2007 from $361,663,000 at December 31, 2006. Deposits increased $14,676,000,
or 5.91%, to  $263,116,000  at September 30, 2007 from  $248,440,000 at December
31, 2006. The overall growth  includes a 9.8% increase in  non-interest  bearing
accounts while interest  bearing  accounts  increased 5.6%. The increase was due
primarily to growth in accounts  generated from the new banking center openings.
The Corporation  continues to target  lower-cost demand deposit accounts through
media advertising.

Deposit accounts were as follows (in thousands):
<TABLE>
<CAPTION>

                                            September 30, 2007              December 31, 2006
                                            ------------------              -----------------
                                       Rate      Balance       %       Rate      Balance       %
                                       ----      -------       -       ----      -------       -
Account Type
------------
<S>                                     <C>         <C>       <C>       <C>        <C>         <C>
NOW accounts:
  Commercial non- interest-bearing        --     $ 18,361     6.98%      --     $ 16,718       6.73%
  Non-commercial                        2.73%      54,472    20.70%    2.82%      52,512      21.14%
Money market checking accounts
                                        4.62%      20,280     7.71%    4.22%      14,178       5.71%
Regular savings                         0.78%      14,016     5.33%    0.76%      14,930       6.00%
                                                 --------   -------             --------     -------
Total demand and savings deposits
                                        2.35%     107,129    40.72%    2.20%      98,338      39.58%
                                                 --------   -------             --------     -------
Savings certificates:
  Up to 3.00%                                       5,683     2.16%               15,557       6.26%
  3.01% - 4.00%                                    31,008    11.78%               23,491       9.46%
  4.01% - 5.00%                                     6,386     2.43%               31,086      12.51%
  5.01% - 6.00%                                   112,890    42.90%               79,943      32.18%
  6.01% - 7.00%                                        20     0.01%                   25       0.01%
                                                 --------   -------             --------     -------
Total savings certificates              4.74%     155,987    59.28%    4.47%     150,102      60.42%
                                                 --------   -------             --------     -------
Total deposit accounts                  3.77%    $263,116   100.00%    3.56%    $248,440     100.00%
                                                 ========   =======             ========     =======
</TABLE>

At  September  30, 2007 and  December 31,  2006,  the Bank had  $85,250,000  and
$70,000,000,  respectively,  of advances outstanding from the FHLB. The maturity
of the advances from the FHLB is as follows (in thousands):

<TABLE>
<CAPTION>

                                                     September 30, 2007     December 31,2006
                                                     ------------------     ----------------
                                                        Wtd Avg Rate          Wtd Avg Rate
                                                        ============          ============
<S>                                                      <C>      <C>        <C>         <C>
Contractual Maturity:
Within one year - fixed rate                             $--       --%      $21,500      5.18%
Within one year - adjustable rate                     20,750     5.12%       15,000      5.36%
After one but within three years - fixed rate          5,000     4.93%            -        - %
After one but within three years - adjustable rate     7,500     5.30%       12,500      5.33%
After three but within five years - adjustable rate   28,000     4.73%            -        - %
Greater than five years - adjustable rate             24,000     4.10%       21,000      4.33%
                                                     -------                -------
Total advances                                       $85,250     4.71%      $70,000      5.00%
                                                     =======                =======
</TABLE>


                                       16
<PAGE>


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") increased  $15,250,000,  or 21.79%, to $85,250,000 at September 30,
2007 from  $70,000,000  at December  31, 2006  primarily to fund loan growth and
additional  security  purchases.  Securities  sold under agreement to repurchase
decreased  $3,506,000 to $25,027,000  at September 30, 2007 from  $28,533,000 at
December 31, 2006.

Shareholders' Equity
--------------------

Shareholders'  equity increased $817,000,  or 3.15%, to $26,784,000 at September
30, 2007 from  $25,967,000  at December 31, 2006 due  primarily to net income of
$1,977,000 and a $208,000 decrease in unrealized losses on securities  available
for sale,  offset by the  repurchase  of 47,504 shares at a cost of $986,000 and
dividend payments of $0.34 per share at a cost of $619,000.

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 the  utilization  of FHLB
advances.

At September 30, 2007,  the  Corporation's  investment in marketable  securities
totaled $134,304,000,  nearly all of which is available for sale.  Approximately
$89,564,000  and  $74,387,000  of debt  securities  at  September  30,  2007 and
December  31, 2006,  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  $134,088,000  at September  30,  2007.  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.
Certificates of deposit,  which are scheduled to mature in one year or less from
September 30, 2007,  totaled  $121,773,000.  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  September  30,  2007,  the
Corporation  had  outstanding  $85,250,000 of FHLB borrowings and $25,027,000 of
securities  sold under  agreements to  repurchase.  At September  30, 2007,  the
Corporation had unused short-term lines of credit to purchase federal funds from

                                       17
<PAGE>


unrelated  banks  totaling  $20,000,000  and the ability to borrow an additional
$29,000,000  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.

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
September 30, 2007, that the Bank and the Corporation  meet the capital adequacy
requirements to which they are subject.

As of September 30, 2007, 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.



                                       18
<PAGE>


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).

<TABLE>
<CAPTION>

                                            September 30, 2007
                                            ------------------

                                         Actual                Regulatory Minimum          "Well Capitalized"
                                         ------                ------------------          ------------------

                                  Amount          Ratio       Amount         Ratio        Amount         Ratio
                                     $              %           $              %             $             %
    <S>                             <C>            <C>         <C>            <C>           <C>           <C>
Leverage ratio
Corporation                        32,954         8.39%        15,718         4.00%           n/a          n/a
Bank                               35,264         8.88%        15,892         4.00%         19,865        5.00%

Tier 1 capital ratio
Corporation                        32,954        11.47%        11,491         4.00%           n/a          n/a
Bank                               35,264        12.30%        11,465         4.00%         17,199        6.00%

Total risk-based capital ratio
Corporation                        38,775        13.50%        22,982         8.00%           n/a          n/a
Bank                               38,219        13.33%        22,932         8.00%         28,665        10.00%
</TABLE>

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 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 nine months ended  September 30,
2007, the Corporation  repurchased  47,504 shares. As of September 30, 2007, the
Corporation had repurchased a total of 323,645 shares under these authorizations
and had 59,355 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 $134,088,000 at September 30, 2007. 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  September 30, 2007,  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.


                                       19
<PAGE>


Results of operations for the three months ended September 30, 2007 and 2006
----------------------------------------------------------------------------

General
-------

Net income increased $76,000,  or 11.67%, to $727,000 for the three months ended
September  30,  2007 as  compared  to  $651,000  for the same  period in 2006 as
increases in net interest income and non-interest  income along with a reduction
in the  provision  for loan  losses  were  partially  offset by an  increase  in
non-interest  expense.  The increase in non-interest expense from the prior year
quarter reflects the additional  expenses  associated with opening three banking
centers in the previous twelve months.

<TABLE>
<CAPTION>

Average Yields and Rates
------------------------
 (dollars in thousands)
                                             Three Months Ended September 30,
                                             --------------------------------
                                          2007                             2006
                                          ----                             ----

                                         Average               Average    Average                Average
                                         Balance    Interest  Yield/Cost  Balance   Interest    Yield/Cost
                                       ------------ --------- --------- ----------- --------- ------------
<S>                                         <C>        <C>       <C>         <C>        <C>        <C>
Interest-earning assets:

Loans (1)                                  $239,372    $4,793     8.01%    $212,063    $4,387       8.27%

Mortgage-backed securities                   29,365       355     4.84%      22,163       248       4.48%

Investment securities                        95,016     1,330     5.60%     103,582     1,318       5.09%

Other interest-earning assets                 6,771        96     5.67%       4,687        65       5.51%
                                       ------------ --------- --------- ----------- --------- ------------

Total interest-earning assets               370,524     6,574     7.10%     342,495     6,018       6.66%
                                                    --------- =========             --------- ============

Non-interest-earning assets                  31,146                          28,891
                                       ------------                     -----------

Total assets                               $401,670                        $371,386
                                       ============                     ===========
Interest-bearing liabilities:

Deposits                                    261,025     2,469     3.78%     239,522     2,037       3.40%

Floating rate junior subordinated
deferrable interest debentures               12,372       227     7.34%      11,475       249       8.68%

FHLB advances and other
borrowings                                   98,527     1,165     4.73%      93,407     1,181       5.06%
                                       ------------ --------- --------- ----------- --------- ------------

Total interest-bearing liabilities          371,924     3,861     4.15%     344,404     3,467       4.03%
                                                    --------- =========             --------- ============

Non-interest-bearing liabilities              3,404                           2,626
                                       ------------                     -----------

Total liabilities                           375,328                         347,030

Shareholders' equity                         26,342                          24,356
                                       ------------                     -----------

Total liabilities and
shareholders' equity                       $401,670                        $371,386
                                       ============                     ===========

Net interest income/spread                             $2,713     2.94%                $2,551       3.00%
                                                    =========                       =========
Net yield on earning assets                                       2.93%                             2.98%


(1) Average balances of loans include non-accrual loans.
</TABLE>

                                       20
<PAGE>


Interest Income
---------------

Interest income increased $556,000, or 9.24%, to $6,574,000 for the three months
ended September 30, 2007 as compared to the same period in 2006. Interest income
on loans  increased by 9.25%,  or $406,000,  to $4,793,000  for the three months
ended  September 30, 2007 from  $4,387,000 for the three months ended  September
30, 2006,  due to a higher  average  balance of loans.  Interest on deposits and
federal funds sold,  combined  with  interest and  dividends on  investment  and
mortgage-backed  securities  increased  $150,000  for  the  three  months  ended
September 30, 2007 to $1,781,000 from $1,631,000  during the same period in 2006
due to higher yields from higher market interest rates.

Interest Expense
----------------

Interest  expense  increased  $394,000,  or 11.36%,  to $3,861,000 for the three
months ended  September 30, 2007 as compared to the three months ended September
30, 2006. Interest expense on deposit accounts increased $432,000, or 21.21%, to
$2,469,000 for the three months ended September 30, 2007 from $2,037,000  during
the same period in 2006 due to higher average balances and cost of deposits as a
result of higher market rates.  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  $16,000,  or 1.35%,  for the three months ended September 30, 2007 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 $22,000, or 8.84%,
to $227,000 for the three months ended  September 30, 2007 from $249,000  during
the same period in 2006 due to lower rates due to the  repayment  of older trust
preferred  securities with the proceeds of newer trust preferred securities with
lower rates, offset by higher average balances.

Provision for Loan Losses
-------------------------

During the three months ended  September 30, 2007, the provision for loan losses
was $20,000 as compared  to $45,000  for the same period in the  previous  year.
During the quarter ending September 30, 2007,  $125,000 was received from a loan
that  was  charged  off in the  previous  year  that  was  applied  to the  loan
provision.  The provision  also reflects the increase in the loan  portfolio 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.  Real estate acquired in
foreclosure and classified loans increased $576,000 from $8,180,000 at September
30, 2006 to  $8,756,000  at  September  30,  2007.  The  increase  was due to an
increase in classified commercial loans. During the three months ended September
30, 2007, bad debt  charge-offs,  net of  recoveries,  was $6,000 as compared to
$4,000 for the same period in the previous year.

Non-Interest Income
-------------------

Total non-interest income increased $62,000, or 8.61%, to $782,000 for the three
months  ended  September  30,  2007  from  $720,000  for the same  period in the
previous year.  Fees from financial  services  increased  $67,000,  or 9.67%, to
$760,000  for the three months ended  September  30, 2007 from  $693,000 for the
same  period in the  previous  year.  The change was from an increase in service
charges due to an increase in the number of transaction accounts.


                                       21
<PAGE>


Non-Interest Expense
--------------------

For the three  months  ended  September  30, 2007,  total  non-interest  expense
increased $211,000,  or 9.20%, to $2,505,000 from $2,294,000 for the same period
in 2006.  The increase was due primarily to higher  operating  costs  associated
with banking  centers  opened in  Simpsonville,  South  Carolina and two in Rock
Hill,  South  Carolina  during the  previous  twelve  months.  Compensation  and
employee  benefits  increased  $218,000,  or 19.91%, to $1,313,000 for the three
months ended  September 30, 2007 from $1,095,000 for the same period in 2006 due
primarily  to higher  compensation  and  benefits  costs for normal merit salary
increases and additional staff due to the new banking center openings. Occupancy
and equipment expense increased  $144,000,  or 30.97%, to $609,000 for the three
months ended  September 30, 2007 from $465,000 for the same period in 2006,  due
primarily to higher lease expense from the new locations.  Professional services
expense  decreased  $17,000,  or 15.89%,  to $90,000 for the three  months ended
September 30, 2007 from $107,000 for the same period in 2006, due to lower legal
expenses.  Advertising/public relations expense decreased $82,000, or 69.49%, to
$36,000 for the three months ended September 30, 2007 from $118,000 for the same
period in 2006 due primarily to higher prior year product and promotion expenses
for the new banking center locations. Loan operations expense increased $18,000,
or 60%, to $48,000 for the three  months ended  September  30, 2007 from $30,000
for  the  same  period  in  2006,  due to  higher  costs  associated  with  loan
foreclosures.  Intangible  amortization expense decreased $55,000, or 34.59%, to
$104,000  for the three months ended  September  30, 2007 from  $159,000 for the
same  period in 2006,  due to deposit  premiums  related to branch  acquisitions
becoming  fully  amortized.  Other  expense  decreased  $31,000,  or 13.60%,  to
$197,000  for the three months ended  September  30, 2007 from  $228,000 for the
same period in 2006,  due  primarily  to lower  costs  associated  with  deposit
account charge-offs.

Results of operations for the nine months ended September 30, 2007 and 2006
---------------------------------------------------------------------------

General
-------

Net income decreased $12,000,  or 0.60%, to $1,977,000 for the nine months ended
September  30,  2007 as compared  to  $1,989,000  for the same period in 2006 as
increases in net interest income and non-interest  income and a reduction in the
provision  for loan losses were more than offset by an increase in  non-interest
expense.  The increase in non-interest  expense from the prior year reflects the
additional  expenses  associated  with  opening  three  banking  centers  in the
previous twelve months. During the third quarter, the Company closed one banking
center  located in  Winnsboro,  South  Carolina.  The  deposits  and  operations
contained in the banking center closed were moved into a larger Winnsboro, South
Carolina location in order to improve the efficiencies for Fairfield County. The
Company  recorded  a $135,000  write-down  on the  building  value of the closed
location.



                                       22
<PAGE>

<TABLE>
<CAPTION>

Average Yields and Rates
------------------------
 (dollars in thousands)
                                         Nine Months Period Ended September 30,
                                         --------------------------------------
                                          2007                             2006
                                          ----                             ----

                                         Average               Average    Average                Average
                                         Balance    Interest  Yield/Cost  Balance   Interest    Yield/Cost
                                       ------------ --------- --------- ----------- --------- ------------
<S>                                         <C>        <C>       <C>         <C>        <C>        <C>
Interest-earning assets:

Loans (1)                                  $237,503   $14,373    8.07%     $205,247   $12,306     7.99%

Mortgage-backed securities                   26,895       951    4.71%       24,879       808     4.33%

Investment securities                        94,421     3,833    5.41%      109,554     3,927     4.78%

Other interest-earning assets                 7,140       297    5.55%        5,107       173     4.52%
                                       ------------ --------- --------- ----------- --------- ------------

Total interest-earning assets               365,959    19,454    7.09%      344,787    17,214     6.66%
                                                    --------- =========             --------- ============

Non-interest-earning assets                  30,361                          26,734
                                       ------------                     -----------

Total assets                               $396,320                        $371,521
                                       ============                     ===========
Interest-bearing liabilities:

Deposits                                    260,728     7,254    3.71%      245,057     5,647     3.07%

Floating rate junior subordinated
deferrable interest debentures               12,372       673    7.25%        9,335       596     8.51%

FHLB advances and other
borrowings                                   93,709     3,332    4.74%       89,741     3,084     4.58%
                                       ------------ --------- --------- ----------- --------- ------------

Total interest-bearing liabilities          366,809    11,259    4.09%      344,133     9,327     3.61%
                                                    --------- =========             --------- ============

Non-interest-bearing liabilities              2,963                           2,319
                                       ------------                     -----------

Total liabilities                           369,772                         346,452

Shareholders' equity                         26,548                          25,069
                                       ------------                     -----------

Total liabilities and
shareholders' equity                       $396,320                        $371,521
                                       ============                     ===========

Net interest income/spread                            $ 8,195    3.00%                $ 7,887     3.05%
                                                    =========                       =========

Net yield on earning assets                                      2.99%                            3.05%


(1) Average balances of loans include non-accrual loans.
</TABLE>

Interest Income
---------------

Interest income  increased  $2,240,000,  or 13.01%,  to $19,454,000 for the nine
months ended September 30, 2007 as compared to the same period in 2006. Interest
income on loans increased by 16.80%, or $2,067,000,  to $14,373,000 for the nine
months  ended  September  30, 2007 from  $12,306,000  for the nine months  ended
September 30, 2006, due primarily to increasing market interest rates along with
a  higher  average  balance  of  loans  with a  higher  average  rate due to our
increased  emphasis on commercial  and consumer loan  originations.  Interest on

                                       23
<PAGE>


deposits  and federal  funds sold,  combined  with  interest  and  dividends  on
investment and mortgage-backed  securities increased $173,000, or 3.52%, for the
nine months ended September 30, 2007 to $5,081,000  from  $4,908,000  during the
same  period in 2006 due to higher  yields from higher  market  interest  rates,
offset by lower average balances.

Interest Expense
----------------

Interest expense  increased  $1,932,000,  or 20.71%, to $11,259,000 for the nine
months ended  September 30, 2007 as compared to the nine months ended  September
30, 2006. Interest expense on deposit accounts increased $1,607,000,  or 28.46%,
to  $7,254,000  for the nine months  ended  September  30, 2007 from  $5,647,000
during  the same  period in 2006 due to  higher  averages  balances  and cost of
deposits as a result of higher market rates. The Corporation continues to target
lower cost demand deposit accounts versus  traditional  higher cost certificates
of deposits.  Interest expense on borrowings  increased $248,000,  or 8.04%, for
the nine months ended  September  30, 2007 as compared to the same period in the
previous year due to higher market  interest rates and higher average  balances.
Interest  expense on  floating  rate  junior  subordinated  deferrable  interest
debentures  increased $77,000,  or 12.92%, to $673,000 for the nine months ended
September  30, 2007 from  $596,000  during the same period in 2006 due to higher
average balances,  offset by lower rates as existing higher-cost debentures were
repaid with the proceeds of a new issuance at a lower rate. In addition, on July
21, 2006, the Corporation  completed a private  placement of $4 million in trust
preferred  securities thereby increasing the average outstanding  balances as of
September 30, 2007 compared to the nine month period for 2006.

Provision for Loan Losses
-------------------------

During the nine months ended  September 30, 2007,  the provision for loan losses
was $265,000 as compared to $355,000  for the same period in the previous  year.
During the quarter ending September 30, 2007,  $125,000 was received from a loan
that  was  charged  off in the  previous  year  that  was  applied  to the  loan
provision.  The  provision  also  reflects  loan  growth  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. Real estate acquired in foreclosure and
loans  classified  increased  $1,698,000 from $7,058,000 at December 31, 2006 to
$8,756,000  at  September  30,  2007.  The  increase  was due  primarily  to two
commercial loans totaling $2,018,000 becoming  classified,  offset by a decrease
in nonperforming  residential real estate loans.  These loans are well supported
by  commercial  real  estate  that  should  reduce the  exposure to loss for the
Corporation.  During  the  nine  months  ended  September  30,  2007,  bad  debt
charge-offs, net of recoveries, was $64,000 as compared to $134,000 for the same
period in the previous year.  Corporation's loan loss allowance at September 30,
2007 was approximately 1.20% of the Corporation's outstanding loan portfolio and
87.63%  of   non-performing   loans  compared  to  1.17%  of  the  Corporation's
outstanding loan portfolio and 212.66% of  non-performing  loans at December 31,
2006.

The changes in the  allowance  for loan losses  consisted of the  following  (in
thousands):


         Balance at beginning of period             $2,754

         Provision for loan losses                     265

         Charge-offs, net                             (64)
                                                   -------

         Balance at end of period                   $2,955
                                                   =======


                                       24
<PAGE>


The  following  table  sets  forth   information  with  respect  to  the  Bank's
non-performing assets at the dates indicated (dollars in thousands):

                                         September 30, 2007  December 31, 2006
                                         ------------------  -----------------
Non-accruing loans which are
contractually past due 90 days
 or more:

Residential real estate                     $       84         $       459
Commercial                                       3,120                 631
Consumer                                           168                 205
                                            ----------         -----------
Total                                       $    3,372         $     1,295
                                            ==========         ===========

Percentage of loans receivable                    1.39%               0.56%
                                            ==========         ===========

Percentage of allowance for loan losses
to total loans outstanding                        1.20%               1.17%
                                            ==========         ===========

Allowance for loan losses                   $    2,955         $     2,754
                                            ==========         ===========

Real estate acquired through
foreclosure and repossessed assets          $       22         $       148
                                            ==========         ===========

Non-performing  loans for the nine months  ended  September  30, 2007  increased
$2,077,000 from December 31, 2006 due primarily to two commercial loans totaling
$2,018,000  becoming 90 days  delinquent,  offset by a decrease in nonperforming
residential real estate loans. These loans are well supported by commercial real
estate that should reduce the exposure to loss for the Corporation.

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  performing  group  is  developed  from  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  $184,000,  or 8.63%, to $2,317,000 for the
nine months ended  September 30, 2007 from $2,133,000 for the same period in the
previous year. Fees from financial  services  increased  $198,000,  or 9.64%, to
$2,253,000 for the nine months ended  September 30, 2007 from $2,055,000 for the
same period in the previous year. The increase was due to higher service fees as
a result of an increase in transaction accounts.

Non-Interest Expense
--------------------

For the nine  months  ended  September  30,  2007,  total  non-interest  expense
increased $803,000, or 11.72%, to $7,657,000 from $6,854,000 for the same period
in 2006.  The increase was due primarily to higher  operating  costs  associated
with a banking  center opened in  Simpsonville,  South  Carolina and two in Rock
Hill,  South  Carolina  during  the  previous  twelve  months.  During the third
quarter,  the Company  closed one banking  center  located in  Winnsboro,  South
Carolina.  The deposits and  operations  contained in the banking  center closed
were moved into a larger Winnsboro,  South Carolina location in order to improve
the  efficiencies  for  Fairfield  County.   The  Company  recorded  a  $135,000
write-down  on the  building  value of the  closed  location.  Compensation  and

                                       25
<PAGE>


employee  benefits  increased  $449,000,  or 13.50%,  to $3,776,000 for the nine
months ended  September 30, 2007 from $3,327,000 for the same period in 2006 due
primarily  to higher  compensation  and  benefits  costs for normal merit salary
increases and additional staff due to the new banking center openings. Occupancy
and equipment expense increased $425,000,  or 28.77%, to $1,902,000 for the nine
months ended  September 30, 2007 from $1,477,000 for the same period in 2006 due
primarily to higher lease expense from the new locations along with the $135,000
write down for the closed banking  center.  Loan  operations  expense  increased
$56,000,  or 93.33%,  to $116,000 for the nine months ended  September  30, 2007
from $60,000 for the same period in 2006,  due to higher costs  associated  with
foreclosures.  Intangible amortization expense decreased $102,000, or 21.38%, to
$375,000 for the nine months ended September 30, 2007 from $477,000 for the same
period in 2006, due to deposit premiums related to branch acquisitions  becoming
fully amortized.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk
         ----------------------------------------------------------

The  Corporation  is  committed  to  following a program of asset and  liability
management  in an  effort to  manage  the  fluctuations  in  earnings  caused by
movements in interest rates. A significant  portion of the Corporation's  income
results  from the spread  between  the yield  realized  on its  interest-earning
assets  and the rate of  interest  paid on its  deposits  and other  borrowings.
Differences  in the timing and volume of repricing  assets versus the timing and
volume of repricing  liabilities  expose the  Corporation to interest rate risk.
Management's  policies  are  directed  at  minimizing  the impact on earnings of
movements in interest rates.

The  Corporation's   Asset/Liability   Committee  makes  pricing  and  marketing
decisions  on  deposit  and loan  products  in  conjunction  with  managing  the
Corporation's  interest rate risk. In addition,  the  Asset/Liability  Committee
reviews  the  Corporation's  securities  portfolio,   FHLB  advances  and  other
borrowings as well as the Corporation's asset and liability policies.

The primary  objective of  Asset/Liability  management at the  Corporation is to
manage  interest  rate risk and achieve  reasonable  stability  in net  interest
income throughout  interest rate cycles in order to maintain adequate liquidity.
This is achieved by  maintaining  the proper balance of  rate-sensitive  earning
assets   and   rate-sensitive   costing   liabilities.   The   relationship   of
rate-sensitive  earning  assets to  rate-sensitive  costing  liabilities  is the
principal factor in projecting the effect that  fluctuating  interest rates will
have on future net interest income.  Rate-sensitive  assets and interest-bearing
liabilities  are those that can be repriced  to current  market  rates  within a
relatively  short time  period.  Management  monitors  the rate  sensitivity  of
interest-earning assets and interest-bearing liabilities over the entire life of
these instruments.

The  Corporation  has  established  policies  and  monitors  results  to control
interest rate  sensitivity.  Although the Corporation  utilizes measures such as
static  gap,  which  is  simply  the  measurement  of  the  difference   between
interest-sensitive  assets and  interest-sensitive  liabilities  repricing for a
particular  time period,  just as important a process is the  evaluation  of how
particular  assets and  liabilities are impacted by changes in interest rates or
selected  indices  as they  reprice.  Asset/liability  modeling  techniques  are
utilized by the  Corporation to assess  varying  interest rate and balance sheet
mix assumptions.

Net Interest Income Simulation Analysis

The Corporation  analyzes its interest rate  sensitivity  position to manage the
risk associated with interest rate movements  through the use of interest income
simulation.  The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities  are "interest rate  sensitive."
An asset or liability is said to be interest  rate  sensitive  within a specific
time period if it will mature or reprice within that time period.

Interest  income  simulations  utilizing  interest  rate  shocks  are  completed
quarterly  and  presented  to the  Asset/Liability  Committee.  The  simulations
provide an estimate of the impact of changes in interest  rates on net  interest
income under a range of  assumptions.  The interest  rate shocks are compared to

                                       26
<PAGE>


board approved policy limits. The simulation incorporates  assumptions regarding
the potential  timing in the repricing of certain  assets and  liabilities  when
market rates change and the changes in spreads between  different  market rates.
The simulation analysis incorporates management's current assessment of the risk
that pricing margins will change adversely over time due to competition or other
factors.

Simulation analysis is only an estimate of the Corporation's  interest rate risk
exposure at a particular point in time. The Corporation  continually reviews the
potential  effect  changes in interest rates could have on the repayment of rate
sensitive assets and funding requirements of rate sensitive liabilities.

The table below sets forth an approximation of the  Corporation's  exposure as a
percentage  of estimated  net  interest  income for the next twelve month period
using interest income  simulation.  The simulation  uses projected  repricing of
assets  and  liabilities  on the basis of  contractual  maturities,  anticipated
repayments  and  scheduled  rate  adjustments.   Prepayment  rates  can  have  a
significant  impact on interest  income  simulation.  When interest  rates rise,
prepayments tend to slow. When interest rates fall, prepayments tend to rise.

The following table reflects  changes in estimated net interest income from rate
shocks of (+) or (-) 100 and 200 basis  points in a rising and falling  interest
rate environment for the Corporation.

                                                   At                    At
                                              September 30,         December 31,
      Change in Rates (Basis Points)              2007                  2006
      ------------------------------              ----                  ----

               +200                              +4.49%                +3.76%

               +100                              +2.57%                +2.06%

               -100                              -2.81%                -2.42%

               -200                              -7.91%                -5.91%


The  Corporation's  exposure to rates  increased  slightly for the period ending
September  30,  2007 as  compared  to the period  ending  December  31, 2006 due
primarily to growth in  prime-based  loan products  along with increases in term
deposits.

The 200 and 100 basis  point  change in rates in the above  table is  assumed to
occur evenly over the following twelve months.  Based on the scenario above, net
interest  income would be  positively  affected in the  twelve-month  periods if
rates rose by 100 and 200 basis points, but would be adversely affected if rates
declined by 100 and 200 basis points.

Item 4. 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.


                                       27
<PAGE>


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.

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, 2006, 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 third quarter of 2007.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------
        <S>                      <C>                    <C>                      <C>                          <C>
                                 (a)                    (b)                      (c)                          (d)
                                Total              Average Price        Total Number of Shares         Maximum Number of
                              Number of           Paid per share         Purchased as part of           Shares that may
                               Shares                                         Publicly                   be purchased
                              Purchased                                       Announced                      under
       Period                                                                 Programs                      Program

------------------------ ------------------- ------------------------- ------------------------ --------------------------

July 1, 2007 through             7,219                $20.92                    7,219                        69,355
July 31, 2007

------------------------ ------------------- ------------------------- ------------------------ --------------------------

August 1, 2007 through          10,000                $20.05                   10,000                        59,355
August 31, 2007

------------------------ ------------------- ------------------------- ------------------------ --------------------------

September 1, 2007                 --                    --                       --                          59,355
through September 30,
2007

------------------------ ------------------- ------------------------- ------------------------ --------------------------

  Total                         17,219                $20.41                   17,219                         N/A

--------------------------------------------------------------------------------------------------------------------------
</TABLE>

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.


                                       28
<PAGE>


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




                                       29
<PAGE>


                                   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:  November 8, 2007         By:   /s/ Dwight V. Neese
      -------------------           --------------------------------------
                                      Dwight V. Neese, President and
                                      Chief Executive Officer


Date:  November 8, 2007         By:   /s/ Richard H. Flake
      -------------------            ---------------------------------------
                                      Richard H. Flake, Executive Vice President
                                      and Chief Financial Officer



                                       30