SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the Quarterly Period Ended Commission file
                             June 30, 2004 000-20616

                          PEOPLES BANCORPORATION, INC.
                          ----------------------------
             (Exact name of registrant as specified in its charter)

         South Carolina                                       57-09581843
         --------------                                  -------------------
 (State or other jurisdiction of                         (I.R.S. Employer
  incorporation or organization)                         Identification No.)

 1818 East Main Street, Easley, South Carolina                    29640
 ---------------------------------------------                    -----
 (Address of principal executive offices)                       (Zip Code)

                  Registrant's telephone number: (864) 859-2265


              Indicate by check mark whether the registrant (1) has
              filed all reports required to be filed by Section 13
                or 15 (d) of the Securities Exchange Act of 1934
           during the preceding 12 months (or for such shorter period
                  that the Registrant was required to file such
                reports), and (2) has been subject to such filing
                       requirements for the past 90 days.

                             Yes [X]  No [ ]


         Indicate by check mark whether the registrant is an accelerated
             filer (as defined in Rule 12 b-2 of the Exchange Act).

                              Yes [ ]  No [X]


  The number of outstanding shares of the issuer's $1.67 par value common stock
                      as of August 10, 2004 was 3,689,451.




<PAGE>



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements


         Peoples Bancorporation, Inc. and Subsidiaries
                  Consolidated Balance Sheets
           (Dollars in thousands except share data)
<TABLE>
<CAPTION>
                                                                                           June 30,        June 30,     December 31,
                                                                                             2004            2003           2003
                                                                                          Unaudited       Unaudited       Audited
                                                                                          ---------       ---------       -------
ASSETS
<S>                                                                                       <C>              <C>             <C>
CASH AND DUE FROM BANKS ...........................................................       $  11,653        $  10,764       $   9,164
INTEREST-BEARING DEPOSITS IN OTHER BANKS ..........................................             961               17             214
FEDERAL FUNDS SOLD ................................................................           9,976           19,108          11,865
                                                                                          ---------        ---------       ---------
     Total cash and cash equivalents ..............................................          22,590           29,889          21,243
SECURITIES
     Available for sale ...........................................................          64,053           63,094          78,714
     Held for investment (market value of $7,334, $5,089 and $3,417) ..............           7,434            4,845           5,632
       Other investments, at cost .................................................           1,814            2,057           2,147
LOANS-less allowance for loan losses of $3,607, $3,220 and $3,438 .................         307,329          275,961         292,814
MORTGAGE LOANS HELD FOR SALE ......................................................           4,049           40,337           5,101
PREMISES AND EQUIPMENT, net of accumulated
     depreciation and amortization ................................................          11,203            9,802          10,231
ACCRUED INTEREST RECEIVABLE .......................................................           1,679            1,824           1,821
CASH SURRENDER VALUE OF LIFE INSURANCE ............................................           9,522            2,253           2,294
OTHER ASSETS ......................................................................           2,202            1,738           1,759
                                                                                          ---------        ---------       ---------
         TOTAL ASSETS .............................................................       $ 431,875        $ 431,800       $ 421,756
                                                                                          =========        =========       =========

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
DEPOSITS
     Noninterest-bearing ..........................................................       $  47,551        $  44,584       $  42,289
     Interest-bearing .............................................................         307,467          314,410         311,040
                                                                                          ---------        ---------       ---------
         Total deposits ...........................................................         355,018          358,994         353,329
SECURITIES SOLD UNDER REPURCHASE
     AGREEMENTS ...................................................................          32,589           29,233          24,390
FEDERAL FUNDS PURCHASED ...........................................................             267                -               -
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ...........................................           5,000            5,000           5,000
ACCRUED INTEREST PAYABLE ..........................................................           1,245            1,557           1,604
OTHER LIABILITIES .................................................................           1,594            1,485           1,272
                                                                                          ---------        ---------       ---------
         Total Liabilities ........................................................         395,713          396,269         385,595
                                                                                          ---------        ---------       ---------
SHAREHOLDERS' EQUITY *
Common Stock - 15,000,000 shares authorized, $1.11
     Par value per share, 5,524,131 shares, 5,261,866 shares ......................           6,132            5,841           6,132
       and 5,524,131 shares outstanding, respectively .............................
Additional paid-in capital ........................................................          29,523           25,775          29,523
Retained Earnings .................................................................           1,467            3,423             444
Accumulated other comprehensive income (loss) .....................................            (960)             492              62
                                                                                          ---------        ---------       ---------
         Total Shareholders' Equity ...............................................          36,162           35,531          36,161
                                                                                          ---------        ---------       ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................................       $ 431,875        $ 431,800       $ 421,756
                                                                                          =========        =========       =========
</TABLE>

* Share data has been  restated to reflect the 3-for-2  stock split to be issued
in October 2004 and the 5% common stock dividend issued in November 2003.

                                       1
<PAGE>

<TABLE>
<CAPTION>
Peoples Bancorporation, Inc. and Subsidiaries
          Consolidated Statements of Income
      (Dollars in thousands except share data)                               Three Months Ended                 Six Months Ended
                      Unaudited                                                   June 30,                          June 30,
                                                                            2004              2003            2004           2003
                                                                            ----              ----            ----           ----
INTEREST INCOME
<S>                                                                    <C>              <C>              <C>              <C>
   Interest and fees on loans ..................................       $    4,573       $    4,541       $    9,053       $    9,068
   Interest on securities
       Taxable .................................................              461              571              978            1,301
       Tax-exempt ..............................................               58               45              110               87
   Interest on federal funds ...................................               21               39               55               65
                                                                       ----------       ----------       ----------       ----------
Total interest income ..........................................            5,113            5,196           10,196           10,521
                                                                       ----------       ----------       ----------       ----------

INTEREST EXPENSE
   Interest on deposits ........................................            1,448            1,729            2,977            3,457
   Interest on federal funds purchased and securities
       sold under repurchase agreements ........................               70              107              130              240
    Interest on notes payable Federal Home Loan Bank ...........               65               79              126              154
                                                                       ----------       ----------       ----------       ----------
Total interest expense .........................................            1,583            1,915            3,233            3,851
                                                                       ----------       ----------       ----------       ----------

Net interest income ............................................            3,530            3,281            6,963            6,670

PROVISION FOR LOAN LOSSES ......................................              153              329              283              458
                                                                       ----------       ----------       ----------       ----------

Net interest income after provision for loan losses ............            3,377            2,952            6,680            6,212

NON-INTEREST INCOME
   Service fees and other income ...............................              881              665            1,619            1,287
   Gain on sale of mortgage loans held for sale ................              615            2,761            1,087            4,872
   Gain on sale of available for sale securities ...............               34                6              127                7
                                                                       ----------       ----------       ----------       ----------
                                                                            1,530            3,432            2,833            6,166
NON-INTEREST EXPENSES
   Salaries and benefits .......................................            2,099            2,119            4,254            4,145
   Occupancy ...................................................              167              149              326              298
   Equipment ...................................................              322              224              617              476
   Marketing and advertising ...................................               70              109              149              173
   Communications ..............................................               56               65              117              128
   Printing and supplies .......................................               53               66               96              131
   Bank paid loan costs ........................................               83              140              144              254
   Director fees ...............................................               69               68              141              143
   Executive retirement benefit expense ........................               29               41              448               79
   Other operating expenses ....................................              508              549              956            1,097
                                                                       ----------       ----------       ----------       ----------
             Total noninterest expenses ........................            3,456            3,530            7,248            6,924
                                                                       ----------       ----------       ----------       ----------
   Income before income taxes ..................................            1,451            2,854            2,265            5,454

PROVISION FOR INCOME TAXES .....................................              454            1,043              727            1,986
                                                                       ----------       ----------       ----------       ----------

   Net income ..................................................       $      997       $    1,811       $    1,538       $    3,468
                                                                       ==========       ==========       ==========       ==========

INCOME PER COMMON SHARE *
   BASIC .......................................................       $     0.18       $     0.33       $     0.28       $     0.63
                                                                       ==========       ==========       ==========       ==========
   DILUTED .....................................................       $     0.17       $     0.32       $     0.27       $     0.61
                                                                       ==========       ==========       ==========       ==========

WEIGHTED AVERAGE COMMON SHARES *
   BASIC .......................................................        5,524,131        5,524,960        5,524,131        5,524,960
                                                                       ==========       ==========       ==========       ==========
   DILUTED .....................................................        5,743,099        5,714,518        5,733,499        5,724,892
                                                                       ==========       ==========       ==========       ==========

CASH DIVIDENDS PAID PER COMMON SHARE ...........................       $     0.07       $     0.07       $     0.14       $     0.14
                                                                       ==========       ==========       ==========       ==========
</TABLE>

* Share data has been  restated to reflect the 3-for-2  stock split to be issued
in October 2004 and the 5% common stock dividend issued in November 2003.




                                       2
<PAGE>

                 Peoples Bancorporation, Inc. and Subsidiaries
           Consolidated Statements of Changes in Shareholders' Equity
                for the six months ended June 30, 2004 and 2003

                    (Dollars in thousands except share data)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                      Common stock           Additional                   other            Total
                                                      ------------             paid-in     Retained   comprehensive    shareholders'
                                                  Shares         Amount        capital     earnings   Income (loss)       equity
                                                  ------         ------        -------     --------   -------------       ------
<S>                                            <C>           <C>            <C>           <C>           <C>            <C>
Balance, December 31, 2002* .................  5,261,866     $    5,841     $   25,775    $      446    $      685     $   32,747
Net Income ..................................                                                  3,468                        3,468
Other comprehensive income,
  net of tax:
   Unrealized holding gains on
   securities available for sale ............                                                                 (188)          (188)
   Less reclassification
   adjustments for gains
   included in net income, net of
   Income taxes of $2 .......................                                                                   (5)            (5)
                                                                                                                       ----------
Comprehensive income ........................                                                                               3,275
Cash Dividends ..............................                                                   (491)                        (491)
                                               ---------     ----------     ----------    ----------    ----------     ----------
Balance, June 30, 2003* .....................  5,261,866     $    5,841     $   25,775    $    3,423    $      492     $   35,531
                                              ==========     ==========     ==========    ==========    ==========     ==========

Balance, December 31, 2003* .................  5,524,131     $    6,132     $   29,523    $      444    $       62     $   36,161
Net Income ..................................                                                  1,538                        1,538
Other comprehensive income, net of tax:
   Unrealized holding losses on
   securities available for sale ............                                                                 (938)          (938)
   Less reclassification
   adjustments for gains
   included in net income, net of
   income taxes of $43 ......................                                                                   (84)          (84)
                                                                                                                       ----------
                                                                                                                                0
Comprehensive income ........................                                                                                 516
Cash Dividends ..............................                                                   (515)                        (515)
                                              ----------     ----------     ----------    ----------    ----------     ----------
Balance, June 30, 2004* .....................  5,524,131     $    6,132     $   29,523    $    1,467    $     (960)    $   36,162
                                              ==========     ==========     ==========    ==========    ==========     ==========
</TABLE>


* Share data has been  restated to reflect the 3-for-2  stock split to be issued
in October 2004 and the 5% common stock dividend issued in November 2003.


                                       3
<PAGE>

<TABLE>
<CAPTION>
              Peoples Bancorporation, Inc. and Subsidiaries
                  Consolidated Statements of Cash Flows                                                           (Unaudited)
                          (Dollars in thousands)                                                               Six months Ended
                                                                                                                   June 30,
                                                                                                           2004               2003
                                                                                                           ----               ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                                   <C>                 <C>
   Net Income ..............................................................................          $   1,538           $   3,468
   Adjustments to reconcile net income to net cash provided
     by operating activities
   Gain on sale of premises and equipment ..................................................                (13)                 (7)
   Gain on sale of securities available for sale ...........................................               (127)                 (7)
   Gain on sale mortgage loans held for sale ...............................................             (1,087)             (4,872)
   Provision for loan losses ...............................................................                283                 458
   Depreciation and amortization ...........................................................                501                 405
   Amortization and accretion (net) of premiums and
     discounts on securities ...............................................................                148                 188
   Origination of mortgage loans held for sale .............................................            (97,539)           (274,717)
   Sale of mortgage loans held for sale ....................................................             99,678             294,278
   Decrease in accrued interest receivable .................................................                142                 153
   Decrease (increase) in other assets .....................................................               (447)               (361)
   Decrease in accrued interest payable ....................................................               (359)                (18)
   Increase in other liabilities ...........................................................                975                 303
                                                                                                      ---------           ---------
     Net cash provided by operating activities .............................................              3,693              19,271
                                                                                                      ---------           ---------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of securities held for investment .............................................             (2,139)               (405)
   Purchases of securities available for sale ..............................................            (21,236)            (45,471)
   Purchase of other investments ...........................................................               (139)               (195)
   Proceeds from the principal pay downs on securities available for sale ..................              3,292               8,026
   Proceeds from the maturity of securities held to maturity ...............................                320                 275
   Proceeds from the maturity of securities available for sale .............................                472               3,200
   Proceeds from the sale of securities available for sale .................................              8,101               5,999
   Proceeds from the call of securities available for sale .................................             22,825              44,265
   Purchase of cash surrender value life insurance .........................................             (7,224)                  -
   Net increase in loans ...................................................................            (14,798)            (28,782)
   Proceeds from the sale of premises and equipment ........................................                 18                  44
   Purchase of premises and equipment ......................................................             (1,478)               (712)
                                                                                                      ---------           ---------
     Net cash used in investing activities .................................................            (11,986)            (13,756)
                                                                                                      ---------           ---------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in deposits ................................................................              1,689              30,821
   Net increase (decrease) in securities sold under repurchase
     agreements ............................................................................              8,199              (6,098)
   Net increase in federal funds purchased .................................................                267                   -
   Net decrease in notes payable to Federal Home Loan Bank .................................                  -             (12,000)
   Cash dividend ...........................................................................               (515)               (491)
                                                                                                      ---------           ---------
     Net cash provided by financing activities .............................................              9,640              12,232
                                                                                                      ---------           ---------
     Net increase in cash and cash equivalents .............................................              1,347              17,747
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...............................................             21,243              12,142
                                                                                                      ---------           ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................................................          $  22,590           $  29,889
                                                                                                      =========           =========

CASH PAID FOR
     Interest ..............................................................................          $   3,375           $   3,869
                                                                                                      =========           =========
     Income Taxes ..........................................................................          $     545           $   1,778
                                                                                                      =========           =========
</TABLE>


                                       4
<PAGE>


                  PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      A summary of these  policies is included in the 2003 Annual Report on Form
10-K and incorporated herein by reference.

STATEMENT OF CASH FLOWS

      Cash  includes  currency  and coin,  cash items in process of  collection,
amounts due from banks and  federal  funds sold.  All have  maturities  of three
months or less.

COMMON STOCK

     The Board of Directors declared cash dividends of $0.07 per common share to
shareholders  of record March 19, 2004 and June 18, 2004,  payable April 2, 2004
and July 9, 2004.

     Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share,"  requires  that the  Company  present  basic and  diluted net income per
common share.  The assumed  conversion of stock options  creates the  difference
between  basic and diluted net income per share.  Income per share is calculated
by  dividing  net  income  by the  weighted  average  number  of  common  shares
outstanding  for each period  presented.  The weighted  average number of common
shares  outstanding  for basic net income  per  common  share for the six months
ended June 30,  2004 and 2003 was  5,524,131  and  5,524,960  respectively.  The
weighted average number of common shares  outstanding for diluted net income per
common share was  5,733,499 and 5,724,892 for the six months ended June 30, 2004
and 2003.

      The following table  illustrates the effect on net income and earnings per
share if the  Company  had  applied  the fair value  recognition  provisions  of
Financial  Accounting  Standards  Board  ("FASB") SFAS No. 123,  Accounting  for
Stock-Based Compensation, to stock-based employee compensation.

<TABLE>
<CAPTION>
                                                                             Three Months Ended               Six Months Ended
                                                                             ------------------               ----------------
                                                                                  June 30,                        June 30,
                                                                                  --------                        --------
                                                                       2004                2003              2004          2003
                                                                       ----                ----              ----          ----

<S>                                                                 <C>               <C>               <C>              <C>
Net income, as reported ......................................      $        997      $      1,811      $      1,538     $    3,468
Deduct:  total stock-based employee compensation
  expense determined under fair value based method
  for all awards, Net of related tax effects .................               (27)              (11)              (55)           (22)
                                                                    ------------      ------------      ------------      ---------
Pro forma net income .........................................      $        970      $      1,800      $      1,483     $    3,446
                                                                    ============      ============      ============      =========
Net income per common share
  Basic - as reported ........................................      $       0.18      $       0.33      $       0.28      $    0.63
                                                                    ============      ============      ============      =========
  Basic - pro forma ..........................................      $       0.18      $       0.33      $       0.27      $    0.62
                                                                    ============      ============      ============      =========
  Diluted - as reported ......................................      $       0.17      $       0.32      $       0.27      $    0.61
                                                                    ============      ============      ============      =========
  Diluted - pro forma ........................................      $       0.17      $       0.31      $       0.26      $    0.60
                                                                    ============      ============      ============      =========
</TABLE>


                                       5
<PAGE>


      The Company issued a  five-percent  common stock dividend in November 2003
and will  issue a 3-for-2  stock  split in  October  2004.  Share  data has been
restated to reflect  these  transactions.  Upon  issuance  of the 3-for-2  stock
split,  the  Company  will  file  articles  of  amendment  to  its  Articles  of
Incorporation  increasing it's  authorized  shares from 10,000,000 to 15,000,000
and decreasing it's par value from $1.67 per share to $1.11 per share.


MANAGEMENT'S OPINION

     The accompanying unaudited financial statements of Peoples  Bancorporation,
Inc. have been  prepared in  accordance  with  accounting  principles  generally
accepted in the United States of America for interim  financial  information and
with the  instructions  to Form 10-Q  according to  guidelines  set forth by the
Securities  and  Exchange  Commission.  Accordingly,  they  do not  include  all
information and notes required by accounting  principles  generally  accepted in
the United States of America for complete financial statements.  However, in the
opinion  of  management,   all  adjustments   (consisting  of  normal  recurring
adjustments)  considered necessary for the fair presentation have been included.
The results of operations for any interim period are not necessarily  indicative
of the results to be expected for an entire year.





                                       6
<PAGE>


Forward-Looking Statements

         From time to time,  including in this  report,  the Company may publish
forward-looking  statements  relating to such matters as  anticipated  financial
performance,  business prospects,  technological developments,  new products and
similar   matters.   All   statements   that  are  not   historical   facts  are
"forward-looking  statements."  Words such as "estimate,"  "project,"  "intend,"
"expect,"  "believe,"  "anticipate,"  "plan," and similar  expressions  identify
forward-looking statements. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking  statements.  In order to comply with
terms of the safe  harbor,  the  Company  notes that a variety of factors  could
cause the Company's actual results and experience to differ  materially from the
anticipated   results  or  other   expectations   expressed  in  the   Company's
forward-looking  statements.  The risks and  uncertainties  that may  affect the
operations,  performances,  development  and results of the  Company's  business
include,  but are not limited to, the following:  risks from changes in economic
and industry  conditions;  changes in interest  rates;  risks inherent in making
loans  including  repayment  risks  and  value of  collateral;  adequacy  of the
allowance for loan losses; dependence on senior management; and recently-enacted
or proposed  legislation.  Statements  contained  in this report  regarding  the
demand for Peoples  Bancorporation's  products and services,  changing  economic
conditions,  interest rates, consumer spending and numerous other factors may be
forward-looking statements and are subject to uncertainties and risks.

Item 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following  discussion and analysis  should be read in conjunction  with
the consolidated financial statements and related notes and with the statistical
information  and  financial  data  appearing  in this report as well as the 2003
Annual  Report  of  Peoples  Bancorporation,  Inc.  on  Form  10-K.  Results  of
operations for the  three-month  and six-month  periods ending June 30, 2004 are
not necessarily indicative of the results to be attained for any other period.

Critical Accounting Policies

         Peoples  Bancorporation,  Inc.  (the  "Company")  has  adopted  various
accounting  policies  that  govern  the  application  of  accounting  principles
generally  accepted in the United  States in the  preparation  of the  Company's
financial  statements.  The significant  accounting  policies of the Company are
described in Item 8, Note 1 to the Consolidated Financial Statements in the 2003
Annual Report on Form 10-K of Peoples Bancorporation, Inc.

         Certain   accounting   policies  involve   significant   judgments  and
assumptions by management  that 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 and such differences  could have a material impact


                                       7
<PAGE>

on the carrying  values of assets and  liabilities and the results of operations
of the Company.

         Of these  significant  accounting  policies,  the Company considers its
policies  regarding the allowance  for loan losses (the  "Allowance")  to be its
most  critical  accounting  policy due to the  significant  degree of management
judgment  involved in determining  the amount of the Allowance.  The Company has
developed  policies and  procedures for assessing the adequacy of the Allowance,
recognizing  that this process  requires a number of  assumptions  and estimates
with respect to its loan portfolio. The Company's assessments may be impacted in
future  periods by  changes in  economic  conditions,  the impact of  regulatory
examinations,  and the discovery of information with respect to borrowers, which
is not  known to  management  at the time of the  issuance  of the  consolidated
financial statements.  Refer to the discussion under Provision and Allowance for
Loan Losses, Loan Loss Experience section of the Company's 2003 Annual Report on
Form 10-K and the  Allowance  for Loan  Losses  and  Provision  for Loan  Losses
sections of this report on Form 10-Q for a detailed description of the Company's
estimation process and methodology related to the Allowance.

Overview

       The  Company  is  a  bank  holding   company   with  three   wholly-owned
subsidiaries: The Peoples National Bank, Easley, South Carolina, a national bank
which commenced business  operations in August 1986; Bank of Anderson,  National
Association,  Anderson, South Carolina, a national bank which commenced business
operations in September 1998; and, Seneca National Bank, Seneca, South Carolina,
a national bank which commenced business  operations in February 1999 (sometimes
referred to herein as the "Banks").

     Currently,  the Company engages in no significant operations other than the
ownership  of its  three  subsidiaries  and the  support  thereof.  The  Company
conducts its business from seven banking  offices located in the Upstate Area of
South Carolina.





                                       8
<PAGE>


                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EARNINGS PERFORMANCE

Overview

     The Company's  consolidated  net income for the second  quarter of 2004 was
$997,000 or $0.17 per diluted share  compared to $1,811,000 or $0.32 per diluted
share for the second  quarter of 2003,  a decrease  of  $814,000  or 44.9%.  Net
income  for the six  months  ended  June 30,  2004 was  $1,538,000  or $0.27 per
diluted  share  compared to  $3,468,000  or $0.61 per diluted  share for the six
months ended June 30, 2003, a decrease of $1,930,000 or 55.7%. Return on average
equity  for the six months and three  months  ended June 30,  2004 was 8.42% and
10.86%  respectively,  compared  to 20.82% and 21.18%  respectively  for the six
months and three months ended June 30,  2003.  Return on average  assets for the
six  months  and  three   months  ended  June  30,  2004  was  0.72%  and  0.92%
respectively,  compared to 1.65% and 1.69%  respectively  for the six months and
three months ended June 30, 2003.  The  decreases in the  Company's  net income,
diluted  earnings  per share,  return on average  equity,  and return on average
assets in the  first  half of 2004 are  largely  attributable  to a  substantial
reduction  in  non-interest   income  as  a  consequence  of  reduced   mortgage
originations   as   refinancing   activity   declined  at  the  Company's   bank
subsidiaries,  coupled  with a one-time  expense at The  Peoples  National  Bank
related to death  benefit  plans for an  executive.  The Peoples  National  Bank
recorded  net  earnings  of  $869,000  for the six months  ended  June 30,  2004
compared to net earnings of $2,633,000 for the six months ended June 30, 2003, a
decrease of 67.0%. Bank of Anderson, N. A. recorded net earnings of $505,000 for
the six months ended June 30, 2004  compared to net earnings of $595,000 for the
six months  ended June 30,  2003,  a decrease  of 15.1%.  Seneca  National  Bank
recorded  net  earnings  of  $174,000  for the six months  ended  June 30,  2004
compared to net  earnings of $256,000  for the six months ended June 30, 2003, a
decrease of 32.0%.

Interest Income, Interest Expense and Net Interest Income

     The largest  component of the Company's income is net interest income.  Net
interest income,  which is the difference  between the interest earned on assets
and the interest paid for the  liabilities  used to fund those assets,  measures
the gross  profit  from  lending  and  investing  activities  and is the primary
contributor to the Company's earnings.  Net interest income before provision for
loan losses  increased  $249,000 or 7.6% to $3,530,000 in the quarter ended June
30, 2004 compared to $3,281,000 in the quarter ended June 30, 2003.  For the six
months ended June 30, 2004 net interest income before  provision for loan losses
increased  $293,000 or 4.4% to  $6,963,000  compared to  $6,670,000  for the six
months  ended June 30, 2003.  The  Company's  net interest  margin for the three
months and six months  ending  June 30,  2004 was 3.54% and 3.50%  respectively,
compared  to 3.25% and 3.36%  respectively  for the three  months and six months
ended June 30, 2003.


                                       9
<PAGE>

     The  Company's  total  interest  income for the second  quarter of 2004 was
$5,113,000  compared to $5,196,000 for the second quarter of 2003, a decrease of
$83,000 or 1.6%.  Total  interest  income for the six months ended June 30, 2004
was $10,196,000  compared to $10,521,000 for the six months ended June 30, 2003,
a  decrease  of  $325,000  or 3.1%.  Interest  and fees on  loans,  the  largest
component of total interest income,  increased  $32,000 in the second quarter of
2004 to  $4,573,000  compared to $4,541,000  for the second  quarter of 2003, an
increase  of 0.7%.  Interest  and fees on loans  decreased  $15,000  for the six
months  ended June 30, 2004 to  $9,053,000  compared to  $9,068,000  for the six
months ended June 30, 2003, a decrease of 0.2%.  Interest on taxable securities,
the second largest component of total interest income decreased  $110,000 in the
second  quarter of 2004 to $461,000  compared to $571,000 for the second quarter
of 2003, a decrease of 19.3%.  Interest on taxable securities decreased $323,000
for the six months ended June 30, 2004 to $978,000  compared to  $1,301,000  for
the six months  ended June 30,  2003,  a decrease  of 24.8%.  The  decreases  in
interest  on  taxable  securities  for the  three-  and  six-month  periods  are
primarily due to lower average  balances in these types of earning  assets,  and
also due to lower yields on these securities.

     The Company's  total  interest  expense for the second  quarter of 2003 was
$1,583,000  compared to $1,915,000 for the second quarter of 2003, a decrease of
$332,000 or 17.3%. Total interest expense for the six months ended June 30, 2004
was $3,233,000  compared to $3,851,000 for the six months ended June 30, 2003, a
decrease  of  $618,000  or 16.0%.  Interest  expense on  deposits,  the  largest
component of total interest expense, decreased $281,000 in the second quarter of
2004 to  $1,448,000  compared to  $1,729,000  for the second  quarter of 2003, a
decrease of 16.3%.  Interest expense on deposits  decreased $480,000 for the six
months  ended June 30, 2004 to  $2,977,000  compared to  $3,457,000  for the six
months  ended June 30,  2003,  a decrease of 13.9%.  Interest  on federal  funds
purchased and securities sold under  repurchase  agreements,  the second largest
component of total interest  expense,  decreased  $37,000 or 34.6% to $70,000 in
the second  quarter of 2004 compared to $107,000 for the second quarter of 2003.
Interest  on federal  funds  purchased  and  securities  sold  under  repurchase
agreements  decreased  $110,000  or 45.8% to  $130,000 in the first half of 2004
compared to $240,000  for the first half of 2003.  Interest on notes  payable to
the  Federal  Home Loan Bank,  the third  largest  component  of total  interest
expense,  decreased  $14,000 or 17.7% to  $65,000 in the second  quarter of 2004
compared to $79,000 for the second quarter of 2003. Interest on notes payable to
the Federal Home Loan Bank  decreased  $28,000 or 18.2% to $126,000 in the first
half of 2004  compared to $154,000  for the first half of 2003.  The decrease in
interest  expense among the various  types of  interest-bearing  liabilities  is
largely attributable to lower market interest rates experienced at the Company's
bank subsidiaries  during the first half of 2004 when compared to the first half
of 2003, as well as lower average balances in some of these accounts.

Provision for Loan Losses

     The provision for loan losses charged to operations during the three months
and six months  ended June 30,  2004 was  $153,000  and  $283,000  respectively,
compared to $329,000  and  $458,000  respectively  for the three  months and six


                                       10
<PAGE>

months  ended June 30, 2003.  The changes in the  Company's  provision  for loan
losses for the second  quarter and first half of 2004 are based on  management's
evaluation  of the  Company's  overall  credit  quality and its estimate of loan
losses  inherent  in the loan  portfolio.  During  the first  half of 2004,  The
Peoples National Bank made a provision of $125,000  compared to $325,000 for the
first half of 2003.  Bank of Anderson,  N.A. made  provision of $120,000 for the
first six  months of 2004,  compared  to  $80,000  for the same  period of 2003.
Seneca  National  Bank made  provision of $38,000  during the first half of 2004
compared to $53,000 for the first half of 2003.

Non-interest Income

     Non-interest  income  decreased  $1,902,000 or 55.4% to $1,530,000  for the
second  quarter of 2004 compared to $3,432,000  for the second  quarter of 2003.
Non-interest  income  decreased  $3,333,000 or 54.1% to $2,833,000 for the first
half of 2004 compared to $6,166,000 for the first half of 2003. Service fees and
other  income,  the  largest  core  component  of  non-interest  income in 2004,
increased  $216,000 or 32.5% to $881,000 for the second quarter of 2004 compared
to  $665,000  for the second  quarter  of 2003.  Service  fees and other  income
increased  $332,000  or 25.8%  to  $1,619,000  for the  second  quarter  of 2004
compared to $1,287,000  for the second  quarter of 2003.  Gain on mortgage loans
held for sale, the second largest non-core  component of non-interest  income in
2004,  decreased  $2,146,000 or 77.7% to $615,000 for the second quarter of 2004
compared to $2,761,000  for the second  quarter of 2003.  Gain on mortgage loans
held for sale decreased  $3,785,000 or 77.7% to $1,087,000 for the first half of
2004 compared to $4,872,000 for the first half of 2003. The decrease resulted as
a consequence of reduced mortgage originations as refinancing activity declined.
Gains  of  $34,000  and  $6,000,  respectively,  were  realized  on the  sale of
available-for-sale securities during the second quarters of 2004 and 2003. Gains
on available-for-sale  securities were $127,000 for the first six months of 2004
compared to $7,000 for the first six months of 2003, an increase of $120,000.

Non-interest Expense

     Total non-interest  expense decreased $74,000 or 2.1% to $3,456,000 for the
second quarter of 2004 from  $3,530,000  for the second  quarter of 2003.  Total
non-interest expense increased $324,000 or 4.7% to $7,248,000 for the first half
of 2004 from $6,924,000 for the first half of 2003.  Salaries and benefits,  the
largest  component  of  non-interest  expense,  decreased  $20,000  or 0.9%,  to
$2,099,000 for the second quarter of 2004 from $2,119,000 for the second quarter
of 2003. Salaries and benefits increased $109,000 or 2.6%, to $4,254,000 for the
first half of 2004 from  $4,145,000  for the first half of 2003.  The changes in
salaries and benefits are primarily due to normal salary  increases,  changes in
personnel,  and a  reduction  in  commissions  paid due to  decreased  volume of
mortgage loans originated.

     Occupancy and furniture and equipment  expenses increased $116,000 or 31.1%
to  $489,000  in the second  quarter of 2004  compared to $373,000 in the second
quarter of 2003.  Occupancy  and  furniture  and  equipment  expenses  increased


                                       11
<PAGE>

$169,000 or 21.8%,  to $943,000 for the first half of 2004 from $774,000 for the
first half of 2003. The increase is primarily  attributable  to the opening of a
new branch  office of Bank of Anderson,  N.A. in August 2003 and the purchase of
additional  office space by The Peoples National Bank in Easley,  South Carolina
in January 2004 to be used for residential mortgage operations.

     Executive  retirement benefit expense decreased $12,000 or 29.3% to $29,000
in the second quarter of 2004 compared to $41,000 in the second quarter of 2003.
Executive  retirement  benefit  expense  increased  $369,000 to $448,000 for the
first half of 2004 from  $79,000  for the first half of 2003.  This  increase is
attributable to a one-time,  non-recurring  charge incurred in the first quarter
of 2004 in the amount of $376,000 to increase the liability  for death  benefits
payable to the beneficiary of the Company's former Chairman,  President and CEO,
who died  shortly  after the end of the period.  This charge is required by SFAS
No. 112 in accordance with generally accepted accounting principles.

     Other non-interest expenses decreased $158,000 or 15.8% to $839,000 for the
second  quarter  of 2004 from  $997,000  for the second  quarter of 2003.  Other
non-interest  expenses  decreased  $323,000 or 16.8% to $1,603,000 for the first
half of 2004 from  $1,926,000  for the first half of 2003. The decrease in other
non-interest  expenses  was  principally  attributable  to decreases in expenses
associated  with  a  significant  decrease  in  the  volume  of  mortgage  loans
originated in the first half of 2004 when compared to the first half of 2003.


BALANCE SHEET REVIEW

Loans

     Outstanding  loans (which excludes  mortgage loans held for sale) represent
the largest  component of earning assets at 77.9% of total earning assets. As of
June 30, 2004, the Company held total gross loans  outstanding of  $310,936,000.
Gross  loans  increased  $14,684,000  or 5.0% from  $296,252,000  in total gross
outstanding  loans at December 31, 2003 and increased  $31,755,000 or 11.4% from
$279,181,000  in total gross loans  outstanding  at June 30, 2003.  The increase
resulted from new loans generated by the Company's  three banking  subsidiaries.
The following table summarizes outstanding loans by collateral type:


<TABLE>
<CAPTION>
Loan Portfolio Composition                                                                       June 30,              December 31,
                                                                                                 --------              ------------
(Dollars in Thousands)                                                                   2004               2003           2003
                                                                                         ----               ----           ----

<S>                                                                                   <C>                <C>             <C>
Commercial  and  Industrial  - not  secured  by  real estate ..............           $ 39,312           $ 37,866        $ 44,306
Commercial and Industrial - secured by real estate ........................             91,860             82,457          84,805
Residential real estate - mortgage ........................................             97,992             81,409          90,299
Residential real estate - construction ....................................             59,894             55,785          55,139
Consumer loans ............................................................             21,878             21,664          21,703
                                                                                      --------           --------        --------
     Gross Loans ..........................................................           $310,936           $279,181        $296,252
                                                                                      ========           ========        ========
</TABLE>


                                       12
<PAGE>


     The interest rates charged on loans vary with the degree of risk,  maturity
and amount of the loan. Competitive pressures,  money market rates, availability
of funds, and government  regulation also influence  interest rates. The average
yield on the Company's  loans for the six months and three months ended June 30,
2004 was 5.74% and 5.82% respectively,  compared to 5.87% and 5.74% respectively
for the six months and three months ended June 30, 2003.  Interest  rates are at
historically  low levels.  During 2003, the Federal  Reserve lowered the federal
funds  target one time in June by 25 points and recently  increased  the federal
funds  target by 25 points on July 1, 2004.  A large  portion  of the  Company's
adjustable rate loans,  which constitutes  53.2% of the loan portfolio,  reprice
almost immediately following an interest rate change by the Federal Reserve.

     The Company's loan portfolio consists  principally of residential  mortgage
loans,  commercial  loans, and consumer loans.  Substantially all of these loans
are to borrowers located in South Carolina and are concentrated in the Company's
market areas.

     The Company's real estate loans are primarily  construction loans and other
loans secured by real estate,  both commercial and  residential,  located within
the  Company's  trade areas.  The Company does not  actively  pursue  long-term,
fixed-rate mortgage loans for retention in its loan portfolio.  The Banks employ
mortgage loan  originators  who originate and package loans that are pre-sold at
origination to third parties.  The Company also purchases mortgage loans through
a  wholesale  mortgage  loan  division  of The  Peoples  National  Bank that are
pre-sold at origination  to third  parties.  These loans are classified as loans
held for sale for  reporting  purposes.  In the first half of 2004,  the Company
originated  $97,539,000 and sold $99,678,000 in mortgage loans held for sale. As
of June 30, 2004 the Company had mortgage loans held for sale of  $4,049,000,  a
decrease of $1,052,000 or 20.6% from the  $5,101,000 in mortgage  loans held for
sale at  December  31,  2003,  and a decrease of  $36,288,000  or 90.0% from the
$40,337,000  in mortgage  loans held for sale at June 30,  2003.  The  decreases
resulted from reduced mortgage  originations as refinancing activity declined at
the Banks.

     The Company's  commercial lending activity is directed  principally towards
businesses  whose demands for funds fall within each Banks' legal lending limits
and which are potential  deposit  customers of the Banks. This category of loans
includes loans made to individuals,  partnerships,  and corporations,  which are
obtained for a variety of business  purposes.  Particular  emphasis is placed on
loans to small and medium-sized  businesses.  The Company's commercial loans are
spread throughout a variety of industries,  with no industry or group of related
industries   accounting  for  a  significant  portion  of  the  commercial  loan
portfolio.  Commercial loans are made on either a secured or an unsecured basis.
When taken,  security  usually  consists of liens on  inventories,  receivables,
equipment,  furniture and  fixtures.  Unsecured  commercial  loans are generally
short-term with emphasis on repayment strengths and low debt-to-worth ratios. At
June  30,  2004  approximately  $9,079,000  or 23.1% of  commercial  loans  were
unsecured.

     The  Company's   direct   consumer  loans  consist   primarily  of  secured
installment  loans to individuals for personal,  family and household  purposes,
including automobile loans to individuals and pre-approved lines of credit.

                                       13
<PAGE>

     Management believes that the loan portfolio is adequately diversified.  The
Company has no foreign  loans or loans for highly  leveraged  transactions.  The
Company has very few agricultural loans.

Allowance for Loan Losses

     The allowance  for loan losses at June 30, 2003 was  $3,607,000 or 1.16% of
loans  outstanding  (which  excludes  mortgage  loans held for sale) compared to
$3,438,000  or 1.16% of loans  outstanding  at December 31, 2003 and compared to
$3,220,000  or 1.15% of loans  outstanding  at June 30, 2003.  The allowance for
loan  losses  is  based  upon   management's   continuing   evaluation   of  the
collectibility  of loans based on the  historical  loan loss  experience  of the
Company,  current  economic  conditions  affecting  the ability of  borrowers to
repay,   the  volume  of  loans,   the  quality  of  the   collateral   securing
non-performing and problem loans, and other factors deserving recognition.

     At June 30,  2004 the  Company  had  $705,000  in  non-accruing  loans,  no
restructured  loans,  $66,000 in loans more than  ninety days past due and still
accruing  interest,  and $704,000 in other real estate  owned.  This compares to
$829,000 in non-accruing  loans, no restructured  loans,  $122,000 in loans more
than  ninety  days past due on which  interest  was  still  being  accrued,  and
$517,000 in other real estate owned at December 31, 2003. At June 30, 2003,  the
Company had $914,000 in non-accruing loans, no restructured loans, no loans more
than ninety days past due and still  accruing  interest,  and  $393,000 in other
real estate owned. Non-performing loans at June 30, 2004 consisted of $23,000 in
commercial  loans,  $650,000 in mortgage  loans,  and $32,000 in consumer loans.
Non-performing  assets as a percentage  of loans and other real estate owned was
0.47%,  0.49%, and 0.41% at June 30, 2004, December 31, 2003, and June 30, 2003,
respectively.

     Net charge-offs  during the first six months of 2004 were $114,000 compared
to net  charge-offs  of  $88,000  for the  first  six  months  of  2003  and net
charge-offs  of $518,000 for the year ended December 31, 2003. The allowance for
loan losses as a percentage of non-performing  loans was 468%, 362%, and 352% as
of June 30, 2004, December 31, 2003, and June 30, 2003, respectively.

         The  Company  accounts  for  impaired  loans  in  accordance  with  the
provisions of SFAS No.114,  Accounting  by Creditors  for  Impairment of a Loan.
SFAS No.  114,  as amended by SFAS No.  118,  requires  that  impaired  loans be
measured  based  on the  present  value of  expected  future  cash  flows or the
underlying collateral values as defined in the pronouncement.  When the ultimate
collectibility of an impaired loan's principal is in doubt, wholly or partially,
all cash  receipts  are then applied to  principal.  The Company had no impaired
loans at June 30, 2004 and December  31, 2003 and $367,000 in impaired  loans at
June 30, 2003.


                                       14
<PAGE>


Securities

         The Company  invests  primarily in  obligations of the United States or
obligations  guaranteed as to principal and interest by the United States, other
taxable securities, and in certain obligations of states and municipalities. The
Company  does not  invest  in  corporate  bonds  nor  does it hold  any  trading
securities.  The Company uses its investment  portfolio to provide liquidity for
unexpected  deposit  liquidation  or  loan  generation,  to meet  the  Company's
interest rate  sensitivity  goals,  to secure public  deposits,  and to generate
income. At June 30, 2004 securities totaled $73,301,000,  which represents 18.4%
of total earning assets.  Securities held at June 30, 2004 decreased $13,192,000
or 15.3%  from  $86,493,000  invested  as of  December  31,  2003 and  increased
$3,305,000 or 4.7% from  $69,996,000  invested as of June 30, 2003. The majority
of the decrease since December 31, 2003 was  attributable to the increased calls
of  U.S.  agency  securities  in the  amount  of  $22,825,000  and  the  sale of
available-for-sale,  mortgage-backed  securities  in the amount of $8,101,000 at
the Company's bank subsidiaries.

         At  June  30,  2004  the  Company's  total  investments  classified  as
available for sale had an amortized  cost of  $65,508,000  and a market value of
$64,053,000 for an unrealized loss of $1,455,000.  This compares to an amortized
cost of $62,348,000  and a market value of $63,094,000 for an unrealized gain of
$746,000 on the Company's  investments  classified as available for sale at June
30, 2003. At December 31, 2003 the  Company's  total  investments  classified as
available for sale had an amortized  cost of  $78,620,000  and a market value of
$78,714,000 for an unrealized gain of $94,000.

Cash Surrender Value of Life Insurance

     The Company's cash surrender value of life insurance was $9,522,000 at June
30,  2004,  an increase of  $7,228,000  or 315.1%  from the  $2,294,000  held at
December 31, 2003 and an increase of  $7,269,000  or 322.6% from the  $2,253,000
held at June 30, 2003.  The  increase is due to the  purchase of  single-premium
life insurance  policies during the first quarter of 2004 on certain officers of
the Company and its bank  subsidiaries.  Earnings  from the  ownership  of these
policies  are used to  partially  offset  the cost of  certain  employee-related
benefits.

Cash and Cash Equivalents

         The Company's cash and cash equivalents increased $1,347,000 or 6.3% to
$22,590,000 at June 30, 2004 from $21,243,000 at December 31, 2003 and decreased
$7,299,000 or 24.4% from  $29,889,000  at June 30, 2003. The swings in the level
of cash and cash  equivalents  are due to  fluctuations  in the Banks'  need for
immediate liquidity.

Deposits

         The Banks' primary source of funds for loans and  investments are their
deposits.  Total deposits grew  $1,689,000 or 0.5% to  $355,018,000  at June 30,
2004 from  $353,329,000  at December 31, 2003 and  decreased  $3,976,000 or 1.1%
from  $358,994,000  at June  30,  2003.  The  increase  resulted  from  deposits


                                       15
<PAGE>

generated  by all of the Banks.  Competition  for deposit  accounts is primarily
based on the interest rates paid, location convenience and services offered.

         During the first six months of 2004, interest-bearing deposits averaged
$308,080,000  compared to  $293,717,000  for the first six months of 2003.  From
time to time Peoples National Bank solicits certificates of deposit from various
sources  through  brokers and through a program  designed to gather deposits via
the Internet.  This is done to reduce the need for funding from other short-term
sources such as federal  funds  purchased  and  short-term  borrowings  from the
Federal Home Loan Bank of Atlanta. These non-traditional  deposits are primarily
being  used  to  fund  Peoples  National  Bank's  short-term   mortgage  lending
activities.  On June 30, 2004 there were no  outstanding  certificates  garnered
through the Internet, and brokered deposits totaled $6,558,000.  At December 31,
2003 there were no outstanding  certificates garnered through the Internet,  and
no brokered  deposits.  On June 30, 2003 there were no outstanding  certificates
garnered through the Internet, and brokered deposits totaled $15,594,000.  These
deposits are an attractive  alternative  funding  source  available to use while
continuing efforts to maintain and grow the banks' local deposit base.

         The average interest rate paid on  interest-bearing  deposits was 1.94%
for the first six months of 2004  compared  to 2.35% for the first six months of
2003.  In pricing  deposits,  the Company  considers its  liquidity  needs,  the
direction and levels of interest rates, and local market conditions. At June 30,
2004  interest-bearing  deposits  comprised 86.6% of total deposits  compared to
87.6% at June 30, 2003.

         The  Company's  core deposit  base  consists  largely of consumer  time
deposits,  savings,  NOW accounts,  money market accounts and checking accounts.
Although such core  deposits are becoming  increasingly  interest-sensitive  for
both the Company and the industry as a whole,  these core  deposits  continue to
provide  the  Company  with a large  source of  relatively  stable  funds.  Core
deposits as a percentage  of total  deposits  averaged  approximately  77.1% and
74.1% for the six months  ended June 30, 2004 and June 30,  2003,  respectively.
The Company closely monitors its reliance on certificates greater than $100,000,
which are generally considered less stable and less reliable than core deposits.

Borrowings

         The Company's  borrowings  are  comprised of federal  funds  purchased,
securities sold under repurchase  agreements,  and both short-term and long-term
advances from the Federal Home Loan Bank of Atlanta. At June 30, 2004 short-term
borrowings  totaled  $32,856,000 and were comprised of $32,589,000 in securities
sold under  repurchase  agreements and $267,000 in Federal Funds  Purchased.  At
December 31, 2003 and June 30, 2003 short-term  borrowings  totaled  $24,390,000
and  $29,233,000  respectively  and were comprised  entirely of securities  sold
under repurchase  agreements.  Short-term  borrowings are used primarily for the
immediate  cash  needs  of the  Company.  The  Company  also had  $5,000,000  of
long-term  advances  from the Federal  Home Loan Bank of Atlanta at each of June
30, 2004, December 31, 2003, and June 30, 2003.


                                       16
<PAGE>

LIQUIDITY

         Liquidity management involves meeting the cash flow requirements of the
Company.  The Company's  liquidity position is primarily dependent upon its need
to respond to  short-term  demand for funds caused by increased  loan demand and
withdrawals  from deposit  accounts.  The Company's  primary  liquidity  sources
include cash and due from banks,  federal funds sold, and  securities  available
for sale. In addition, the Company (through the Banks) has the ability to borrow
funds on a  short-term  basis from the  Federal  Reserve  System and to purchase
federal funds from other financial  institutions.  The Banks are also members of
the Federal Home Loan Bank System and have the ability to borrow both short-term
and long-term  funds on a secured basis.  At June 30, 2004 The Peoples  National
Bank had total  borrowing  capacity  from the Federal  Home Loan Bank of Atlanta
equal  to  $42,915,900,  and the  unused  portion  of this  line of  credit  was
$37,915,900.  The Company's  other two bank  subsidiaries,  Bank of Anderson and
Seneca  National  Bank,  each had secured  lines of credit with the Federal Home
Loan  Bank  of  Atlanta  at  June  30,  2004  of   $18,516,000   and  $3,656,000
respectively,  all of which was  unused.  At June 30,  2003 the Banks had unused
federal funds lines of credit totaling $23,483,000.

         Peoples  Bancorporation,  Inc., the parent holding company, has limited
liquidity needs, and requires  liquidity to pay limited  operating  expenses and
dividends only.

         During  the  first  six  months  of  2004,   the  Company  had  capital
expenditures  of  approximately   $630,000   associated  with  the  purchase  of
additional  office space for the  mortgage  department  of The Peoples  National
Bank. The Company is also expecting  additional capital  expenditures during the
remainder of 2004.  This  includes  the  expansion of the main office of Bank of
Anderson for an estimated  total cost of $800,000.  This  expansion was begun in
the third quarter of 2003, with approximately  $648,000 being spent through June
30, 2004. The Company may  additionally  make other lesser capital  expenditures
through the normal course of business.

         Company management  believes its liquidity sources are adequate to meet
its  operating  needs  and does not know of any  trends  that may  result in the
Company's liquidity materially increasing or decreasing.

OFF-BALANCE SHEET RISK AND DERIVATIVE FINANCIAL INSTRUMENTS

     The  Company,  through  the  operations  of the  Banks,  makes  contractual
commitments to extend credit in the ordinary course of its business  activities.
These  commitments are legally binding  agreements to lend money to customers of
the Banks at predetermined interest rates for specified periods of time. At June
30,  2004,  the  Banks  had  issued  commitments  to  extend  credit  (excluding
commitments for residential  mortgage loans  designated for sale) of $94,668,000
through various types of arrangements. These commitments generally expire in one
year. Past experience  indicates that many of these commitments to extend credit
will expire not fully used. As described under "Liquidity," the Company believes
that it has adequate  sources of liquidity  to fund  commitments  that are drawn
upon by the borrowers.



                                       17
<PAGE>

     In addition to commitments  to extend credit,  the Banks also issue standby
letters of credit, which are assurances to a third party that it will not suffer
a loss if the Bank's  customer fails to meet its  contractual  obligation to the
third party. Standby letters of credit totaled $5,298,000 at June 30, 2004. Past
experience  indicates  that many of these standby  letters of credit will expire
unused.  Through its various sources of liquidity,  the Company believes that it
will have the  necessary  resources  to meet these  obligations  should the need
arise. Various types of collateral secure most of the standby letters of credit.
The Company  believes that the risk of loss  associated  with standby letters of
credit is comparable  to the risk of loss  associated  with its loan  portfolio.
Moreover, the fair value associated with any standby letters of credit issued by
the Company is immaterial to the Company.

     According  to SFAS No.  133,  Accounting  for  Derivative  Instruments  and
Hedging Activities,  loan commitments that relate to the origination or purchase
of mortgage loans that will be held for sale must be accounted for as derivative
instruments.   Therefore,  such  commitments  are  recorded  at  fair  value  in
derivative assets or liabilities, with changes in fair value recorded in the net
gain or loss on sale of mortgage  loans.  The Company engages in the origination
and sale of  residential  mortgage  loans and  enters  into  commitments,  on an
individual  loan basis, to both originate and sell  residential  mortgage loans,
whereby the interest  rate on the loan to the borrower and to the  end-purchaser
of the loan is determined prior to funding (rate lock commitments).  At June 30,
2004 the Company had commitments  outstanding to originate  residential mortgage
loans  under  rate  lock  commitments  from  borrowers   totaling   $22,093,000.
Simultaneously, the Company had commitments to sell these loans to third parties
under rate lock commitments.  The Company does not collect any upfront fees when
issuing a mortgage loan  commitment to a potential  borrower,  and mortgages are
sold to third parties at par value. The cumulative effect under SFAS No. 133 for
rate lock commitments as of June 30, 2004 for the Company was immaterial.

     Neither  the  Company  nor  the  subsidiaries  are  involved  in any  other
off-balance sheet contractual relationships or transactions that could result in
liquidity  needs or other  commitments or  significantly  impact  earnings.  The
Company  did not have  any  obligations  under  non-cancelable  operating  lease
agreements at June 30, 2004.




                                       18
<PAGE>


CAPITAL ADEQUACY AND RESOURCES

         The capital needs of the Company have been met through the retention of
earnings and from the proceeds of prior public stock offerings.

         The Company and the Banks are  required  to  maintain  certain  capital
ratios by federal banking regulators. The following table sets forth the capital
ratios for the Company and the Banks as of June 30, 2004:


                                 CAPITAL RATIOS
                             (Amounts in Thousands)
<TABLE>
<CAPTION>
                                                                                               Well                 Adequately
                                                                                            Capitalized             Capitalized
                                                                        Actual              Requirement             Requirement
                                                                 Amount       Ratio      Amount       Ratio      Amount       Ratio
                                                                 ------       -----      ------       -----      ------       -----
Company:
<S>                                                             <C>            <C>       <C>          <C>       <C>           <C>
Total Risk-based Capital ...................................    $40,722        12.37%    $32,920      10.00%    $26,336       8.00%
Tier 1 Risk-based Capital ..................................     37,123        11.28      19,746       6.00      13,164       4.00
Leverage Ratio .............................................     37,123         8.57      21,659       5.00      17,327       4.00

Peoples National Bank:
Total Risk-based Capital ...................................    $23,939        12.42%    $19,275      10.00%    $15,420       8.00%
Tier 1 Risk-based Capital ..................................     21,836        10.32      12,695       6.00       8,464       4.00
Leverage Ratio .............................................     21,836         8.93      12,226       5.00       9,781       4.00

Bank of Anderson, N. A:
Total Risk-based Capital ...................................    $10,603        10.53%    $10,069      10.00%    $ 8,055       8.00%
Tier 1 Risk-based Capital ..................................      9,550         9.48       6,044       6.00       4,030       4.00
Leverage Ratio .............................................      9,550         7.00       6,821       5.00       5,457       4.00

Seneca National Bank:
Total Risk-based Capital ...................................    $ 4,598        12.97%    $ 3,545      10.00%    $ 2,836       8.00%
Tier 1 Risk-based Capital ..................................      4,155        11.72       2,127       6.00       1,418       4.00
Leverage Ratio .............................................      4,155         8.49       2,447       5.00       1,958       4.00
</TABLE>


                                       19
<PAGE>


RECENTLY ISSUED ACCOUNTING STANDARDS

          The following is a summary of recent authoritative pronouncements that
affect  accounting,  reporting,  and disclosure of financial  information by the
Company:

          In March  2004,  the FASB  issued an  exposure  draft on  "Share-Based
Payment." The proposed  Statement  addresses the accounting for  transactions in
which an  enterprise  receives  employee  services  in  exchange  for a)  equity
instruments  of the  enterprise;  or b)  liabilities  that are based on the fair
value of the  enterprise's  equity  instruments  or that may be  settled  by the
issuance of such equity instruments. This proposed Statement would eliminate the
ability to account for share-based  compensation  transactions using APB Opinion
No. 25,  "Accounting for Stock Issued to Employees," and generally would require
instead that such transactions be accounted for using a fair-value-based method.
This  Statement,  if approved,  will be  effective  for awards that are granted,
modified,  or settled in fiscal years  beginning  after a) December 15, 2004 for
public entities and nonpublic entities that used the fair-value-based  method of
accounting  under the original  provisions of SFAS No.123 for recognition or pro
forma  disclosure  purposes;  and b) December  15, 2005 for all other  nonpublic
entities.  Earlier application is encouraged provided that financial  statements
for those earlier years have not yet been issued.  Retrospective  application of
this Statement is not permitted.  The adoption of this  Statement,  if approved,
will not have any material impact on the Company's financial position or results
of operations.

          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.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk is the risk of loss from adverse  changes in market  prices and
interest rates. The Company's market risk arises  principally from interest rate
risk  inherent in its lending,  deposit,  and borrowing  activities.  Management
actively  monitors and manages its  interest  rate risk  exposure.  Although the
Company manages certain other risks,  such as credit quality and liquidity risk,
in the normal course of business,  management considers interest rate risk to be
its most significant market risk and the market risk that could potentially have
the largest material effect on the Company's  financial condition and results of
operations.  Other  types of market  risks,  such as foreign  currency  risk and
commodity  price  risk,  do not  arise in the  normal  course  of the  Company's
business activities, although they may affect a few of the Company's customers

     The primary  objective of Asset and Liability  Management at the Company is
to manage  interest rate risk and achieve  reasonable  stability in net interest
income  throughout  interest rate cycles.  This is achieved by  maintaining  the
proper   balance   of   rate-sensitive   earning   assets   and   rate-sensitive


                                       20
<PAGE>

interest-bearing  liabilities. The relationship of rate-sensitive earning assets
to  rate-sensitive  interest-bearing  liabilities  is the  principal  factor  in
projecting  the effect that  fluctuating  interest rates will have on future net
interest  income.  Rate-sensitive  assets and  liabilities are those that can be
repriced  to  current  market  rates  within a  relatively  short  time  period.
Management monitors the rate sensitivity of earning assets and  interest-bearing
liabilities  over the entire life of these  instruments,  but places  particular
emphasis on the next twelve  months.  At June 30, 2004,  on a  cumulative  basis
through 12 months,  rate-sensitive liabilities exceeded rate-sensitive assets by
$52,381,000.  This  liability-sensitive  position is largely attributable to the
Company's  short-term  Certificates  of Deposit,  Money Market  accounts and NOW
accounts, which totaled $131,657,000, $53,975,000 and $42,951,000, respectively,
at June 30, 2004.





                                       21
<PAGE>



Item 4.           CONTROLS AND PROCEDURES

Based  on  the  evaluation  required  by  17  C.F.R.  Section  240.13a-15(b)  or
240.15d-15(b) of the Company's disclosure controls and procedures (as defined in
17  C.F.R.  Sections  240.13a-15(e)  and  240.15d-15(e)),  the  Company's  chief
executive  officer and chief financial  officer concluded that the effectiveness
of such  controls and  procedures,  as of the end of the period  covered by this
quarterly report, was adequate.

No disclosure is required under 17 C.F.R. Section 229.308(c).




                                       22
<PAGE>



PART II.  OTHER INFORMATION

Item 4.       Submission to a Vote of Security Holders

Annual Meeting of Shareholders
On May 18,  2004,  The  Company  held its Annual  Meeting of  Shareholders.  The
results of the 2004 Annual Meeting of Shareholders follows.

Proposal #1 - Election of Directors
The following  persons were elected as Directors to serve for a three-year  term
with 2,710,135 shares voted, representing 73.6% of the total voting shares:

                                                                       Broker
                               For            Withheld      Abstain   Non-Votes
                               ---            --------      -------   ---------
  David C. King              2,709,021           1,114       0            0
  Andrew M. McFall, III      2,709,153             982       0            0
  Eugene W. Merritt, Jr.     2,709,153             982       0            0
  George B. Nalley, Jr.      2,709,153             982       0            0
  Nell W. Smith              2,707,818           2,317       0            0
  A. J. Thompson, Jr.        2,708,082           2,053       0            0

Proposal #2 - Approval of the Peoples Bancorporation, In. 2004 Stock Option Plan
The  shareholders  approved the Peoples  Bancorporation,  Inc. 2004 Stock Option
Plan with  2,616,694 or 96.6% voting in favor,  84,394  shares  voting  against,
9,047 shares abstaining and 521,294 broker non-votes.


Item 6.       Exhibits and Reports on Form 8-K


(a)      Exhibits.

10       2004 Stock Option Plan (incorporated by reference to the Company's
         Proxy Statement in connection with the May 18, 2004 Annual
         Meeting of Shareholders.)
31.1     Rule 13a-14(a)/15d-14(a) Certifications
31.2     Rule 13a-14(a)/15d-14(a) Certifications
32       Section 1350 Certifications




                                       23
<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.


                                       PEOPLES BANCORPORATION, INC.


Dated:  August 10, 2004                By:    /s/ R. Riggie Ridgeway
                                            ------------------------
                                              R. Riggie Ridgeway
                                              President and CEO


Dated:  August 10, 2004                By:   /s/ Robert E. Dye, Jr.
                                           ------------------------
                                              Robert E. Dye, Jr.
                                              Sr. Vice President & CFO
                                              (principal financial officer)



                                       24
<PAGE>



                                  Exhibit Index

Exhibit No.   Description of Exhibit

10            2004 Stock Option Plan (incorporated by reference to the Company's
              Proxy Statement in connection with the May 18, 2004 Annual
              Meeting of Shareholders.)
31.1          Rule 13a-14(a) / 15d-14(a) Certifications
31.2          Rule 13a-14(a) / 15d-14(a) Certifications
32            Section 1350 Certifications



                                       25