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, 2006                                      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 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 number of outstanding shares of the
                    issuer's $1.11 par value common stock as
                        of August 8, 2006 was 6,292,092.


<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,
                                                                                          2006            2005            2005
                                                                                        Unaudited       Unaudited       Audited
                                                                                        ---------       ---------       -------
ASSETS
<S>                                                                                    <C>             <C>             <C>
CASH AND DUE FROM BANKS ............................................................   $  11,047       $  12,035       $   9,311
INTEREST-BEARING DEPOSITS IN OTHER BANKS ...........................................         238           1,143             900
FEDERAL FUNDS SOLD .................................................................      16,654           2,855               -
                                                                                       ---------       ---------       ---------
     Total cash and cash equivalents ...............................................      27,939          16,033          10,211
SECURITIES
     Available for sale ............................................................      54,056          64,650          65,009
     Held to maturity (market value of $12,530, $8,000 and $10,674) ................      12,793           8,027          10,855
     Other investments, at cost ....................................................       2,375           1,770           2,197
LOANS-less allowance for loan losses of $4,095, $3,933 and $3,854 ..................     365,803         352,693         373,641
PREMISES AND EQUIPMENT, net of accumulated depreciation and amortization ...........      11,117          10,995          10,635
ACCRUED INTEREST RECEIVABLE ........................................................       2,401           2,008           2,441
CASH SURRENDER VALUE OF LIFE INSURANCE .............................................       9,568           9,237           9,403
OTHER ASSETS .......................................................................       2,096           2,667           3,585
                                                                                       ---------       ---------       ---------
         TOTAL ASSETS ..............................................................   $ 488,148       $ 468,080       $ 487,977
                                                                                       =========       =========       =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
DEPOSITS
     Noninterest-bearing ...........................................................   $  55,837       $  52,770       $  52,467
     Interest-bearing ..............................................................     352,494         337,289         337,882
                                                                                       ---------       ---------       ---------
         Total deposits ............................................................     408,331         390,059         390,349
SECURITIES SOLD UNDER REPURCHASE
     AGREEMENTS ....................................................................      28,234          27,941          31,736
FEDERAL FUNDS PURCHASED ............................................................           -             479           4,039
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ............................................       5,000           7,000          17,500
ACCRUED INTEREST PAYABLE ...........................................................       2,206           1,637           2,281
OTHER LIABILITIES ..................................................................       1,105           1,261             901
                                                                                       ---------       ---------       ---------
         Total Liabilities .........................................................     444,876         428,377         446,806
                                                                                       ---------       ---------       ---------
SHAREHOLDERS' EQUITY
Common Stock - 15,000,000 shares authorized, $1.11
     Par value per share, 6,276,613 shares, 5,942,368 shares .......................       6,967           6,596           6,932
       and 6,245,356 shares outstanding, respectively
Additional paid-in capital .........................................................      34,908          32,443          34,684
Retained Earnings ..................................................................       2,109           1,320             408
Accumulated other comprehensive income (loss) ......................................        (712)           (656)           (853)
                                                                                       ---------       ---------       ---------
         Total Shareholders' Equity ................................................      43,272          39,703          41,171
                                                                                       ---------       ---------       ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .........................................   $ 488,148       $ 468,080       $ 487,977
                                                                                       =========       =========       =========
</TABLE>

See Notes to Unaudited  Consolidated  Financial Statements which are an integral
part of these statements.

                                       1
<PAGE>

                 Peoples Bancorporation, Inc. and Subsidiaries
                        Consolidated Statements of Income
             (Dollars in thousands except per share and share data)
                                    Unaudited
<TABLE>
<CAPTION>
                                                                               Three Months Ended              Six Months Ended
                                                                                   June 30,                         June 30,
                                                                                   --------                         --------
                                                                              2006            2005          2006              2005
                                                                              ----            ----          ----              ----
INTEREST INCOME
<S>                                                                     <C>              <C>             <C>             <C>
   Interest and fees on loans .....................................     $     7,221      $     5,787     $    14,158     $    11,035
   Interest on securities
       Taxable ....................................................             506              474           1,001             920
       Tax-exempt .................................................             101               60             188             119
   Interest on federal funds ......................................              35               77              53             131
                                                                        -----------      -----------     -----------     -----------
Total interest income .............................................           7,863            6,398          15,400          12,205
                                                                        -----------      -----------     -----------     -----------

INTEREST EXPENSE
   Interest on deposits ...........................................           2,566            1,942           4,897           3,545
   Interest on federal funds purchased and securities
       sold under repurchase agreements ...........................             197              156             381             302
    Interest on notes payable Federal Home Loan Bank ..............             252               68             498             164
                                                                        -----------      -----------     -----------     -----------
Total interest expense ............................................           3,015            2,166           5,776           4,011
                                                                        -----------      -----------     -----------     -----------
Net interest income ...............................................           4,848            4,232           9,624           8,194
PROVISION FOR LOAN LOSSES .........................................             256              183             493             356
                                                                        -----------      -----------     -----------     -----------
Net interest income after provision for loan losses ...............           4,592            4,049           9,131           7,838
                                                                        -----------      -----------     -----------     -----------
NON-INTEREST INCOME
   Service charges on deposit accounts ............................             491              500             955             980
   Customer service fees ..........................................              41               42              96              93
   Mortgage banking ...............................................             125               98             203             221
   Brokerage services .............................................              60               44             137              86
   Bank owned life insurance ......................................              94              105             193             210
   Gain on sale of available for sale securities ..................               -                3               -               7
   Gain (loss) on sale of assets acquired in settlement of loans ..              (4)               4             124               3
   Other noninterest income .......................................             126               94             253             179
                                                                        -----------      -----------     -----------     -----------
                                                                                933              890           1,961           1,779
                                                                        -----------      -----------     -----------     -----------
NON-INTEREST EXPENSES
   Salaries and benefits ..........................................           2,228            2,036           4,486           4,004
   Occupancy ......................................................             193              181             390             354
   Equipment ......................................................             334              319             697             686
   Marketing and advertising ......................................             103              121             216             206
   Communications .................................................              60               54             121             111
   Printing and supplies ..........................................              47               36              90              72
   Bank paid loan costs ...........................................              70               56             137             109
   Director fees ..................................................              81               94             178             173
   ATM/Debit card expenses ........................................              74               65             147             133
   Legal and professional fees ....................................             142               93             354             164
   Other operating expenses .......................................             454              396             850             772
                                                                        -----------      -----------     -----------     -----------
             Total noninterest expenses ...........................           3,786            3,451           7,666           6,784
                                                                        -----------      -----------     -----------     -----------
   Income before income taxes .....................................           1,739            1,488           3,426           2,833
PROVISION FOR INCOME TAXES ........................................             593              487           1,099             921
                                                                        -----------      -----------     -----------     -----------
   Net income .....................................................     $     1,146      $     1,001     $     2,327     $     1,912
                                                                        ===========      ===========     ===========     ===========
INCOME PER COMMON SHARE
   BASIC ..........................................................     $      0.18      $      0.16     $      0.37     $      0.31
                                                                        ===========      ===========     ===========     ===========
   DILUTED ........................................................     $      0.18      $      0.16     $      0.37     $      0.30
                                                                        ===========      ===========     ===========     ===========
WEIGHTED AVERAGE COMMON SHARES
   BASIC ..........................................................       6,273,149        6,226,668       6,263,732       6,202,078
                                                                        ===========      ===========     ===========     ===========
   DILUTED ........................................................       6,351,889        6,383,167       6,356,484       6,363,418
                                                                        ===========      ===========     ===========     ===========
CASH DIVIDENDS PAID PER COMMON SHARE ..............................     $      0.05      $      0.05     $      0.10     $      0.10
                                                                        ===========      ===========     ===========     ===========
</TABLE>

See Notes to Unaudited  Consolidated  Financial Statements which are an integral
part of these statements.

                                       2
<PAGE>

                 Peoples Bancorporation, Inc. and Subsidiaries
           Consolidated Statements of Changes in Shareholders' Equity
                for the six months ended June 30, 2005 and 2006

                    (Dollars in thousands except share date)
                                  (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, 2004 ........................  5,822,608    $    6,463    $   32,237   $        -   $     (460)   $   38,240
Net Income ........................................                                               1,912                      1,912
Other comprehensive income, net of tax:
   Unrealized holding losses on
     securities available for sale,
     net of income taxes of $65 ...................                                                             (191)         (191)
   Less reclassification
     adjustments for gains
     included in net income, net of
     income taxes of $2 ...........................                                                               (5)           (5)
                                                                                                                        ----------
Comprehensive income ..............................                                                                          1,716
Cash Dividends ....................................                                                (592)                      (592)
Proceeds from stock options .......................    119,760           133           206                                     339
                                                     ---------    ----------    ----------   ----------   ----------    ----------
Balance, June 30, 2005 ............................  5,942,368    $    6,596    $   32,443   $    1,320   $     (656)   $   39,703
                                                    ==========    ==========    ==========   ==========   ==========    ==========

Balance, December 31, 2005 ........................  6,245,356    $    6,932    $   34,684   $      408   $     (853)   $   41,171
Net Income ........................................                                               2,327                      2,327
Other comprehensive income, net of tax:
   Unrealized holding gains on
     securities available for sale,
     net of income taxes of $48 ...................                                                              141           141
                                                                                                                        ----------
Comprehensive income ..............................                                                                          2,468
Cash Dividends ....................................                                                (626)                      (626)
Proceeds from stock options .......................     31,257            35           186                                     221
Stock-based compensation ..........................                                     38                                      38
                                                     ---------    ----------    ----------   ----------   ----------    ----------
Balance, June 30, 2006 ............................  6,276,613    $    6,967    $   34,908   $    2,109   $     (712)   $   43,272
                                                    ==========    ==========    ==========   ==========   ==========    ==========
</TABLE>





See Notes to Unaudited Consolidated  Financials Statements which are an integral
part of these statements.





                                       3
<PAGE>


                  Peoples Bancorporation, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                                                  (Unaudited)
                                                                                                           Six Months Ended June 30,
                                                                                                           -------------------------
                                                                                                           2006                 2005
                                                                                                           ----                 ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                                    <C>                 <C>
   Net income ..............................................................................           $  2,327            $  1,912
   Adjustments to reconcile net income to net cash provided
     by operating activities:
   Loss (gain) on sale of premises and equipment ...........................................                 (3)                 10
   Gain on sale of securities available for sale ...........................................                  -                  (7)
   Gain on sale of assets acquired in settlement of loans ..................................               (124)                 (3)
   Provision for loan losses ...............................................................                493                 356
   Depreciation and amortization ...........................................................                550                 588
   Amortization and accretion (net) of premiums and discounts on securities ................                 74                  59
   Stock-based compensation ................................................................                 38                   -
   Decrease (increase) in accrued interest receivable ......................................                 40                (178)
   Decrease (increase) in other assets .....................................................                (13)                 92
   Increase (decrease) in accrued interest payable .........................................                (75)                483
   Increase in other liabilities ...........................................................                204                  29
                                                                                                       --------            --------
     Net cash provided by operating activities .............................................              3,511               3,341
                                                                                                       --------            --------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of securities held to maturity ................................................             (1,980)             (1,678)
   Purchases of securities available for sale ..............................................             (6,677)             (4,817)
   Sales (purchases) of other investments ..................................................               (330)                 39
   Proceeds from principal pay-downs on securities available for sale ......................              1,915               1,527
   Proceeds from the sale of securities available for sale .................................                  -                 358
   Proceeds from the maturities and calls of securities available for sale .................             16,050                   -
   Proceeds from the maturity of securities held to maturity ...............................                  -               1,018
   Investment in bank owned life insurance .................................................               (165)               (188)
   Net (increase) decrease in loans ........................................................              7,345             (31,443)
   Proceeds from the sale of  assets acquired in settlement of loans .......................              1,552                  49
   Proceeds from the sale of premises and equipment ........................................                 30                  22
   Purchase of premises and equipment ......................................................             (1,059)               (540)
                                                                                                       --------            --------
     Net cash provided by (used in) investing activities ...................................             16,681             (35,653)
                                                                                                       --------            --------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in deposits ................................................................             17,982              43,914
   Net decrease in securities sold under repurchase agreements .............................             (3,502)             (6,012)
   Net decrease in federal funds purchased .................................................             (4,039)                (93)
   Net decrease in notes payable to Federal Home Loan Bank .................................            (12,500)             (1,500)
   Proceeds from the exercise of stock options .............................................                221                 339
   Cash dividend ...........................................................................               (626)               (592)
                                                                                                       --------            --------
     Net cash provided (used in) by financing activities ...................................             (2,464)             36,056
                                                                                                       --------            --------
     Net increase in cash and cash equivalents .............................................             17,728               3,744
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .............................................             10,211              12,289
                                                                                                       --------            --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................................................           $ 27,939            $ 16,033
                                                                                                       ========            ========

CASH PAID FOR
     Interest ..............................................................................           $  5,851            $  3,528
                                                                                                       ========            ========
     Income Taxes ..........................................................................           $    868            $    859
                                                                                                       ========            ========

NON-CASH TRANSACTIONS
     Change in unrealized loss on available for sale securities ............................           $    189            $   (256)
                                                                                                       ========            ========
     Loans transferred to other real estate ................................................    $             -            $    606
                                                                                                       ========            ========
</TABLE>

     See  Notes to  Unaudited  Consolidated  Financial  Statements  which are an
integral part of these statements.


                                       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 2005 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 $0.05 per common share to
shareholders of record March 17, 2006 and June 16, 2006,  payable March 31, 2006
and June 30, 2006, respectively.

EARNINGS PER SHARE

     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,  2006 and 2005 was  6,263,732  and  6,202,078,  respectively.  The  weighted
average  number of common shares  outstanding  for diluted net income per common
share was  6,356,484  and  6,363,418  for the six months ended June 30, 2006 and
2005. Weighted average shares in 2005 have been restated to reflect the 5% stock
dividend issued in December, 2005.

STOCK BASED COMPENSATION

     On  January  1,  2006,  the  Company  adopted  the fair  value  recognition
provisions  of  Financial  Accounting  Standards  Board  ("FASB")  Statement  of
Financial Accounting  Standards ("SFAS") No. 123(R),  Accounting for Stock-Based
Compensation,  to account for  compensation  costs under its stock option plans.
The Company  previously  utilized the  intrinsic  value method under  Accounting
Principles  Board Opinion No. 25,  Accounting  for Stock Issued to Employees (as
amended) ("APB 25").  Under the intrinsic value method  prescribed by APB 25, no
compensation  costs were  recognized for the Company's stock options because the
option exercise price in its plans equals the market price on the date of grant.
Prior to January 1, 2006,  the Company only  disclosed  the pro forma effects on
net income and earnings per share as if the fair value recognition provisions of
SFAS 123(R) had been utilized.



                                       5
<PAGE>

     In  adopting  SFAS No.  123(R),  the  Company  elected to use the  modified
prospective method to account for the transition from the intrinsic value method
to the fair value recognition  method.  Under the modified  prospective  method,
compensation cost is recognized from the adoption date forward for all new stock
options  granted and for any  outstanding  unvested  awards as if the fair value
method had been applied to those awards as of the date of grant.  The  following
table illustrates the effect on net income and earnings per share as if the fair
value based method had been applied to all  outstanding  and unvested  awards in
each period (in thousands, except per share amounts).
<TABLE>
<CAPTION>
                                                                                Three Months Ended           Six Months Ended
                                                                                     June 30,                     June 30,
                                                                                     --------                     --------
                                                                              2006            2005            2006          2005
                                                                              ----            ----            ----          ----

<S>                                                                       <C>            <C>              <C>            <C>
Net income, as reported ...............................................   $   1,146      $    1,001       $   2,327      $    1,912
Add:  Stock-based employee compensation expense
  included  in  reported  net income net of related tax effects .......          15               -              25               -
Deduct:  Total stock-based employee compensation
  expense determined under fair value based method
  for all awards, Net of related tax effects ..........................         (15)            (34)            (25)            (58)
                                                                          ---------      ----------       ---------       ---------
Pro forma net income ..................................................   $   1,146      $      967       $   2,327      $    1,854
                                                                          =========      ==========       =========       =========
Net income per common share
  Basic - as reported .................................................   $    0.18      $     0.16       $    0.37       $    0.31
                                                                          =========      ==========       =========       =========
  Basic - pro forma ...................................................   $       -      $     0.16       $       -       $    0.30
                                                                          =========      ==========       =========       =========
  Diluted - as reported ...............................................   $    0.18      $     0.16       $    0.37       $    0.30
                                                                          =========      ==========       =========       =========
  Diluted - pro forma .................................................   $       -      $     0.15       $       -       $    0.29
                                                                          =========      ==========       =========       =========
</TABLE>

Per share data in 2005 has been restated to reflect the 5% stock dividend issued
in December 2005.

         The Company has three stock option plans, the "1993 Employee  Incentive
Stock Option Plan," the "1997 Non-Employee Directors Stock Option Plan," and the
"2004 Stock Option Plan. The "1993 Employee Incentive Stock Option Plan" expired
in 2003,  but options to purchase  49,169 shares  remain  available for exercise
under this plan.  Under the "2004 Stock Option Plan," the Board of Directors may
grant options to officers and employees to purchase  common stock of the Company
at prices  not less than 100  percent of the fair value of the stock on the date
of grant.  The  outstanding  options become  exercisable  in various  increments
beginning  on the date of grant and  expiring  ten years from the date of grant.
Under  the  "1997  Non-Employee   Directors  Stock  Option  Plan,"  non-employee
directors  of the Company or one the Banks are granted  options to purchase  500
shares of common  stock for each year  served on the board to a maximum of 5,000
per  director.  The option  price shall not be less than 100 percent of the fair
value of the stock on the grant date. The outstanding options become exercisable
on the grant date and expire at the earlier of the end of the director's term or
ten years from the grant date. At June 30, 2006, an aggregate of 370,537  shares
were reserved for issuance on exercise of options under all these plans.  During
the first six months of 2006,  options to purchase  16,000  shares were  granted
with a weighted  average  fair value of $12.28 per  share.  The  following  is a
summary of the status of the  Company's  plans as of June 30,  2006 and  changes
during the six months ended June 30, 2006.



                                       6
<PAGE>




                                                                    Weighted
                                                                     Average
                                                                    Exercise
                                                  Shares             Price
                                                  ------             -----

Outstanding, December 31, 2005 ...............     288,260           $ 7.92
Granted ......................................      16,000           $12.28
Exercised ....................................     (35,373)          $ 7.78
Forfeited ....................................     (13,005)          $14.25
                                                  --------
Outstanding, June 30, 2006 ...................     255,882           $ 8.61
                                                   =======

Options Exercisable, June 30, 2006 ...........     222,958
                                                   =======




                                       7
<PAGE>


MANAGEMENT'S OPINION

     The accompanying  unaudited  consolidated  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.




                                       8
<PAGE>


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 2005
Annual  Report  of  Peoples  Bancorporation,  Inc.  on  Form  10-K.  Results  of
operations for the three-month and six-month periods ended June 30, 2006 are not
necessarily indicative of the results to be attained for any other period.

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.

     The Company  undertakes  no  obligation  to  publicly  update or revise any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.  In light of these risks,  uncertainties,  and assumptions,
the forward-looking events discussed in this report might not occur.


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 of America 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 2005  Annual
Report on Form 10-K of Peoples Bancorporation, Inc.




                                       9
<PAGE>

     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 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 2005 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.









                                       10
<PAGE>


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 and one loan-production  office
located in the Upstate Area of South Carolina.






                                       11
<PAGE>

                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EARNINGS PERFORMANCE

Overview

     The Company's  consolidated  net income for the second  quarter of 2006 was
$1,146,000  or $0.18 per  diluted  share  compared  to  $1,001,000  or $0.16 per
diluted share for the second  quarter of 2005, an increase of $145,000 or 14.5%.
Net income for the six months  ended June 30, 2006 was  $2,327,000  or $0.37 per
diluted  share  compared to  $1,912,000  or $0.30 per diluted  share for the six
months ended June 30, 2005, an increase of $415,000 or 21.7%.  Return on average
equity for the six months and three  months  ended June 30,  2006 was 10.88% and
10.53%  respectively,  compared  to 9.74% and  10.04%  respectively  for the six
months and three months ended June 30,  2005.  Return on average  assets for the
six  months  and  three   months  ended  June  30,  2006  was  0.96%  and  0.94%
respectively,  compared to 0.85% and 0.87%  respectively  for the six months and
three months ended June 30, 2005.  The  increases in the  Company's  net income,
diluted  earnings  per share,  return on average  equity,  and return on average
assets in the first  half of 2006 are  largely  attributable  to higher  average
balances and yields of earning assets.

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  $616,000 or 14.6% to $4,848,000 in the quarter ended June
30, 2006 compared to $4,232,000 in the quarter ended June 30, 2005.  For the six
months ended June 30, 2006 net interest income before  provision for loan losses
increased  $1,430,000 or 17.5% to $9,624,000  compared to $8,194,000 for the six
months  ended June 30, 2005.  The  Company's  net interest  margin for the three
months and six months  ending  June 30,  2006 was 4.25% and 4.25%  respectively,
compared  to 3.95% and 3.93%  respectively  for the three  months and six months
ended June 30, 2005.

     The  Company's  total  interest  income for the second  quarter of 2006 was
$7,863,000 compared to $6,398,000 for the second quarter of 2005, an increase of
$1,465,000  or 22.9%.  Total  interest  income for the six months ended June 30,
2006 was  $15,400,000  compared to $12,205,000 for the six months ended June 30,
2005,  an increase  of  $3,195,000  or 26.2%.  Interest  and fees on loans,  the
largest component of total interest income,  increased  $1,434,000 in the second
quarter of 2006 to $7,221,000  compared to $5,787,000  for the second quarter of
2005, an increase of 24.8%.  Interest and fees on loans increased $3,123,000 for
the six months ended June 30, 2006 to $14,158,000  compared to  $11,035,000  for
the six months ended June 30, 2005, an increase of 28.3%. The increases in total
interest  income and  interest  and fees on loans were  primarily  due to higher
interest  rates and fees  charged  and also due to higher  average  balances  in
outstanding loans. Interest on taxable securities,  the second largest component
of total  interest  income  increased  $32,000 in the second  quarter of 2006 to


                                       12
<PAGE>

$506,000  compared to $474,000  for the second  quarter of 2005,  an increase of
6.8%. Interest on taxable securities  increased $81,000 for the six months ended
June 30, 2006 to  $1,001,000  compared to $920,000 for the six months ended June
30, 2005, an increase of 8.8%.  The increases in interest on taxable  securities
were due to  higher  interest  rates,  and  partially  offset  by lower  average
balances.

     The Company's  total  interest  expense for the second  quarter of 2006 was
$3,015,000 compared to $2,166,000 for the second quarter of 2005, an increase of
$849,000 or 39.2%. Total interest expense for the six months ended June 30, 2006
was $5,776,000 compared to $4,011,000 for the six months ended June 30, 2005, an
increase of  $1,765,000  or 44.0%.  Interest  expense on  deposits,  the largest
component of total interest expense, increased $624,000 in the second quarter of
2006 to  $2,566,000  compared to $1,942,000  for the second  quarter of 2005, an
increase of 32.1%. Interest expense on deposits increased $1,352,000 for the six
months  ended June 30, 2006 to  $4,897,000  compared to  $3,545,000  for the six
months  ended June 30,  2005,  an  increase of 38.1%.  The  increase in interest
expense on deposits is largely  attributable  to higher  interest  rates paid on
these accounts, as well as higher average balances during the first half of 2006
when compared to the same period of 2005.  Interest on federal  funds  purchased
and securities sold under repurchase agreements, the second largest component of
total  interest  expense,  increased  $41,000 or 26.3% to $197,000 in the second
quarter of 2006 compared to $156,000 for the second quarter of 2005. Interest on
federal  funds  purchased  and  securities  sold  under  repurchase   agreements
increased  $79,000 or 26.2% to  $381,000  in the first half of 2006  compared to
$302,000 for the first half of 2005.  This increase is largely  attributable  to
higher market  interest rates  experienced  at the Company's  bank  subsidiaries
during the first half of 2006 when compared to the same period of 2005. Interest
on notes  payable to the  Federal  Home Loan Bank  ("FHLB"),  the third  largest
component of total interest expense, increased $184,000 or 270.6% to $252,000 in
the second  quarter of 2006 compared to $68,000 for the second  quarter of 2005.
Interest on notes  payable to the Federal Home Loan Bank  increased  $334,000 or
203.7% to $498,000 in the first half of 2006  compared to $164,000 for the first
half of 2005.  The increase is largely  attributable  to higher market  interest
rates and higher  average  balances in these  accounts  during the first half of
2006 when compared to the same period of 2005.

Provision for Loan Losses

     The provision for loan losses charged to operations during the three months
ended June 30, 2006 was  $256,000  compared to  $183,000,  for the three  months
ended June 30, 2005,  an increase of $73,000 or 39.9%.  The  provision  for loan
losses charged to operations during the six months ended June 30, 2006 increased
$137,000 or 38.5% to  $493,000,  compared to $356,000  for the six months  ended
June 30, 2005.  The changes in the  Company's  provision for loan losses for the
second  quarter and first half of 2006 are based on  management's  evaluation of
the Company's overall credit quality and its estimate of loan losses inherent in
the loan  portfolio.  See "BALANCE SHEET REVIEW - Allowance for Loan Losses" for
further discussion.


                                       13
<PAGE>

Non-interest Income

     Non-interest  income  increased  $43,000 or 4.8% to $933,000 for the second
quarter  of  2006  compared  to  $890,000  for  the  second   quarter  of  2005.
Non-interest income increased $182,000 or 10.2% to $1,961,000 for the first half
of 2006  compared  to  $1,779,000  for the first half of 2005.  Service  fees on
deposit accounts, the largest component of non-interest income, decreased $9,000
or 1.8% to $491,000 for the second  quarter of 2006 compared to $500,000 for the
second quarter of 2005.  Service fees on deposit accounts  decreased  $25,000 or
2.6% to $955,000  for the first six months of 2006  compared to $980,000 for the
first six months of 2005.

     Mortgage banking income increased $27,000 or 27.6% in the second quarter of
2006 to  $125,000  compared  to  $98,000  in the  second  quarter  of 2005,  and
decreased  $18,000 or 8.1% in the first  half of 2006 to  $203,000  compared  to
$221,000  in the first half of 2005.  These  changes  in the levels of  mortgage
banking  income  are  largely  due to the  substantial  swings in the demand for
residential mortgage loan origination that occur from time to time.

     There were no gains  realized on the sale of available for sale  securities
during the first six  months of 2006,  compared  to gains of $3,000 and  $7,000,
respectively,  realized on the sale of available for sale securities  during the
second quarter and first half of 2005.

Non-interest Expense

     Total non-interest expense increased $335,000 or 9.7% to $3,786,000 for the
second quarter of 2006 from  $3,451,000  for the second  quarter of 2005.  Total
non-interest  expense  increased  $882,000 or 13.0% to $7,666,000  for the first
half of 2006 from $6,784,000 for the first half of 2005.  Salaries and benefits,
the largest component of non-interest  expense,  increased  $192,000 or 9.4%, to
$2,228,000 for the second quarter of 2006 from $2,036,000 for the second quarter
of 2005.  Salaries and benefits  increased  $482,000 or 12.0%, to $4,486,000 for
the first half of 2006 from $4,004,000 for the first half of 2005. The increases
in  salaries  and  benefits  are  primarily  due to the  addition of certain key
personnel,  signing  bonuses,  normal  salary  increases,  and other  changes in
personnel throughout the Company.

     Occupancy and furniture and equipment  expense increased $27,000 or 5.4% to
$527,000  in the  second  quarter of 2006  compared  to  $500,000  in the second
quarter of 2005.  Occupancy  and  furniture  and  equipment  expenses  increased
$47,000 or 4.5% to $1,087,000 for the first half of 2006 from $1,040,000 for the
first  half of 2005.  The  increase  is  primarily  attributable  to the  normal
expansion of the Company.

     Legal and professional  fees increased  $49,000 or 52.7% to $142,000 in the
second quarter of 2006 compared to $93,000 in the second quarter of 2005.  Legal
and  professional  fees  increased  $190,000 or 115.9% to $354,000 for the first
half of 2006  compared  to  $164,000  in the first half of 2005.  This  increase


                                       14
<PAGE>

includes legal fees  associated with the termination of the President of Bank of
Anderson, N. A., which occurred in January 2006.

     Marketing and advertising expense decreased $18,000 or 14.9% to $103,000 in
the second  quarter of 2006 from $121,000 for the second  quarter of 2005.  This
decline is  attributable  to the timing of  marketing  and  advertising  of bank
products and services.  Marketing and advertising  expense  increased $10,000 or
4.9% to $216,000 for the first half of 2006 from  $206,000 for the first half of
2005. This increase for the six-month period is attributable to the promotion of
certain  bank  products  and  advertising  associated  with  the  upcoming  20th
anniversary of The Peoples National Bank.  Directors' fees decreased  $13,000 or
13.8% to  $81,000  in the second  quarter  of 2006 from  $94,000  for the second
quarter of 2005 as a result of a decrease in the number of  directors.  Director
fees  increased  $5,000  or 2.9% to  $178,000  for the  first  half of 2006 from
$173,000  for the  first  half of  2005  due to an  increase  in the  amount  of
compensation  per  director,  partially  offset by a  decrease  in the number of
directors.

     All other  operating  expenses were $705,000 in the second  quarter of 2006
compared to $607,000 for the second  quarter of 2005,  an increase of $98,000 or
16.1%. All other operating expense increased $148,000 or 12.4% to $1,345,000 for
the first half of 2006 from $1,197,000 for the first half of 2005. This increase
is due to growth in normal miscellaneous operating expenses.





                                       15
<PAGE>

BALANCE SHEET REVIEW

Loans

     Outstanding  loans  represent  the largest  component of earning  assets at
81.1% of total earning assets. As of June 30, 2006, the Company held total gross
loans outstanding of $369,898,000. Gross loans decreased $7,597,000 or 2.0% from
$377,495,000 in total gross outstanding loans at December 31, 2005 and increased
$13,272,000 or 3.7% from  $356,626,000 in total gross loans  outstanding at June
30, 2005. The following table summarizes outstanding loans by collateral type:


Loan Portfolio Composition
(Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                          June 30,                  December 31,
                                                                                          --------                  ------------
                                                                                  2006               2005              2005
                                                                                  ----               ----              ----
                                                                                       (Unaudited)                   (Audited)

<S>                                                                            <C>                <C>                <C>
Commercial and Industrial - not secured by real estate ....................    $ 39,626           $ 39,661           $ 39,669
Commercial and Industrial - secured by real estate ........................      92,169             94,288             90,186
Residential real estate - mortgage ........................................     105,312            108,750            107,398
Residential real estate - construction ....................................     116,515             94,357            121,048
Consumer loans ............................................................      16,276             19,570             19,194
                                                                               --------           --------           --------
     Gross Loans ..........................................................    $369,898           $356,626           $377,495
                                                                               ========           ========           ========
</TABLE>


     The interest rates charged on loans vary with the degree of risk,  maturity
and amount of the loan.  Competitive  pressures,  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,
2006 was 7.56% and 7.66% respectively,  compared to 6.53% and 6.73% respectively
for the six months and three months ended June 30, 2005.  Between the end of the
second  quarter of 2005 and the end of the second  quarter of 2006,  the Federal
Reserve  increased  the federal funds target rate eight times for a total of 200
basis  points.  A large portion of the Company's  adjustable-rate  loans,  which
constitutes 52% 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 do
employ  mortgage  loan  originators  who  originate  loans that are  pre-sold at
origination to third parties.

     The Company's  commercial lending activity is directed  principally towards
businesses  whose  demands for funds fall within each Bank's legal lending limit
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


                                       16
<PAGE>

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,  2006  approximately  $10,141,000  or 7.7% 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.

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

Allowance for Loan Losses

     The allowance  for loan losses at June 30, 2006 was  $4,095,000 or 1.11% of
loans  outstanding  compared  to  $3,854,000  or 1.02% of loans  outstanding  at
December 31, 2005 and compared to  $3,933,000 or 1.10% of loans  outstanding  at
June 30,  2005.  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, 2006 the Company had $1,768,000 in non-accruing loans, $645,000
in restructured loans, $93,000 in loans more than ninety days past due and still
accruing  interest,  and $586,000 in other real estate  owned.  This compares to
$1,206,000 in non-accruing  loans,  $922,000 in restructured  loans,  $10,000 in
loans more than ninety days past due on which  interest was still being accrued,
and  $2,007,000  in other real estate owned at December  31,  2005.  At June 30,
2005,  the  Company  had  $2,331,000  in  non-accruing   loans,   $1,423,000  in
restructured  loans,  no loans more than ninety days past due and still accruing
interest,  and  $1,306,000 in other real estate owned.  Non-performing  loans at
June 30, 2006 consisted of $1,475,000 in mortgage loans,  $265,000 in commercial
loans and $28,000 in consumer  loans.  Non-performing  assets as a percentage of
loans and other real estate owned was 0.83%,  1.09%, and 1.41% at June 30, 2006,
December 31, 2005, and June 30, 2005, respectively.

     Net charge-offs  during the first six months of 2006 were $253,000 compared
to net  charge-offs  of  $114,000  for the  first  six  months  of 2005  and net
charge-offs  of $685,000 for the year ended December 31, 2005. The allowance for
loan losses as a percentage of non-performing  loans was 163%, 180%, and 105% as
of June 30, 2006, December 31, 2005, and June 30, 2005, respectively.



                                       17
<PAGE>

     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,
2006 and December 31, 2005, and $150,000 in impaired loans at June 30, 2005.

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, 2006 securities totaled $69,224,000,  which represents 15.2%
of total earning assets.  Securities held at June 30, 2006 decreased  $8,837,000
or 11.3%  from  $78,061,000  invested  as of  December  31,  2005 and  decreased
$5,223,000 or 7.0% from  $74,447,000  invested as of June 30, 2005. The decrease
is due to the use of some maturing  investments to fund loans,  repay short-term
FHLB  borrowings,  and to reduce  the need for  funding  from  other  short-term
sources.

     At June 30, 2006 the Company's  total  investments  classified as available
for sale had an amortized cost of $55,135,000  and a market value of $54,056,000
for an unrealized  loss of  $1,079,000.  This  compares to an amortized  cost of
$65,643,000 and a market value of $64,650,000 for an unrealized loss of $993,000
on the Company's investments  classified as available for sale at June 30, 2005.
At December 31, 2005 the Company's total investments classified as available for
sale had an amortized cost of $66,303,000  and a market value of $65,009,000 for
an unrealized  loss of  $1,294,000.  The changes in the market  valuation of the
investment  portfolio  were related to the changes in market  interest rates and
not the  credit  quality  of the  issuer  and  therefore,  these  losses are not
considered  other-than-temporary.  Management  believes that maintaining most of
its securities in the available for sale category  provides greater  flexibility
in the  management  of the  overall  investment  portfolio.  The Company has the
ability  and intent to hold these  securities  until the value  recovers  or the
securities mature.

Cash Surrender Value of Life Insurance

     The Company's cash surrender value of life insurance was $9,568,000 at June
30, 2006, an increase of $165,000 or 1.8% from the  $9,403,000  held at December
31, 2005 and a increase of $331,000 or 3.6% from the $9,237,000 held at June 30,
2005.


                                       18
<PAGE>

Cash and Cash Equivalents

     The Company's cash and cash equivalents  increased $17,728,000 or 173.6% to
$27,939,000 at June 30, 2006 from $10,211,000 at December 31, 2005 and increased
$11,906,000 or 74.3% from  $16,033,000 at June 30, 2005. The substantial  swings
in the level of cash and cash  equivalents are due to fluctuations in the Banks'
needs for immediate liquidity.

Deposits

     The  Banks'  primary  source of funds for loans and  investments  are their
deposits.  Total deposits increased  $17,982,000 or 4.6% to $408,331,000 at June
30, 2006 from  $390,349,000  at December 31, 2005 and increased  $18,272,000  or
4.7% from  $390,059,000 at June 30, 2005.  Competition  for deposit  accounts is
primarily  based on the interest rates paid,  location  convenience and services
offered.

     During the first six  months of 2006,  interest-bearing  deposits  averaged
$338,644,000  compared to  $321,292,000  for the first six months of 2005.  From
time to time the Banks  solicit  certificates  of deposit from  various  sources
through  brokers.  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.  On June 30, 2006 brokered  deposits
totaled  $28,235,000.  On  December  31,  2005  and  June 30,  2005  there  were
$2,295,000 and $2,665,000 in brokered deposits, respectively.

     The average interest rate paid on  interest-bearing  deposits was 2.92% for
the first six months of 2006 compared to 2.21% for the first six months of 2005.
In pricing  deposits,  the Company  considers its liquidity needs, the direction
and levels of interest  rates,  and local  market  conditions.  At June 30, 2006
interest-bearing deposits comprised 86.3% of total deposits compared to 86.5% at
June 30, 2005.

     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 77.4% and 77.4% for the six
months ended June 30, 2006 and June 30,  2005,  respectively.  Time  deposits of
$100,000 or more represented  21.9% of total deposits at June 30, 2006 and 23.0%
at   June   30,   2005.   Except   for   brokered   deposits,    the   Company's
larger-denomination  time deposits are generally  garnered from customers within
the local market areas of its banks,  and therefore may have a greater degree of
stability  than is  typically  associated  with  this  source  of funds at other
financial institutions.



                                       19
<PAGE>



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  FHLB.  At  June  30,  2006  short-term  borrowings  totaled
$28,234,000  and were  comprised  entirely of securities  sold under  repurchase
agreements.  At December 31, 2005 short-term  borrowings totaled $48,275,000 and
were comprised of $31,736,000 in securities  sold under  repurchase  agreements,
$4,039,000 in federal funds  purchased,  and $12,500,000 in short-term  advances
from the FHLB. At June 30, 2005 short-term  borrowings  totaled  $30,420,000 and
were comprised of $27,941,000 in securities  sold under  repurchase  agreements,
$479,000 in federal funds purchased,  and $2,000,000 in short-term advances from
the FHLB.  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,  2006,  December 31, 2005,
and June 30, 2005.


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, 2006, The Peoples  National
Bank had total borrowing  capacity from the FHLB equal to  $55,720,000,  and the
unused portion of this line of credit was  $50,720,000.  Bank of Anderson,  N.A.
had total borrowing  capacity from the FHLB equal to  $15,230,000,  all of which
was unused.  Seneca National Bank had  established  secured lines of credit with
the FHLB at June 30, 2006 of $5,810,000,  all of which were unused.  At June 30,
2006,  the Banks also had unused  federal  funds  lines of credit  with  various
correspondent banks totaling $33,500,000.

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

     During the latter part of 2005 and the first half of 2006, the Company made
capital  expenditures of approximately  $812,000 to purchase a 2.4-acre tract in
Greenville, SC, including preliminary design costs and demolition of an existing
structure,  in preparation  for  construction  of a full-service  retail banking
office.  Additional expenditures in the amount of approximately $1.5 million are
expected for the construction of this facility, which should occur later in 2006
and 2007. During that same period, the Company also made capital expenditures of
approximately  $115,000 for the renovation of an office building in Easley,  SC,
$76,000  for  the   renovation  of  Seneca   National  Bank,  and  $115,000  for
enhancements  to its  operating  systems.  During  the first  half of 2006,  the


                                       20
<PAGE>

Company  also made capital  expenditures  of  approximately  $22,000 for general
building  needs and $45,000 for furniture and equipment  purchases.  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.



                                       21
<PAGE>


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 a specified  period of time. At
June 30, 2006, the Banks had issued commitments to extend credit of $102,375,000
through various types of arrangements.  The 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.

     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 $5,718,000 at June 30, 2006. Past
experience  indicates  that many of these standby  letters of credit will expire
unused. However,  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 had no derivative  assets or
liabilities at each of June 30, 2006, December 31, 2005 and June 30, 2005.

     Neither  the Company  nor the Banks 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  Peoples
National Bank has an operating lease agreement for its loan-processing office in
Greenville,  South Carolina for which,  remaining obligations under the terms of
the lease  total  approximately  $7,000 at June 30,  2006.  This  obligation  is
payable in installments over the next four months.





                                       22
<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, 2006:


                                 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 ............................    $    48,079    12.57%    $   38,249    10.00%    $   30,599     8.00%
Tier 1 Risk-based Capital ...........................         43,984    11.50         21,948     6.00         15,299     4.00
Leverage Ratio ......................................         43,984     8.91         24,682     5.00         19,746     4.00

Peoples National Bank:
Total Risk-based Capital ............................    $    27,530    11.84%    $   23,252    10.00%    $   18,601     8.00%
Tier 1 Risk-based Capital ...........................         25,267    10.87         13,947     6.00          9,298     4.00
Leverage Ratio ......................................         25,267     8.90         14,195     5.00         11,356     4.00

Bank of Anderson, N. A:
Total Risk-based Capital ............................    $    13,046    11.85%    $   11,009    10.00%    $    8,807     8.00%
Tier 1 Risk-based Capital ...........................         11,669    10.60          6,605     6.00          4,403     4.00
Leverage Ratio ......................................         11,669     7.75          7,528     5.00          6,023     4.00

Seneca National Bank:
Total Risk-based Capital ............................    $     5,385    13.28%    $    4,055    10.00%    $    3,244     8.00%
Tier 1 Risk-based Capital ...........................          4,878    12.03          2,433     6.00          1,622     4.00
Leverage Ratio ......................................          4,878     8.42          2,898     5.00          2,318     4.00
</TABLE>





                                       23
<PAGE>


RECENTLY ISSUED ACCOUNTING STANDARDS

     The  following  is a summary of recent  authoritative  pronouncements  that
could  impact  the  accounting,  reporting,  and / or  disclosure  of  financial
information by the Company.

     In December 2004, the FASB issued SFAS No. 123 (revised 2004),  Share-Based
Payment ("SFAS No.  123(R)").  SFAS No.123(R) covers a wide range of share-based
compensation  arrangements  including  share  options,  restricted  share plans,
performance-based awards, share appreciation rights, and employee share purchase
plans.  SFAS No. 123(R) requires  companies to measure all employee  stock-based
compensation  awards  using a fair value  method and record such  expense in the
financial  statements.  In addition,  the adoption of SFAS No.  123(R)  requires
additional  accounting  and  disclosure  related to the income tax and cash flow
effects resulting from share-based payment arrangements.  SFAS No. 123(R) became
effective for the Company in January 2006.

     In February  2006,  the 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. 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.
Management  believes  that the adoption of SFAS No. 155 will not have a material
impact on the Company's financial position, results of operations or 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
SFAS No. 115,  provided that the available for sale securities are identified in
some  manner as  offsetting  the  entity's  exposure to changes in fair value of
servicing assets or servicing liabilities that a servicer 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.  SFAS No. 156 is effective as of the


                                       24
<PAGE>

beginning  of the first  fiscal  year that  begins  after  September  15,  2006.
Management believes the adoption of SFAS No. 156 will not have a material impact
on the Company's financial position, results of operations or cash flows.

     Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies are not expected to have a material impact on the
Company's financial position, results of operations or cash flows.



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk is the risk of loss arising  from  adverse  changes in the fair
value of financial instruments due to a change in interest rates, exchange rates
and equity prices.  The Company's  primary type of market risk is  interest-rate
risk.

     The primary  objective of  Asset/Liability  Management at the Company is to
manage  interest-rate  risk and achieve  reasonable  stability  in net  interest
income throughout  interest-rate cycles in order to maintain adequate liquidity.
The Company seeks to achieve this objective by maintaining the proper balance of
rate-sensitive earning assets and rate-sensitive  liabilities.  The relationship
of rate-sensitive earning assets to rate-sensitive  liabilities is the principal
factor in projecting  the effect that  fluctuating  interest  rates will have on
future net interest income. Rate-sensitive assets and rate-sensitive 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 first year.

     Each  of  the   Company's   banking   subsidiaries   has   established   an
Asset/Liability Management Committee. These committees use a variety of tools to
analyze  interest-rate  sensitivity,  including a static gap  presentation and a
simulation  model. A static gap  presentation  reflects the  difference  between
total  interest-sensitive  assets and  liabilities  within certain time periods.
While the static gap is a widely used measure of interest rate  sensitivity,  it
is not,  in  management's  opinion,  the  best  indicator  of a  company's  true
sensitivity position.  Accordingly,  the Company's banking subsidiaries also use
an earnings  simulation  model that estimates the variations in interest  income
under  different  interest-rate  environments  to measure  and manage the bank's
short-term  interest-rate risk.  According to the model, as of June 30, 2006 the
Company was positioned so that net interest  income would  increase  $827,000 in
the next twelve months if market  interest  rates were to gradually  rise by 100
basis points over the same period. Conversely, net interest income would decline
$741,000 in the next twelve months if interest  rates were to gradually  decline
by  100  basis  points.  Computation  of  prospective  effects  of  hypothetical
interest-rate  changes are based on  numerous  assumptions,  including  relative
levels of market  interest rates and loan  prepayment,  and should not be relied
upon  as  indicative  of  actual  results.  Further,  the  computations  do  not
contemplate  all actions that the Company and its customers  could  undertake in
response to changes in interest rates.



                                       25
<PAGE>

     Additionally,   each  of  the  Company's  banking   subsidiaries   measures
anticipated  changes in its economic  value of equity in order to ascertain  its
long-term interest rate risk. This is done by calculating the difference between
the theoretical market value of the bank's assets and liabilities and subjecting
the balance sheet to different interest-rate  environments to measure and manage
long-term interest rate risk.

     It is the  responsibility  of the  Asset/Liability  Committees to establish
parameters  for various  interest risk  measures,  to set  strategies to control
interest rate risk within those parameters,  to maintain adequate and stable net
interest  income,  and to direct the  implementation  of  tactics to  facilitate
achieving their objectives.

     Management  is not aware of any  known  events  or  uncertainties  that are
expected  to have or are  reasonably  likely  to have a  material  effect on the
Company's liquidity,  capital resources or results of operations.  Management is
not aware of any current recommendations by the regulatory authorities, which if
they were to be  implemented,  would  have a  material  effect on the  Company's
liquidity, capital resources or results of operations.







                                       26
<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 such controls and
procedures,  as of the end of the period covered by this quarterly report,  were
effective.

     There has been no change in the Company's  internal  control over financial
reporting during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially  affect,  the Company's internal control over
financial reporting.






                                       27
<PAGE>



PART II.  OTHER INFORMATION

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

Annual Meeting of Shareholders
On May 18, 2006, The Company held its Annual Meeting of Shareholders. The voting
results of the 2006 Annual Meeting of Shareholders follows.

Election of Directors
The  following  persons  were elected as Directors to serve for a term set forth
below  with  4,592,460  shares  voted,  representing  73.4% of the total  shares
entitled to vote:
                                                         Broker
                                  For       Withheld    Non-Votes   Term (years)
                                  ---       --------    ---------   ------------
Robert E. Dye, Jr.             4,461,943    130,517         0             3
W. Rutledge Galloway           4,424,798    167,662         0             3
E. Smyth McKissick, III        4,414,802    177,658         0             3
William B. West                4,376,966    215,494         0             3
George Weston Nalley           4,418,812    173,648         0             2
William R. Rowan, III          4,448,880    143,580         0             2

The following persons continue to serve as directors for the terms indicated.

                                                         Year Term Ends
              Andrew M. McFall, III                           2007
              Eugene W. Merritt, Jr.                          2007
              George B. Nalley, Jr.                           2007
              Nell W. Smith                                   2007
              A. J. Thompson, Jr.                             2007
              Charles E. Dalton                               2008
              Larry D. Reeves                                 2008
              R. Riggie Ridgeway                              2008

Item 6.   Exhibits

                                    Exhibits.

          10   Description of increases in Board committee fees (incorporated by
               reference to Form 8-K filed July 24, 2006).

          31.1 Rule 13a-14(a) / 15d-14(a) Certifications

          31.2 Rule 13a-14(a) / 15d-14(a) Certifications

          32   Section 1350 Certifications





                                       28
<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 11, 2006                    By:    /s/ R. Riggie Ridgeway
                                                ------------------------
                                                  R. Riggie Ridgeway
                                                  President and CEO


Dated:  August 11, 2006                    By:   /s/ Robert E. Dye, Jr.
                                               ------------------------
                                                  Robert E. Dye, Jr.
                                                  Sr. Vice President & CFO
                                                  (principal financial officer)


<PAGE>



                                  Exhibit Index

Exhibit No.                Description of Exhibit


10                         Description  of  increases  in Board  committee  fees
                           (incorporated by reference to Form 8-K filed July 24,
                           2006).

31.1                       Rule 13a-14(a) / 15d-14(a) Certifications

31.2                       Rule 13a-14(a) / 15d-14(a) Certifications

32                         Section 1350 Certifications



                                       29