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
             March 31, 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 May 8, 2006 was 6,271,417.



<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>
                                                                                       March 31,        March 31,       December 31,
                                                                                         2006             2005              2005
                                                                                       Unaudited        Unaudited          Audited
                                                                                       ---------        ---------          -------
ASSETS
<S>                                                                                   <C>               <C>               <C>
CASH AND DUE FROM BANKS ......................................................        $  10,685         $  10,775         $   9,311
INTEREST-BEARING DEPOSITS IN OTHER BANKS .....................................              422               783               900
FEDERAL FUNDS SOLD ...........................................................            1,691            16,244                 -
                                                                                      ---------         ---------         ---------
     Total cash and cash equivalents .........................................           12,798            27,802            10,211

SECURITIES
     Available for sale ......................................................           58,397            60,878            65,009
     Held to maturity (market value of $12,041, $7,531 and $10,674) ..........           12,220             7,579            10,855
     Other investments, at cost ..............................................            3,200             1,725             2,197
LOANS-less allowance for loan losses of $4,026, $3,774 and $3,854 ............          377,520           331,354           373,641
PREMISES AND EQUIPMENT, net of accumulated
     depreciation and amortization ...........................................           11,093            10,884            10,635
ACCRUED INTEREST RECEIVABLE ..................................................            2,284             1,798             2,441
CASH SURRENDER VALUE OF LIFE INSURANCE .......................................            9,488             9,143             9,403
OTHER ASSETS .................................................................            2,289             2,645             3,585
                                                                                      ---------         ---------         ---------
         TOTAL ASSETS ........................................................        $ 489,289         $ 453,808         $ 487,977
                                                                                      =========         =========         =========

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
DEPOSITS
     Noninterest-bearing .....................................................        $  58,730         $  44,804         $  52,467
     Interest-bearing ........................................................          337,893           331,237           337,882
                                                                                      ---------         ---------         ---------
         Total deposits ......................................................          396,623           376,041           390,349

SECURITIES SOLD UNDER REPURCHASE AGREEMENTS ..................................           30,962            31,600            31,736
FEDERAL FUNDS PURCHASED ......................................................                -                 -             4,039
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ......................................           16,500             5,000            17,500
ACCRUED INTEREST PAYABLE .....................................................            1,939             1,366             2,281
OTHER LIABILITIES ............................................................              935             1,099               901
                                                                                      ---------         ---------         ---------
         Total Liabilities ...................................................          446,959           415,106           446,806
                                                                                      ---------         ---------         ---------
SHAREHOLDERS' EQUITY
Common Stock - 15,000,000 shares authorized, $1.11
     Par value per share, 6,267,580 shares, 5,910,069 shares
       and 6,245,356 shares outstanding, respectively ........................            6,957             6,560             6,932
Additional paid-in capital ...................................................           34,823            32,373            34,684
Retained Earnings ............................................................            1,277               616               408
Accumulated other comprehensive income .......................................             (727)             (847)             (853)
                                                                                      ---------         ---------         ---------
         Total Shareholders' Equity ..........................................           42,330            38,702            41,171
                                                                                      ---------         ---------         ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...................................        $ 489,289         $ 453,808         $ 487,977
                                                                                      =========         =========         =========
</TABLE>

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

                                       1
<PAGE>

<TABLE>
<CAPTION>
          Peoples Bancorporation, Inc. and Subsidiaries
             Consolidated Statements of Income                                                                (Unaudited)
  (Dollars in thousands except per share and share data)                                                  Three Months Ended
                                                                                                               March 31,
                                                                                                               ---------
                                                                                                    2006                    2005
                                                                                                    ----                    ----
INTEREST INCOME
<S>                                                                                             <C>                     <C>
   Interest and fees on loans .....................................................             $     6,937             $     5,248
   Interest on securities
       Taxable ....................................................................                     495                     446
       Tax-exempt .................................................................                      87                      59
   Interest on federal funds ......................................................                      18                      54
                                                                                                -----------             -----------
Total interest income .............................................................                   7,537                   5,807
                                                                                                -----------             -----------
INTEREST EXPENSE
   Interest on deposits ...........................................................                   2,331                   1,603
   Interest on federal funds purchased and securities
       sold under repurchase agreements ...........................................                     184                     146
Interest on notes payable Federal Home Loan Bank ..................................                     246                      96
                                                                                                -----------             -----------
Total interest expense ............................................................                   2,761                   1,845
                                                                                                -----------             -----------
     Net interest income ..........................................................                   4,776                   3,962

PROVISION FOR LOAN LOSSES .........................................................                     237                     173
                                                                                                -----------             -----------
Net interest income after provision for loan losses ...............................                   4,539                   3,789

NON-INTEREST INCOME
   Service charges on deposit accounts ............................................                     464                     480
   Customer service fees ..........................................................                      55                      51
   Mortgage banking ...............................................................                      78                     123
   Brokerage services .............................................................                      77                      42
   Bank owned life insurance ......................................................                      99                     105
   Gain on sale of available for sale securities ..................................                       -                       4
   Gain(loss) on sale of assets acquired in settlement of loans ...................                     128                      (1)
   Other noninterest income .......................................................                     127                      85
                                                                                                -----------             -----------
                                                                                                      1,028                     889
NON-INTEREST EXPENSES
   Salaries and benefits ..........................................................                   2,258                   1,968
   Occupancy ......................................................................                     197                     173
   Equipment ......................................................................                     363                     367
   Marketing and advertising ......................................................                     113                      85
   Communications .................................................................                      61                      57
   Printing and supplies ..........................................................                      43                      36
   Bank paid loan costs ...........................................................                      67                      53
   Director fees ..................................................................                      97                      79
   ATM/Debit card expenses ........................................................                      73                      68
   Legal and professional fees ....................................................                     212                      71
   Other operating expenses .......................................................                     396                     376
                                                                                                -----------             -----------
             Total noninterest expenses ...........................................                   3,880                   3,333
                                                                                                -----------             -----------
   Income before income taxes .....................................................                   1,687                   1,345
PROVISION FOR INCOME TAXES ........................................................                     506                     434
                                                                                                -----------             -----------

   Net income .....................................................................             $     1,181             $       911
                                                                                                ===========             ===========
INCOME PER COMMON SHARE*:
   BASIC ..........................................................................             $      0.19             $      0.15
                                                                                                ===========             ===========
   DILUTED ........................................................................             $      0.19             $      0.14
                                                                                                ===========             ===========
WEIGHTED AVERAGE COMMON SHARES*:
   BASIC ..........................................................................               6,254,314               6,177,488
                                                                                                ===========             ===========
   DILUTED ........................................................................               6,330,962               6,378,034
                                                                                                ===========             ===========
DIVIDENDS PAID PER COMMON SHARE ...................................................             $      0.05             $      0.05
                                                                                                ===========             ===========
</TABLE>

* 2005 amounts restated for 5% stock dividend issued in December, 2005.

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 Three months ended March 31, 2005 and 2006

<TABLE>
<CAPTION>
                    (Dollars in thousands except share data)
                                  (Unaudited)

                                                                                                          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 ..............................................           -           -           -         911            -          911
Other comprehensive income, net of tax:
   Unrealized holding losses on
    securities available for sale,
    net of income tax benefit of $204 ...................           -           -           -           -         (384)        (384)
   Less reclassification
    adjustments for gains
    included in net income, net of
    income taxes of $1 ..................................           -           -           -           -           (3)          (3)
                                                                                                                          ---------
Comprehensive income ....................................                                                                       524
Cash dividends ..........................................           -           -           -        (295)           -         (295)
Proceeds from stock options
  exercised .............................................      87,461          97         136           -            -          233
                                                            ---------   ---------   ---------   ---------    ---------    ---------
Balance, March 31, 2005 .................................   5,910,069   $   6,560   $  32,373   $     616    $    (847)   $  38,702
                                                            =========   =========   =========   =========    =========    =========

Balance, December 31, 2005 ..............................   6,245,356   $   6,932   $  34,684   $     408    $    (853)   $  41,171
Net income ..............................................           -           -                   1,181            -        1,181
Other comprehensive income, net of tax:
   Unrealized holding losses on
    securities available for sale,
    net of income taxes of $16 ..........................           -           -           -           -          126          126
                                                                                                                          ---------
Comprehensive income ....................................                                                                     1,307
Cash dividends ..........................................           -           -           -        (312)           -         (312)
Proceeds from stock options
     exercised ..........................................      22,224          25         124           -            -          149
Stock-based compensation ................................           -           -          15           -            -           15
                                                            ---------   ---------   ---------   ---------    ---------    ---------
Balance, March 31, 2006 .................................   6,267,580   $   6,957   $  34,823   $   1,277    $    (727)   $  42,330
                                                            =========   =========   =========   =========    =========    =========
</TABLE>


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


                                       3
<PAGE>

<TABLE>
<CAPTION>
              Peoples Bancorporation, Inc. and Subsidiaries
                  Consolidated Statements of Cash Flows                                                          (Unaudited)
                         (Dollars in thousands)                                                               Three months Ended
                                                                                                                  March 31,
                                                                                                                  ---------
                                                                                                          2006                 2005
                                                                                                          ----                 ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                                     <C>                <C>
   Net income ................................................................................          $  1,181           $    911
   Adjustments to reconcile net income to net cash provided
     by operating activities:
   Loss (gain) on sale of premises and equipment .............................................                (3)                 6
   Gain on sale of securities available for sale .............................................                 -                 (4)
   Gain(loss) on sale of assets acquired in settlement of loans ..............................               128                 (1)
   Provision for loan losses .................................................................               237                173
   Depreciation and amortization .............................................................               289                329
   Amortization and accretion (net) of premiums and
     discounts on securities .................................................................                36                 28
   Stock-based compensation ..................................................................                15                  -
   Decrease in accrued interest receivable ...................................................               157                 32
   Decrease (increase) in other assets .......................................................             1,101               (346)
   Increase (decrease) in accrued interest payable ...........................................              (342)               212
   Increase (decrease) in other liabilities ..................................................                35               (133)
                                                                                                        --------           --------
     Net cash provided by operating activities ...............................................             2,834              1,207
                                                                                                        --------           --------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of securities held to maturity ..................................................            (1,385)              (614)
   Purchases of securities available for sale ................................................            (2,314)              (503)
   Sales (purchases) of other investments ....................................................            (1,003)                84
   Proceeds from principal pay-downs on securities available for sale ........................               852                715
   Proceeds from the sale of securities available for sale ...................................                 -                358
   Proceeds from the maturities and calls of securities available for sale ...................             8,250                  -
   Proceeds from the maturity of securities held to maturity .................................                 -                410
   Investment in bank owned life insurance ...................................................               (85)               (94)
   Net increase in loans .....................................................................            (4,116)            (9,315)
   Proceeds from the sale of premises and equipment ..........................................                30                 12
   Purchase of premises and equipment ........................................................              (774)              (156)
                                                                                                        --------           --------
     Net cash used in investing activities ...................................................              (545)            (9,103)
                                                                                                        --------           --------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in deposits ..................................................................             6,274             29,896
   Net decrease in securities sold under repurchase  agreements ..............................              (774)            (2,353)
   Net decrease in federal funds purchased ...................................................            (4,039)              (572)
   Net decrease in notes payable to Federal Home Loan Bank ...................................            (1,000)            (3,500)
   Proceeds from the exercise of stock options ...............................................               149                233
   Cash dividend .............................................................................              (312)              (295)
                                                                                                        --------           --------
     Net cash provided by financing activities ...............................................               298             23,409
                                                                                                        --------           --------
     Net increase in cash and cash equivalents ...............................................             2,587             15,513
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...............................................            10,211             12,289
                                                                                                        --------           --------
CASH AND CASH EQUIVALENTS, END OF PERIOD .....................................................          $ 12,798           $ 27,802
                                                                                                        ========           ========
CASH PAID FOR
     Interest ................................................................................          $  3,103           $  1,877
                                                                                                        ========           ========
     Income Taxes ............................................................................          $    213           $    677
                                                                                                        ========           ========
</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 a cash  dividend of $0.05 per common share
to shareholders of record March 17, 2006, payable March 31, 2006.

EARNINGS PER SHARE

     Statement of Financial  Account 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 three  months  ended
March 31, 2006 and 2005 was 6,254,314 and 6,177,488,  respectively. The weighted
average  number of common shares  outstanding  for diluted net income per common
share was  6,330,962 and 6,378,034 for the three months ended March 31, 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 March 31,
                                                                                                 ----------------------------
                                                                                                  2006                 2005
                                                                                                  ----                 ----
<S>                                                                                             <C>                  <C>
Net income as reported ..............................................................           $    1,181           $    911
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects .....................................                   10                  -
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects ..............................................................                  (10)               (24)
                                                                                                ----------           --------
Pro forma net income including stock-based compensation cost
based on fair-value method ..........................................................           $    1,181           $    887
                                                                                                ==========           ========
Earnings per share:
  Basic--as reported ................................................................           $     0.19           $   0.15
                                                                                                ==========           ========
  Basic--pro forma ...................................................................          $     0.19           $   0.14
                                                                                                ==========           ========
  Diluted--as reported ..............................................................           $     0.19           $   0.14
                                                                                                ==========           ========
  Diluted--pro forma .................................................................          $     0.19           $   0.14
                                                                                                ==========           ========
</TABLE>

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





                                       6
<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.







                                       7
<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  period ended March 31, 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 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.

     Certain accounting policies involve  significant  judgments and assumptions
by  management  that have a  material  impact on the  carrying  value of certain


                                       8
<PAGE>

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.




                                       9
<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   full-service   banking  offices  and  one
loan-production office located in the Upstate Area of South Carolina.





                                       10
<PAGE>


                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EARNINGS PERFORMANCE

Overview

     The  consolidated  Company's  net income for the first  quarter of 2006 was
$1,181,000 or $0.19 per diluted share  compared to $911,000 or $0.14 per diluted
share for the first quarter of 2005, an increase of $270,000 or 29.6%. Return on
average equity for the three months ended March 31, 2006 was 11.23%  compared to
9.43% for the three months ended March 31,  2005.  Return on average  assets for
the three months ended March 31, 2006 was 0.98%  compared to 0.83% for the three
months ended March 31, 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 quarter of 2006 are largely attributable to growth in average balances
and yields of earning assets.

Interest Income, Interest Expense and Net Interest Income

     The largest  component of the  Company's  revenue is 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  $814,000 or 20.6% to  $4,776,000  for the quarter  ended
March 31, 2006 compared to $3,962,000  for the quarter ended March 31, 2005. The
Company's  net  interest  margin was 4.25% for the quarter  ended March 31, 2006
compared to 3.90% for the quarter ended March 31, 2005.

     The  Company's  total  interest  income  for the first  quarter of 2006 was
$7,537,000  compared to $5,807,000 for the first quarter of 2005, an increase of
$1,730,000 or 29.8%.  Interest and fees on loans, the largest component of total
interest income, increased $1,689,000 in the first quarter of 2006 to $6,937,000
compared to $5,248,000 for the first quarter of 2005, an increase of 32.2%.  The
increase in interest and fees on loans for the three-month  period was primarily
due to  higher  interest  rates  and fees  charged  and also to  higher  average
balances  in  outstanding  loans.  Interest  on taxable  securities,  the second
largest  component  of total  interest  income,  increased  $49,000 in the first
quarter of 2006 to $495,000  compared to $446,000 for the first quarter of 2005,
an increase of 11.0%.  The  increase in interest on taxable  securities  for the
three-month  period was primarily due to higher  interest  rates and also higher
average balances in these types of earning assets.

      The  Company's  total  interest  expense for the first quarter of 2006 was
$2,761,000  compared to $1,845,000 for the first quarter of 2005, an increase of
$916,000 or 49.6%. Interest expense on deposits,  the largest component of total
interest expense,  increased $728,000 in the first quarter of 2006 to $2,331,000
compared to $1,603,000 for the first quarter of 2005, an increase of 45.4%.  The
increase in interest expense on deposits for the three-month period ending March
31, 2006 compared to the same period in 2005 is largely  attributable  to higher


                                       11
<PAGE>

interest  rates  paid on these  accounts  as well as  higher  average  balances.
Interest on notes payable to the Federal Home Loan Bank of Atlanta ("FHLB"), the
second largest component of total interest expense, increased $150,000 or 156.3%
to $246,000 for the three  months  ended March 31, 2006  compared to $96,000 for
the three months ended March 31, 2005,  largely  attributable  to higher  market
interest  rates and higher  average  balances  in these  accounts.  Interest  on
federal funds purchased and securities  sold under  repurchase  agreements,  the
third largest component of total interest expense, increased $38,000 or 26.0% to
$184,000 in the first quarter of 2006 compared to $146,000 for the first quarter
of 2005.  This increase is largely  attributable to higher market interest rates
experienced  at the  Company's  bank  subsidiaries  as  well as  higher  average
balances  in these  accounts.  Interest  on  securities  sold  under  repurchase
agreements,  the third largest  component of total interest  expense,  increased
$18,000 or 12.6% to $161,000 in the first  quarter of 2006  compared to $143,000
for the first quarter of 2005.  This increase is largely  attributable to higher
market interest rates experienced at the Company's bank  subsidiaries.  Interest
on federal funds purchased  increased  $20,000 or 666.7% to $23,000 in the first
quarter of 2006 compared to $3,000 for the first quarter of 2005.  This increase
is  attributable  to higher market  interest rates  experienced at the Company's
bank subsidiaries as well as higher average balances in these accounts.


Provision for Loan Losses

     The provision for loan losses charged to operations during the three months
ended March 31, 2006 was  $237,000  compared  to $173,000  for the three  months
March 31, 2005,  an increase of $64,000 or 37.0%.  The changes in the  Company's
provision  for  loan  losses  for  the  first  quarter  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."

Non-interest Income

     Non-interest income increased $139,000 or 15.6% to $1,028,000 for the first
quarter of 2006 compared to $889,000 for the first quarter of 2005. Service fees
on deposit  accounts,  the largest component of non-interest  income,  decreased
$16,000 or 3.3% to $464,000 for the first  quarter of 2006  compared to $480,000
for the first quarter of 2005. This decrease in service fees on deposit accounts
is largely attributable to a $33,000 decrease in fees from non-sufficient funds,
partially offset by a $20,000 increase in services charges on deposit accounts.

     Gain (loss) on the sale of assets acquired in settlement of loans increased
$129,000  when  comparing  the first quarter of 2006 to the same period in 2005.
Seven  properties  were sold during the first  quarter of 2006 for a net gain of
$128,000 and a single  property  was sold for a loss of $1,000  during the first
quarter of 2005.

     Mortgage  banking  income  decreased  from $123,000 in the first quarter of
2005 to $78,000 in the first  quarter of 2006, a decrease of $45,000,  or 36.6%.
This is due to a decrease in residential mortgage loan originations.



                                       12
<PAGE>

     Other noninterest income increased $42,000 or 49.4% from $85,000 during the
first quarter of 2005 to $127,000 for the first  quarter of 2006.  This increase
is largely  attributable to an $18,000  increase in interchange  income on debit
cards,  and a $9,000  increase on gains on sale of fixed assets during the first
quarter of 2006 when compared to the same period of 2005.

     There were no gains  realized on the sale of securities  available for sale
during the first  quarter of 2006,  compared to $4,000 of gains  realized on the
sale of securities available for sale during the three months of 2005.

Non-interest Expense

      Total  non-interest  expense increased $547,000 or 16.4% to $3,880,000 for
the  first  quarter  of 2006 from  $3,333,000  for the  first  quarter  of 2005.
Salaries and benefits, the largest component of non-interest expense,  increased
$290,000 or 14.7% to $2,258,000  for the first  quarter of 2006 from  $1,968,000
for the first  quarter  of 2005.  The  increase  in  salaries  and  benefits  is
primarily due to the addition of certain key personnel,  normal salary increases
and other changes in personnel throughout the Company.

     Occupancy and furniture and equipment expenses increased $20,000 or 3.7% to
$560,000 in the first  quarter of 2006 compared to $540,000 in the first quarter
of 2005.

     Legal and professional fees increased $141,000 or 198.6% to $212,000 in the
first  quarter of 2006  compared to $71,000 in the first  quarter of 2005.  This
increase is largely  attributable  to legal fees associated with the termination
of the President of Bank of Anderson, which occurred in January 2006.

     Marketing and advertising expense increased $28,000 or 32.9% to $113,000 at
March  31,  2006  compared  to  $85,000  at March 31,  2005.  This  increase  is
attributable   to  the  promotion  of  certain  bank  products  and  advertising
associated  with the upcoming 20th  anniversary  of The Peoples  National  Bank.
Director  fees  increased  $18,000 or 22.8% to $97,000 for the first  quarter of
2006 compared to $79,000 during the first quarter of 2005, due to an increase in
the amount of compensation per director and the number of directors.

     All other  operating  expenses  were  $640,000 in the first quarter of 2006
compared to $590,000  for the first  quarter of 2005,  an increase of $50,000 or
8.5% due to normal recurring operating expenses.





                                       13
<PAGE>


BALANCE SHEET REVIEW

Loans

     Outstanding  loans  represent  the largest  component of earning  assets at
83.4% of total  earning  assets.  As of March 31,  2006,  the Company held total
gross loans  outstanding of  $381,546,000.  Gross loans increased  $4,051,000 or
1.1% from $377,495,000 in total gross outstanding loans at December 31, 2005 and
increased   $46,418,000  or  13.9%  from   $335,128,000  in  total  gross  loans
outstanding at March 31, 2005. The increase resulted from new loans generated by
the  Company's  three  banking  subsidiaries.  The  following  table  summarizes
outstanding loans by type:

<TABLE>
<CAPTION>
Loan Portfolio Composition                                                                     March 31,                December 31,
--------------------------                                                                     ---------                ------------
(Dollars in Thousands)                                                                   2006               2005             2005
                                                                                         ----               ----             ----
                                                                                               (Unaudited)                 (Audited)

<S>                                                                                   <C>                <C>                <C>
Commercial and Industrial - not secured by real estate ....................           $ 40,602           $ 39,410           $ 39,669
Commercial and Industrial - secured by real estate ........................             92,733            105,680             90,186
Residential real estate - mortgage ........................................            107,186            103,347            107,398
Residential real estate - construction ....................................            123,341             65,286            121,048
Consumer loans ............................................................             17,684             21,405             19,194
                                                                                      --------           --------           --------
     Gross Loans ..........................................................           $381,546           $335,128           $377,495
                                                                                      ========           ========           ========
</TABLE>

     The interest rates charged on loans vary with the degree of risk, maturity,
and amount of the loan. Competitive pressures,  money market rates, availability
of funds, and government  regulation also influence  interest rates. The average
yield on the Company's loans for the three months ended March 31, 2006 was 7.44%
compared to 6.33% for the three months ended March 31, 2005.  Between the end of
first  quarter  of 2005 and the end of the first  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
constitute 52.3% of the loan portfolio,  reprice almost immediately following an
interest rate change by the Federal Reserve.

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

      The Company's real estate loans are primarily construction loans and other
loans secured by real estate,  both commercial and  residential,  located within
the  Company's  trade areas.  The Company does not  actively  pursue  long-term,
fixed-rate mortgage loans for retention in its loan portfolio.  The Banks employ
mortgage loan  originators  who originate loans that are pre-sold at origination
to third parties.

      The Company's  commercial lending activity is directed principally towards
businesses  whose demand for funds falls within each Bank's legal lending limits
and which are potential  deposit  customers of the Banks. This category of loans
includes loans made to individuals, partnerships, and corporate borrowers, which
are obtained for a variety of business purposes.  Particular  emphasis is placed
on loans to small- and medium-sized  businesses.  The Company's commercial loans


                                       14
<PAGE>

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
March 31,  2006  approximately  $11,158,000  or 8.4% 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 March 31, 2006 was  $4,026,000 or 1.06% of
loans  outstanding  compared  to  $3,854,000  or 1.02% of loans  outstanding  at
December 31, 2005, and to $3,774,000 or 1.13% of loans  outstanding at March 31,
2005.  The  allowance  for loan  losses is based  upon  management's  continuing
evaluation of the  collectibility of past-due 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  collateral
securing   non-performing   and  problem  loans,  and  other  factors  deserving
recognition.

      At March 31,  2006 the  Company  had  $1,715,000  in  non-accruing  loans,
$892,000  in  restructured  loans,  no loans more than  ninety days past due and
still accruing interest,  and $751,000 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 March 31,
2005 the Company had $2,004,000 in non-accruing loans,  $504,000 in restructured
loans,  $181,000  in loans  more than  ninety  days past due and still  accruing
interest,  and  $1,104,000 in Other Real Estate Owned.  Non-performing  loans at
March 31, 2006 consisted of $1,445,000 in mortgage loans, $250,000 in commercial
loans and $20,000 in consumer  loans.  Non-performing  assets as a percentage of
loans and other real  estate  owned were  0.88%,  1.09%,  and 1.13% at March 31,
2006, December 31, 2005 and March 31, 2005, respectively.

      Net charge-offs  during the three months ended March 31, 2006 were $65,000
compared to net charge-offs of $90,000 for the three months ended March 31, 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 154%,
180%,  and 140% as of March 31, 2006,  December  31,  2005,  and March 31, 2005,
respectively.



                                       15
<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. At each of March 31, 2006, December 31, 2005, and
March 31, 2005, the Company had no impaired loans.

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 March 31, 2006 securities totaled $73,817,000, which represents 16.1%
of  total  earning  assets.   Securities   decreased  $4,244,000  or  5.4%  from
$78,061,000  invested as of December 31, 2005, and increased  $3,635,000 or 5.2%
from  $70,182,000  invested  as of March  31,  2005.  The size of the  Company's
investment  portfolio is managed and  fluctuates  from time to time based on the
amount of  public  deposits  held,  loan  demand,  liquidity  needs,  investment
strategy, and other pertinent factors.

     At March 31, 2006 the Company's total  investments  classified as available
for sale had an amortized cost of $59,645,000  and a market value of $58,397,000
for an unrealized  loss of  $1,248,000.  This  compares to an amortized  cost of
$66,303,000  and a  market  value  of  $65,009,000  for an  unrealized  loss  of
$1,294,000  on the  Company's  investments  classified  as available for sale at
December 31, 2005. At March 31, 2005 the Company's total investments  classified
as available for sale had an amortized cost of $62,161,000 and a market value of
$60,878,000  for an  unrealized  loss of  $1,283,000.  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  $9,488,000 at
March 31,  2006,  an  increase  of $85,000 or 0.9% from the  $9,403,000  held at
December 31, 2005 and an increase of $345,000 or 3.8% from the  $9,143,000  held
at March 31, 2005.

Cash and Cash Equivalents

     The Company's cash and cash  equivalents  increased  $2,587,000 or 25.3% to
$12,798,000  at March  31,  2006  from  $10,211,000  at  December  31,  2005 and


                                       16
<PAGE>

decreased  $15,004,000  or  54.0%  from  $27,802,000  at  March  31,  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  is their
deposits.  Total deposits grew  $6,274,000 or 1.6% to  $396,623,000 at March 31,
2006  from  $390,349,000  at  December  31,  2005 and  $20,582,000  or 5.5% from
$376,041,000 at March 31, 2005.  Competition  for deposit  accounts is primarily
based on the interest rates paid, location convenience and services offered.

     During the three  months ended March 31,  2006,  interest-bearing  deposits
averaged $336,118,000 compared to $358,187,000 for the same period 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 March 31, 2006 brokered deposits
totaled  $13,780,000.  On  December  31,  2005 and March  31,  2005  there  were
$2,108,000 and $7,290,000 in brokered deposits, respectively.

     The  average  interest  rate paid on  interest-bearing  deposits  was 2.81%
during the three  months  ended  March 31,  2006  compared to 1.79% for the same
period of 2005. In pricing deposits,  the Company considers its liquidity needs,
the  direction and levels of interest  rates,  and local market  conditions.  At
March 31,  2006  interest-bearing  deposits  comprised  85.5% of total  deposits
compared to 88.1% at March 31, 2005.

     The Company's core deposit base consists  largely of consumer time deposits
less than $100,000,  savings accounts, 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  77.3% for the three months ended March 31, 2006 and 77.0% for the
three months ended March 31, 2005. Time deposits of $100,000 or more represented
22.4% of total  deposits  at March 31,  2006 and 23.0% at March  31,  2005.  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.

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  March  31,  2006  short-term  borrowings  totaled
$42,462,000  and were comprised of  $11,500,000 in short-term  advances from the


                                       17
<PAGE>

FHLB and $30,962,000 in securities sold under repurchase agreements. At December
31,  2005  short-term  borrowings  totaled  $48,275,000  and were  comprised  of
$4,039,000 in federal funds purchased,  $12,500,000 in short-term  advances from
the FHLB and $31,736,000 in securities sold under repurchase  agreements.  March
31, 2005 short-term  borrowings totaled  $31,600,000 and were comprised entirely
of securities sold under repurchase  agreements.  Short-term borrowings are used
primarily  for the  immediate  cash needs of the  Company.  The Company also had
$5,000,000  of long-term  advances from the Federal Home Loan Bank of Atlanta at
each of March 31, 2006, December 31, 2005, and March 31, 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 March 31, 2006, The Peoples  National
Bank had total borrowing  capacity from the FHLB equal to  $55,090,000,  and the
unused portion of this line of credit was $47,090,000.  Bank of Anderson,  N. A.
had total borrowing capacity from the FHLB equal to $15,730,000,  and the unused
portion of this line of credit was $7,230,000 at March 31, 2006. Seneca National
Bank had established  secured lines of credit with the FHLB at March 31, 2006 of
$5,500,000,  all of which were  unused.  At March 31,  2006,  the Banks also had
unused federal funds lines of credit with various  correspondent  banks totaling
$30,750,000.

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

     During the later part of 2005 and the first  quarter of 2006,  the  Company
made capital expenditures of approximately $724,000 to purchase a 2.4-acre tract
in Greenville,  SC 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 the same period,  the Company also made  capital  expenditures  of
approximately  $115,000  associated with the renovation of portions of an office
building in Easley,  SC. 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.





                                       18
<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
March  31,  2006,  the  Banks  had  issued   commitments  to  extend  credit  of
$107,143,000  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  $5,479,000 at March 31, 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 March 31, 2006, December 31, 2005 and March 31, 2005.

     Neither  the  Company  nor  the  subsidiaries  are  involved  in any  other
off-balance sheet contractual relationships or transactions that could result in
liquidity  needs or other  commitments or  significantly  impact  earnings.  The
Peoples  National Bank has an operating  lease agreement for its loan processing
office in Greenville, South Carolina totaling approximately $11,000 at March 31,
2006. This obligation is payable in installments over the next seven months.



                                       19
<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 March 31, 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 ...............         $47,083          12.05%          N/A           N/A        $31,258          8.00%
Tier 1 Risk-based Capital ..............          43,057          11.02           N/A           N/A         15,629          4.00
Leverage Ratio .........................          43,057           8.71           N/A           N/A         19,774          4.00

Peoples National Bank:
Total Risk-based Capital ...............         $26,827          11.50%      $23,328          10.00%      $18,662          8.00%
Tier 1 Risk-based Capital ..............          24,683          10.58        13,998           6.00         9,332          4.00
Leverage Ratio .........................          24,683           8.91        13,851           5.00        11,081          4.00

Bank of Anderson, N. A.:
Total Risk-based Capital ...............         $12,905          11.26%      $11,461          10.00%      $ 9,169          8.00%
Tier 1 Risk-based Capital ..............          11,477          10.02         6,872           6.00         4,582          4.00
Leverage Ratio .........................          11,477           7.37         7,786           5.00         6,229          4.00

Seneca National Bank:
Total Risk-based Capital ...............         $ 5,287          12.38%      $ 4,271          10.00%      $ 3,416          8.00%
Tier 1 Risk-based Capital ..............           4,767          11.16         2,563           6.00         1,709          4.00
Leverage Ratio .........................           4,767           8.36         2,851           5.00         2,281          4.00
</TABLE>



                                       20
<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)  will  require  companies  to  measure  all  employee
stock-based  compensation  awards  using a fair value  method  and  record  such
expense in its  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) is  effective  for  registrants  that  are not  small  business  issuers
beginning with the first interim or annual reporting period of a company's first
fiscal  year  beginning  on or after  June 15,  2005.  SFAS  No.  123(R)  became
effective for the Company in 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 its 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
Statement 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.  An entity should adopt SFAS No. 156


                                       21
<PAGE>

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

     Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies are not expected to have a material impact on the
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 March 31, 2006 the
Company was positioned so that net interest  income would  increase  $806,000 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
$846,000 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


                                       22
<PAGE>

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.

     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.






                                       23
<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.







                                       24
<PAGE>


PART II.  OTHER INFORMATION


Item 6.       Exhibits

              Exhibits.

31.1     Rule 13a-14(a)/15d-14(a) Certifications
31.2     Rule 13a-14(a)/15d-14(a) Certifications
32       Section 1350 Certifications





                                       25
<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:  May 10, 2006                       By:    /s/ R. Riggie Ridgeway
                                                --------------------------------
                                                  R. Riggie Ridgeway
                                                  President and CEO


Dated:  May 10, 2006                       By:   /s/ Robert E. Dye, Jr.
                                               ---------------------------------
                                                  Robert E. Dye, Jr.
                                                  Senior Vice President and CFO
                                                  (principal financial officer)





                                       26
<PAGE>





                                  Exhibit Index

Exhibit No.            Description of Exhibit

31.1           Rule 13a-14(a)/15d-14(a) Certifications
31.2           Rule 13a-14(a)/15d-14(a) Certifications
32             Section 1350 Certifications






                                       27