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
         September 30, 2009                               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 has submitted  electronically  and
posted on its corporate Web site, if any, every  Interactive  Data File required
to be submitted  and posted  pursuant to Rule 405 of  Regulation  S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to  submit  and  post  such  files).  Yes  [ ] No [ ]  (Not  yet  applicable  to
Registrant)

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer, or a smaller reporting company. See
definitions  of "large  accelerated  filer,"  "accelerated  filer" and  "smaller
reporting  company"  in Rule  12b-2 of the  Exchange  Act.  (Check  one):

Large accelerated filer [ ]               Accelerated  filer        [ ]
Non-accelerated  filer  [ ]               Smaller reporting company [X]
(Do not check if a smaller reporting company)

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                              Yes [ ]   No [X]

The number of outstanding shares of the issuer's $1.11 par value common stock as
of  November  4, 2009 was  7,003,003.  PART I -  FINANCIAL  INFORMATION  Item 1.
Financial Statements

<PAGE>
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements


         Peoples Bancorporation, Inc. and Subsidiaries
                  Consolidated Balance Sheets
    (Dollars in thousands except per share and share data)
<TABLE>
<CAPTION>
                                                                                  September 30,       December 31,     September 30,
                                                                                       2009              2008              2008
                                                                                    Unaudited           Audited         Unaudited
                                                                                    ---------           -------         ---------
ASSETS
<S>                                                                                 <C>               <C>               <C>
CASH AND DUE FROM BANKS ......................................................      $   8,132         $   7,874         $  12,555
INTEREST-BEARING DEPOSITS IN OTHER BANKS .....................................            282               765                 -
FEDERAL FUNDS SOLD ...........................................................          6,545             9,185            10,650
                                                                                    ---------         ---------         ---------
     Total cash and cash equivalents .........................................         14,959            17,824            23,205
SECURITIES
     Trading assets ..........................................................            214                47               192
     Available for sale ......................................................         99,641            96,003            75,665
     Held to maturity (market value of $10,025, $12,666
         and $12,674) ........................................................          9,698            12,651            12,656
       Other investments, at cost ............................................          4,737             3,546             3,507
LOANS-less allowance for loan losses of $7,357, $9,217 and $7,636 ............        376,363           389,494           399,692
PREMISES AND EQUIPMENT, net of accumulated
     depreciation and amortization ...........................................         12,520            13,200            13,466
ACCRUED INTEREST RECEIVABLE ..................................................          2,363             2,685             2,861
ASSETS ACQUIRED IN SETTLEMENT OF LOANS .......................................         10,073             5,428             2,038
CASH SURRENDER VALUE OF LIFE INSURANCE .......................................         12,181            11,815            11,690
OTHER ASSETS .................................................................          4,995             7,182             5,851
                                                                                    ---------         ---------         ---------
TOTAL ASSETS .................................................................      $ 547,744         $ 559,875         $ 550,823
                                                                                    =========         =========         =========

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
DEPOSITS
     Noninterest-bearing .....................................................      $  45,637         $  51,091         $  44,750
     Interest-bearing ........................................................        411,854           394,278           398,772
                                                                                    ---------         ---------         ---------
         Total deposits ......................................................        457,491           445,369           443,522
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS ..................................         13,985            22,181            25,475
FEDERAL FUNDS PURCHASED ......................................................              -             1,028                 -
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ......................................         16,500            34,600            34,000
NOTES PAYABLE - OTHER ........................................................              -            11,000                 -
ACCRUED INTEREST PAYABLE .....................................................          2,289             2,636             2,554
OTHER LIABILITIES ............................................................          2,122             1,549             1,768
                                                                                    ---------         ---------         ---------
         Total Liabilities ...................................................        492,387           518,363           507,319
                                                                                    ---------         ---------         ---------
SHAREHOLDERS' EQUITY
Preferred stock - 15,000,000  shares  authorized;
       $1,000 per share  liquidation preference; issued
       and outstanding- 13,293 at September 30, 2009 and
       none at December 31, 2008 and September 30, 2008. .....................           12,655                 -                 -
Common stock - 15,000,000 shares authorized, $1.11
       Par value per share, 7,003,003 shares, 7,070,139 shares
       and 7,065,263 shares outstanding, respectively ........................            7,774             7,848             7,843
Additional paid-in capital ...................................................           41,638            41,752            41,712
Retained earnings ............................................................           (9,559)           (9,564)           (6,666)
Accumulated other comprehensive income .......................................            2,849             1,476               615
                                                                                      ---------         ---------         ---------
         Total Shareholders' Equity ..........................................           55,357            41,512            43,504
                                                                                      ---------         ---------         ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...................................        $ 547,744         $ 559,875         $ 550,823
                                                                                      =========         =========         =========
</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                   Nine Months Ended
                                                                             September 30,                     September 30,
                                                                        2009              2008             2009             2008
                                                                        ----              ----             ----             ----
INTEREST INCOME
<S>                                                                        <C>            <C>            <C>            <C>
   Interest and fees on loans ..........................................   $     5,517    $     6,742    $    17,447    $    21,198
   Interest on securities
       Taxable .........................................................           847            716          2,579          2,315
       Tax-exempt ......................................................           369            373          1,121          1,113
   Interest on federal funds ...........................................             2             17              3             49
                                                                           -----------    -----------    -----------    -----------
Total interest income ..................................................         6,735          7,848         21,150         24,675
                                                                           -----------    -----------    -----------    -----------
INTEREST EXPENSE
   Interest on deposits ................................................         2,316          3,173          7,777         10,041
   Interest on federal funds purchased and securities
       sold under repurchase agreements ................................            19             94             68            299
    Interest on notes payable Federal Home Loan Bank ...................            22            350             91          1,477
    Interest on notes payable - other ..................................             -              -            182              -
                                                                           -----------    -----------    -----------    -----------
Total interest expense .................................................         2,357          3,617          8,118         11,817
                                                                           -----------    -----------    -----------    -----------
Net interest income ....................................................         4,378          4,231         13,032         12,858
PROVISION FOR LOAN LOSSES ..............................................         2,030          6,475          3,608          8,885
                                                                           -----------    -----------    -----------    -----------
Net interest income (loss) after provision for loan losses .............         2,348         (2,244)         9,424          3,973
                                                                           -----------    -----------    -----------    -----------
NON-INTEREST INCOME
    Service charges on deposit accounts ................................           420            492          1,228          1,409
    Customer service fees ..............................................            21             27             91            106
    Mortgage banking ...................................................            64             79            417            303
    Brokerage services .................................................            46             41            143            158
    Bank owned life insurance ..........................................           139            142            409            391
    Gain (loss) on sale of  available-for-sale securities ..............             -            (50)             5            (48)
    Gain (loss) on sale of assets acquired in settlement of loans ......           154            (10)           192            (63)
    Write-Down of FHLMC Preferred Stock ................................             -         (2,890)             -         (2,890)
    Other noninterest income ...........................................           264            165            555            485
                                                                           -----------    -----------    -----------    -----------
Total noninterest income (loss) ........................................         1,108         (2,004)         3,040           (149)
                                                                           -----------    -----------    -----------    -----------
NON-INTEREST EXPENSES
   Salaries and benefits ...............................................         2,097          2,452          6,353          7,234
   Occupancy ...........................................................           264            247            753            720
   Equipment ...........................................................           292            341            888          1,023
   Marketing and advertising ...........................................            37             95            109            339
   Communications ......................................................            63             67            187            197
   Printing and supplies ...............................................            36             42            114            144
   Bank paid loan costs ................................................           576            109          1,083            335
   Director fees .......................................................            90            110            275            338
   ATM/Debit card expenses .............................................            60             99            261            274
   Legal and professional fees .........................................           267            162            618            386
   Regulatory assessments ..............................................           234            124            745            310
   Other post employment benefits ......................................            91             83            273            258
   Other operating expenses ............................................           372            388          1,054          1,112
                                                                           -----------    -----------    -----------    -----------
Total noninterest expenses .............................................         4,479          4,319         12,713         12,670
                                                                           -----------    -----------    -----------    -----------
Loss before income taxes ...............................................        (1,023)        (8,567)          (249)        (8,846)
PROVISION FOR INCOME TAX BENEFIT .......................................          (505)        (3,038)          (507)        (3,367)
                                                                           -----------    -----------    -----------    -----------
Net income (loss) ......................................................   $      (518)   $    (5,529)   $       258    $    (5,479)
                                                                           -----------    -----------    -----------    -----------
Deductions for amounts not available to common shareholders:
      Dividends declared or accumulated on preferred stock .............            85              -            213              -
      Net amortization of preferred stock ..............................            32              -             40              -
                                                                           -----------    -----------    -----------    -----------
Net income (loss) available to common shareholders .....................   $      (635)   $    (5,529)   $         5    $    (5,479)
                                                                           ===========    ===========    ===========    ===========
LOSS PER COMMON SHARE
   BASIC ...............................................................   $     (0.09)   $     (0.78)   $      0.00    $     (0.78)
                                                                           ===========    ===========    ===========    ===========
   DILUTED .............................................................   $     (0.09)   $     (0.78)   $      0.00    $     (0.78)
                                                                           ===========    ===========    ===========    ===========
WEIGHTED AVERAGE COMMON SHARES
   BASIC ...............................................................     7,003,003      7,062,827      7,040,245      7,059,577
                                                                           ===========    ===========    ===========    ===========
   DILUTED .............................................................     7,003,003      7,062,827      7,097,144      7,059,577
                                                                           ===========    ===========    ===========    ===========
CASH DIVIDENDS PAID PER COMMON SHARE ...................................    $        -    $      0.05     $        -    $      0.15
                                                                            ==========    ===========    ===========    ===========
</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 Nine months ended September 30, 2008 and 2009
                             (Dollars in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                       Accumulated
                                                        Common Stock         Additional                   other         Total
                                      Preferred         ------------           paid-in    Retained     comprehensive  shareholders'
                                        Shares        Shares       Amount      capital    earnings        income        equity
                                      ---------       ------       ------    ---------    --------     ------------   -------------
<S>                                  <C>           <C>          <C>         <C>           <C>            <C>            <C>
Balance, December 31, 2007 ........  $        -    7,056,337    $  7,833    $   41,624    $      -       $    784       $50,241
                                                                                                                        -------
Net loss ..........................           -            -           -                    (5,479)             -        (5,479)
Other comprehensive income,
 net of tax:
 Unrealized holding losses on
    securities available for
    sale, net income tax of $87 ...           -            -           -             -           -           (121)         (121)
 Reclassification
     adjustments for losses
     included in net income net
     of incomes taxes  of $16 .....           -            -           -             -           -            (48)          (48)
                                                                                                                        -------
Comprehensive income ..............                                                                                      (5,648)
Cash dividends ....................           -            -           -             -      (1,059)             -        (1,059)
Proceeds from stock options
     exercised ....................           -        8,926          10            35           -              -            45
Stock-based compensation ..........           -            -           -            53           -              -            53
Cumulative effect of post
  retirement cost of life
  insurance .......................           -            -           -             -        (128)             -          (128)
                                     ----------    ---------    --------    ----------    --------       --------       -------
Balance, September 30, 2008 .......  $        -    7,065,263    $  7,843    $   41,712    $ (6,666)      $    615       $43,504
                                     ==========    =========    ========    ==========    ========       ========       =======


Balance, December 31, 2008 ........  $        -    7,070,139    $  7,848    $   41,752    $ (9,564)      $  1,476       $41,512
                                                                                                                        -------
Net income ........................           -            -           -             -         258              -           258
Other comprehensive income,
 net of tax:
   Unrealized holding gains
    on securities available for
    sale, net of income taxes
    of $708 .......................           -            -           -             -           -          1,368         1,368
  Reclassification adjustments
    for gains included in net
    income net of incomes taxes
    of $3 .........................           -            -           -             -           -              5             5
                                                                                                                        -------
Comprehensive income ..............                                                                                       1,631
Issuance of preferred stock .......      12,615            -           -             -           -              -        12,615
Cash dividends on preferred stock .                                                           (213)                        (213)
Proceeds from stock options
    exercised .....................           -          500           1             1           -              -             2
Common shares surrendered
    by dissenting shareholders ....           -      (67,636)        (75)         (168)          -              -          (243)
Net accretion (amortization)
    of preferred stock ............          40                                                (40)                           -
Stock-based compensation ..........           -            -           -            53           -              -            53
                                     ----------    ---------    --------    ----------    --------       --------       -------
Balance, September 30, 2009 .......  $   12,655    7,003,003    $  7,774    $   41,638    $ (9,559)      $  2,849       $55,357
                                     ==========    =========    ========    ==========    ========       ========       =======
</TABLE>

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


                                       3
<PAGE>


                  Peoples Bancorporation, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                             (Dollars in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                             Nine months Ended
                                                                                                               September 30,
                                                                                                               -------------
                                                                                                           2009               2008
                                                                                                           ----               ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                                     <C>                <C>
   Net income (loss) .........................................................................          $    258           $ (5,479)
   Adjustments to reconcile net income (loss) to net cash  used in
     operating activities:
   Gain on sale of premises and equipment ....................................................                (5)                (7)
   (Gain) loss on sale of securities available for sale ......................................                (5)                48
   Gain from trading assets ..................................................................              (167)                 -
   (Gain) loss on sale of assets acquired in settlement of loans .............................              (192)                63
   Other than temporary impairment write-down on FHLMC stock .................................                 -              2,890
   Other than temporary write-down on Silverton Bank stock ...................................               160                  -
   Provision for loan losses .................................................................             3,608              8,885
   Depreciation and amortization .............................................................               790                851
   Amortization and accretion (net) of premiums and
     discounts on securities .................................................................                 5                 13
   Stock-based compensation ..................................................................                53                 53
   Postretirement cost of insurance for split-dollar life
     insurance coverage ......................................................................                 -               (128)
   Decrease in accrued interest receivable ...................................................               322                460
   (Increase) decrease in other assets .......................................................             1,672             (8,525)
   Decrease in accrued interest payable ......................................................              (347)            (1,911)
   Increase in other liabilities .............................................................               573              1,005
                                                                                                        --------           --------
     Net cash provided by (used in) operating activities .....................................             6,725             (1,782)
                                                                                                        --------           --------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of securities held to maturity ..................................................                 -               (444)
   Purchases of securities available for sale ................................................           (17,421)            (8,033)
   Purchases of other investments ............................................................            (1,191)                 -
   Sale of other investments .................................................................                 -              1,288
   Proceeds from principal pay-downs on securities available for sale ........................            11,712              6,075
   Proceeds from the maturities and calls of securities available for sale ...................             2,945              2,750
   Proceeds from the sale of securities available for sale ...................................                 -              4,965
   Proceeds from the maturities and calls of securities held to maturity .....................             4,000                865
   Increase in cash surrender value of life insurance ........................................              (366)              (340)
   Proceeds from the sale of other real estate owned .........................................             7,510                908
   Net increase (decrease) in loans ..........................................................            (2,632)             7,973
   Proceeds from the sale of premises and equipment ..........................................                 5                 97
   Purchase of premises and equipment ........................................................              (110)              (650)
                                                                                                        --------           --------
     Net cash provided by investing activities ...............................................             4,452             15,454
                                                                                                        --------           --------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in deposits ..................................................................            12,122             25,901
   Net increase (decrease) in securities sold under repurchase
     agreements ..............................................................................            (8,196)             5,651
   Net decrease in federal funds purchased ...................................................            (1,028)              (429)
   Net decrease in notes payable to Federal Home Loan Bank ...................................           (18,100)           (31,100)
   Net decrease of notes payable - other .....................................................           (11,000)                 -
   Proceeds from the exercise of stock options ...............................................                 2                 45
   Proceeds from issuance of preferred stock and warrants ....................................            12,614                  -
   Common shares surrendered by dissenting shareholders ......................................              (243)                 -
   Cash dividend - common stock ..............................................................                 -             (1,059)
   Cash dividend - preferred stock ...........................................................              (213)                 -
                                                                                                        --------           --------
     Net cash used in financing activities ...................................................           (14,042)              (991)
                                                                                                        --------           --------
     Net increase (decrease) in cash and cash equivalents ....................................            (2,865)            12,681
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...............................................            17,824             10,524
                                                                                                        --------           --------
CASH AND CASH EQUIVALENTS, END OF PERIOD .....................................................          $ 14,959           $ 23,205
                                                                                                        ========           ========

CASH PAID FOR
     Interest ................................................................................          $  8,440           $ 13,727
                                                                                                        ========           ========
     Income taxes ............................................................................          $     29           $    126
                                                                                                        ========           ========
</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 2008 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.


EARNINGS (LOSS) PER COMMON SHARE

         Earnings   (loss)  per  Common  Share  is  computed  and  presented  in
accordance  with the related topic in the  Financial  Accounts  Standards  Board
("FASB")  Accounting  Standard  Codification.  The assumed  conversion  of stock
options  creates the difference  between basic and diluted net income per share.
Income per common share is calculated by dividing net income (loss) available to
common  shareholders 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 nine  months  ended
September  30, 2009 and 2008 was  7,040,245  and  7,059,577,  respectively.  The
weighted average number of common shares  outstanding for diluted net income per
common share was 7,097,144 and 7,059,577 for the nine months ended September 30,
2009 and 2008.

<TABLE>
<CAPTION>
                                                                          Three Months Ended               Nine Months Ended
                                                                            September 30,                    September 30,
                                                                            -------------                    -------------
                                                                       2009             2008             2009              2008
                                                                       ----             ----             ----              ----
<S>                                                              <C>               <C>               <C>               <C>
Net (loss) income available to common shareholders .........     $       (635)     $     (5,529)     $          5      $     (5,479)

Weighted average shares outstanding:
Basic ......................................................        7,003,003         7,062,827         7,040,245         7,059,577
Effect of dilutive securities:
     Stock options .........................................                -                 -            56,899                 -
                                                                 ------------      ------------      ------------      ------------
Diluted ....................................................        7,003,003         7,062,827         7,097,144         7,059,577
                                                                 ============      ============      ============      ============

Earnings per common share:
Basic ......................................................     $      (0.09)     $      (0.78)     $      (0.00)     $      (0.78)
                                                                 ============      ============      ============      ============
Diluted ....................................................     $      (0.09)     $      (0.78)     $      (0.00)     $      (0.78)
                                                                 ============      ============      ============      ============
</TABLE>

                                       5
<PAGE>

INVESTMENT SECURITIES

         At the time of  purchase  of a security,  the  Company  designates  the
security as available for sale or held to maturity,  depending  upon  investment
objectives,  liquidity needs and intent.  Securities held to maturity are stated
at cost,  adjusted  for premium  amortized  or discount  accreted,  if any.  The
Company has the positive intent and ability to hold such securities to maturity.
Securities  available  for sale are  stated at  estimated  fair  value.  Trading
securities are carried at market value. Unrealized gains and losses are excluded
from income and reported net of tax as accumulated  other  comprehensive  income
(loss) as a separate component of stockholders' equity until realized.  Interest
earned on investment  securities is included in interest income.  Realized gains
and losses on the sale of securities are reported in the consolidated statements
of income and determined using the adjusted cost of the specific security sold.

         Securities  are summarized as follows as of September 30, 2009 (tabular
amounts in thousands):

<TABLE>
<CAPTION>

                                                                                               Unrealized holding
                                                                            Amortized          ------------------             Fair
                                                                               Cost           Gains          Losses           value
                                                                               ----           -----          ------           -----
SECURITIES AVAILABLE FOR SALE:

GOVERNMENT SPONSORED ENTERPRISE SECURITIES
<S>                                                                          <C>             <C>             <C>             <C>
     Maturing after five years but within 10 years .................         $ 4,991         $   265         $     -         $ 5,256
     Maturing after ten years ......................................           3,896             157               -           4,053
                                                                             -------         -------         -------         -------
                                                                               8,887             422               -           9,309
                                                                             -------         -------         -------         -------
OTHER SECURITIES
     Maturing within one year ......................................             362              21               -             383
     Maturing after one year but within five years .................          55,311           2,490               -          57,801
     Maturing after five years but within ten years ................           2,785              16               -           2,801
     Maturing after ten years ......................................             604               -              99             505
                                                                             -------         -------         -------         -------
                                                                              59,062           2,527              99          61,490
                                                                             -------         -------         -------         -------
OBLIGATIONS OF STATES AND POLITICAL
     SUBDIVISIONS
     Maturing after one year but within five years .................             457              38               -             495
     Maturing after five years but within ten years ................           3,977             157               -           4,134
     Maturing after ten years ......................................          22,941           1,272               -          24,213
                                                                             -------         -------         -------         -------
                                                                              27,375           1,467               -          28,842
                                                                             -------         -------         -------         -------
         Total securities available for sale .......................         $95,324         $ 4,416         $    99          99,641
                                                                             =======         =======         =======         =======
SECURITIES HELD TO MATURITY:

OBLIGATIONS OF STATES AND POLITICAL
     SUBDIVISIONS
     Maturing within one year ......................................         $   697         $     5         $     -         $   702
     Maturing after one but within five years ......................           3,659             128               -           3,787
     Maturing after five years but within ten years ................           3,350             105               -           3,455
     Maturing after ten years ......................................           1,992              89               -           2,081
                                                                             -------         -------         -------         -------
         Total securities held to maturity .........................         $ 9,698         $   327         $     -         $10,025
                                                                             =======         =======         =======         =======
</TABLE>

                                       6
<PAGE>


      The following table shows gross unrealized loss and fair value, aggregated
by investment category,  and length of time that individual securities have been
in a continuous unrealized loss position, at September 30, 2009:

Securities Available for Sale (tabular amounts in thousands):
<TABLE>
<CAPTION>
                                                            Less than 12 Months         12 Months or More           Total
                                                            -------------------         -----------------           -----
                                                           Fair        Unrealized      Fair      Unrealized     Fair      Unrealized
                                                           Value         Losses        Value       Losses       Value      Losses
                                                           -----         ------        -----       ------       -----      ------
<S>                                                     <C>            <C>           <C>          <C>         <C>         <C>
Government sponsored enterprise securities ...........  $        -     $        -    $      -     $      -    $      -    $      -
Other securities .....................................           -              -         417           99         417          99
State and political subdivisions .....................           -              -           -            -           -           -
                                                        ----------     ----------    --------     --------    --------    --------
Total ................................................  $        -     $        -    $    417     $     99    $    417    $     99
                                                        ==========     ==========    ========     ========    ========    ========
</TABLE>

No individual held to maturity securities were in a continuous loss position for
twelve months or more.

      The Company has the ability and intent to hold these securities until such
time as the value recovers or the securities mature. The Company believes, based
on industry analyst reports and credit rating,  that the  deterioration in value
is  attributable  to  changes  in market  interest  rates and not in the  credit
quality  of  the  issuer,  and  therefore,   these  losses  are  not  considered
other-than-temporary.  The  category  "other  securities"  above is comprised of
mortgage-backed securities and corporate debt securities.

STOCK-BASED COMPENSATION

         The fair value of each option is  estimated  on the date of grant using
the  Black-Scholes  option  pricing  model with the following  weighted  average
assumptions  for grants issued  through the first nine months of 2009:  dividend
yields of $0.00 per share, expected volatility from 34 to 39 percent,  risk-free
interest rate from 2.46 to 3.98 percent and expected life of 10 years.

         At September 30, 2009, an aggregate of 361,150 shares were reserved for
issuance on exercise of options.  During the first nine months of 2009,  options
to purchase 15,500 shares were granted with a weighted average fair market value
of $2.77 per share.  The  following is a summary of the status of the  Company's
plans as of  September  30,  2009 and  changes  during  the  nine  months  ended
September 30, 2009.

<TABLE>
<CAPTION>
                                                                                           Weighted       Weighted
                                                                                           Average         Average       Aggregate
                                                                                           Exercise      Contractual     Intrinsic
                                                                          Shares            Price        Term(Years)       Value
                                                                          ------            -----        -----------       -----
<S>                                                                      <C>             <C>                 <C>         <C>
Outstanding, December 31, 2008 ..............................            146,263         $   10.56
Granted .....................................................             15,500         $    2.77
Exercised ...................................................               (500)        $    2.75
Forfeited ...................................................             (6,395)        $    9.27
                                                                         -------
Outstanding, September 30, 2009 .............................            154,868         $    9.86           7.04        $  3,775
                                                                         =======

Options exercisable, September 30, 2009 .....................            128,875         $   10.22           6.47        $  2,625
                                                                         =======
</TABLE>

                                       7
<PAGE>

         As of September 30, 2009, we  recognized  compensation  cost of $53,174
related to unvested stock options.

FAIR VALUE

         The FASB Accounting  Standards  Codification  for fair value provides a
framework for  measuring  and  disclosing  fair value under  generally  accepted
accounting  principles and requires  disclosures  about the fair value of assets
and liabilities recognized in the balance sheet in periods subsequent to initial
recognition,  whether  the  measurements  are  made on a  recurring  basis  (for
example,  available-for-sale  investment  securities) or on a nonrecurring basis
(for example, impaired loans).

         Fair value is identified  as the exchange  price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or
most  advantageous  market for the asset or liability in an orderly  transaction
between market participants on the measurement date. The standard  establishes a
fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of  unobservable  inputs when  measuring fair value.
The standard  describes  three levels of inputs that may be used to measure fair
value:

<TABLE>
<CAPTION>

<S>              <C>
Level 1          Quoted prices in active  markets for identical  assets or  liabilities.  Level 1 assets and
                 liabilities include debt and equity securities and derivative  contracts that are traded in
                 an active exchange market,  as well as U.S.  Treasury  Securities and other securities that
                 are highly liquid and are actively traded in over-the-counter markets.

Level 2          Observable  inputs  other than Level 1 prices such as quoted  prices for similar  assets or
                 liabilities;  quoted  prices in  markets  that are not  active;  or other  inputs  that are
                 observable or can be  corroborated  by observable  market data for  substantially  the full
                 term of the assets or liabilities.  Level 2 assets and liabilities  include debt securities
                 with quoted prices that are traded less  frequently  than  exchange-traded  instruments and
                 derivative  contracts whose value is determined  using a pricing model with inputs that are
                 observable in the market or can be derived  principally  from or corroborated by observable
                 market data. This category generally  includes U. S. Government and agency  mortgage-backed
                 debt  securities  and  impaired  loans  that  are  carried  at the  appraisal  value of the
                 underlying collateral.

Level 3          Unobservable  inputs  that are  supported  by  little or no  market  activity  and that are
                 significant to the fair value of the assets or liabilities.  Level 3 assets and liabilities
                 include financial  instruments  whose value is determined using pricing models,  discounted
                 cash flow  methodologies,  or  similar  techniques,  as well as  instruments  for which the
                 determination of fair value requires  significant  management  judgment or estimation.  For
                 example,  this category  generally  includes certain private equity  investments,  retained


                                       8
<PAGE>

                 residual  interests  in  securitizations,   residential   mortgage  servicing  rights,  and
                 highly-structured or long-term derivative contracts.
</TABLE>

         Assets and liabilities  measured at fair value on a recurring basis are
as follows as of September 30, 2009 (tabular amounts in thousands):

<TABLE>
<CAPTION>
                                                      Quoted market price
                                                       in active markets        Significant
                                                         for identical             other             Significant
                                                       assets/liabilities    observable inputs   unobservable inputs
                                                             (Level 1)          (Level 2)            (Level 3)            Total
                                                             ---------          ---------            ---------            -----
Recurring Basis:
<S>                                                          <C>                <C>                   <C>                 <C>
Available for sale
  investment securities .........................            $     -            $  99,641             $      -            $99,641
Trading Assets ..................................                214                    -                    -                214
                                                             -------            ---------            ---------            -------
Total ...........................................            $   214            $  99,641             $      -            $99,855
                                                             =======            =========            =========            =======


Nonrecurring Basis:
Impaired loans ..................................            $     -            $  21,942             $      -            $21,942
Other real estate owned .........................                  -               10,073                    -             10,073
                                                             -------            ---------            ---------            -------
Total ...........................................            $     -            $  32,015             $      -            $32,015
                                                             =======            =========            =========            =======
</TABLE>

         The following is a description of the valuation  methodologies used for
instruments measured at fair value.

         Available  for sale  investment  securities  and trading  assets - When
quoted market  prices are  available in an active  market,  the  securities  are
classified as Level 1 in the  valuation  hierarchy.  Level 1 securities  for the
Company include certain  treasury  securities and equity  securities.  If quoted
market prices are not  available,  but fair values can be estimated by observing
quoted prices of securities  with similar  characteristics,  the  securities are
classified  as Level 2 on the  valuation  hierarchy.  For the  Company,  Level 2
securities   include  mortgage  backed   securities,   collateralized   mortgage
obligations,  government  sponsored entity  securities,  and corporate bonds. In
cases  where  Level  1 or  Level 2  inputs  are not  available,  securities  are
classified within Level 3 of the hierarchy.

         Impaired  loans - Applies to loans  that are  measured  for  impairment
using  the  practical  methods  permitted  by  the  FASB  Accounting   Standards
Codification.  Fair values for impaired  loans in the above table are collateral
dependent and are estimated  based on underlying  collateral  values,  which are
then adjusted for the cost related to liquidation of the collateral.

         Other real estate owned - Other real estate,  consisting  of properties
obtained  through  foreclosure or in  satisfaction  of loans, is reported at the
lower of cost or fair  value,  determined  on the basis of  current  appraisals,
comparable  sales,  and  other  estimates  of value  obtained  principally  from
independent sources, adjusted for estimated selling costs.

                                       9
<PAGE>

Disclosure about Fair Value of Financial Instruments

         The FASB Accounting  Standards  Codification for the Disclosures  about
Fair  Value  of  Financial   Instruments   requires  disclosure  of  fair  value
information,  whether  or not  recognized  in the  balance  sheets,  when  it is
practical  to  estimate  the  fair  value.  The  Standard  defines  a  financial
instrument  as  cash,  evidence  of  an  ownership  interest  in  an  entity  or
contractual  obligations  which require the exchange of cash or other  financial
instruments.  Certain  items  are  specifically  excluded  from  the  disclosure
requirements,  including the Company's common stock,  premises and equipment and
other assets and liabilities.

         Fair value  approximates  carrying  value for the  following  financial
instruments due to the short-term  nature of the  instrument:  cash and due from
banks,  interest-bearing  deposits  in other  banks and  federal  funds sold and
purchased.

         Securities   are  valued  using  quoted  fair  market   prices.   Other
investments are valued at par value.

         Fair value for variable rate loans that reprice frequently,  loans held
for sale and for loans  that  mature in less than  three  months is based on the
carrying value.  Fair value for fixed rate mortgage loans,  personal loans,  and
all other loans (primarily  commercial)  maturing after three months is based on
the discounted present value of the estimated future cash flows.  Discount rates
used in these  computations  approximate the rates currently offered for similar
loans of comparable terms and credit quality.

         Fair value for demand deposit  accounts and  interest-bearing  accounts
with no fixed  maturity  date is equal to the  carrying  value.  Certificate  of
deposit accounts and securities sold under repurchase agreements maturing within
one year are valued at their  carrying  value.  The fair value of certificate of
deposit accounts and securities sold under repurchase  agreements maturing after
one year are estimated by discounting cash flows from expected  maturities using
current interest rates on similar instruments.

         Fair value for  long-term  FHLB  advances is based on  discounted  cash
flows using the Company's  current  incremental  borrowing rate.  Discount rates
used in these  computations  approximate  rates  currently  offered  for similar
borrowings of comparable terms and credit quality.

         Fair value of off-balance  sheet instruments is based on fees currently
charged to enter into similar  arrangements,  taking into account the  remaining
terms of the  agreement  and the  counterparties'  credit  standing.  These  are
generally  short-term at variable rates; both the carrying amount and fair value
are immaterial.

         The Company has used  management's best estimate of fair value based on
the above  assumptions.  Thus, the fair values  presented may not be the amounts
which could be realized in an immediate sale or settlement of the instrument. In
addition,  any income  taxes or other  expenses  which  would be  incurred in an
actual sale or  settlement  are not taken into  consideration  in the fair value
presented.

                                       10
<PAGE>

         The estimated fair values of the Company's financial instruments are as
follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                September 30,                      December 31,
                                                                                    2009                              2008
                                                                                    ----                              ----
                                                                          Carrying         Fair            Carrying           Fair
                                                                           amount          value            amount            value
                                                                           ------          -----            ------            -----
Financial assets:
<S>                                                                      <C>              <C>              <C>              <C>
     Cash and due from banks ...................................         $  8,132         $  8,132         $  7,874         $  7,874
     Interest-bearing deposits in other banks ..................              282              282              765              765
     Federal funds sold ........................................            6,545            6,545            9,185            9,185
     Trading assets ............................................              214              214               47               47
     Securities available for sale .............................           99,641           99,641           96,003           96,003
     Securities held to maturity ...............................            9,698           10,025           12,651           12,666
     Other investments .........................................            4,737            4,737            3,546            3,546
     Loans (gross) .............................................          383,720          378,695          398,711          395,447
     Cash surrender value life insurance .......................           12,181           12,181           11,815           11,815

Financial liabilities:
     Deposits ..................................................          457,491          455,669          445,369          442,221
     Securities sold under repurchase agreements ...............           13,985           13,985           22,181           22,181
     Federal funds purchased ...................................                -                -            1,028            1,028
     Advances from Federal Home Loan Bank ......................           16,500           16,500           34,600           34,600
     Notes Payable - Other .....................................                -                -           11,000           11,000
</TABLE>

RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 2009, the FASB issued  Accounting  Standards Update No. 2009-01
("ASU 2009-01"), Topic 105 - Generally Accepted Accounting Principles amendments
based  on  Statement  of  Financial  Accounting  Standards  No.  168 - The  FASB
Accounting  Standards  Codification  TM and the Hierarchy of Generally  Accepted
Accounting  Principles.   ASU  2009-01  amends  the  FASB  Accounting  Standards
Codification  for the issuance of FASB Statement No. 168 ("SFAS 168"),  The FASB
Accounting  Standards  Codification  TM and the Hierarchy of Generally  Accepted
Accounting Principles.  ASU 2009-1 includes SFAS 168 in its entirety,  including
the  accounting  standards  update  instructions  contained in Appendix B of the
Statement. The FASB Accounting Standards Codification TM ("Codification") became
the  source of  authoritative  U.S.  generally  accepted  accounting  principles
("GAAP") recognized by the FASB to be applied by nongovernmental entities. Rules
and  interpretive  releases of the  Securities and Exchange  Commission  ("SEC")
under  authority of federal  securities  laws are also sources of  authoritative
GAAP  for  SEC  registrants.  On the  effective  date  of  this  Statement,  the
Codification  superseded  all  then-existing  non-SEC  accounting  and reporting


                                       11
<PAGE>

standards.  All  other  non-grandfathered   non-SEC  accounting  literature  not
included  in the  Codification  became  non-authoritative.  This  Statement  was
effective for the Company's financial statements beginning in the interim period
ended September 30, 2009.

         Following this Statement,  the FASB will not issue new standards in the
form of  Statements,  FASB  Staff  Positions,  or  Emerging  Issues  Task  Force
Abstracts.  Instead, it will issue Accounting  Standards Updates.  The FASB does
not consider  Accounting  Standards Updates as authoritative in their own right.
Accounting  Standards  Updates  serve only to update the  Codification,  provide
background information about the guidance, and provide the bases for conclusions
on the change(s) in the  Codification.  FASB Statement No. 162, The Hierarchy of
Generally  Accepted  Accounting  Principles   ("Statement  162"),  which  became
effective on November 13, 2008,  identified the sources of accounting principles
and the framework for selecting the  principles  used in preparing the financial
statements of  nongovernmental  entities  that are presented in conformity  with
GAAP.  Statement 162 arranged  these sources of GAAP in a hierarchy for users to
apply  accordingly.   Upon  becoming  effective,  all  of  the  content  of  the
Codification  carries  the same  level  of  authority,  effectively  superseding
Statement  162. In other words,  the GAAP hierarchy has been modified to include
only two levels of GAAP: authoritative and non-authoritative.  As a result, this
Statement  replaces Statement 162 to indicate this change to the GAAP hierarchy.
The adoption of the  Codification and ASU 2009-01 did not have any effect on the
Company's  results of  operations  or  financial  position.  All  references  to
accounting  literature  included in the notes to the financial  statements  have
been changed to reference the appropriate sections of the Codification.

         In June 2009, the FASB issued  Accounting  Standards Update No. 2009-02
("ASU  2009-02"),  Omnibus  Update - Amendments to Various  Topics for Technical
Corrections.  The  adoption  of ASU  2009-02  did not  have  any  effect  on the
Company's results of operations, financial position or disclosures.

         In August 2009, the FASB issued Accounting Standards Update No. 2009-03
("ASU 2009-03"),  SEC Update - Amendments to Various Topics Containing SEC Staff
Accounting  Bulletins.  ASU 2009-03 represents technical  corrections to various
topics containing SEC Staff Accounting  Bulletins to update  cross-references to
Codification  text. This ASU did not have any effect on the Company's results of
operations, financial position or disclosures.

         In August 2009, the FASB issued Accounting Standards Update No. 2009-04
("ASU  2009-04"),  Accounting for Redeemable  Equity  Instruments - Amendment to
Section  480-10-S99.  ASU 2009-04  represents  an update to Section  480-10-S99,


                                       12
<PAGE>

Distinguishing  Liabilities from Equity, per Emerging Issues Task Force ("EITF")
Topic D-98, Classification and Measurement of Redeemable Securities. ASU 2009-04
did not have any  effect  on the  Company's  results  of  operations,  financial
position or disclosures.

In August 2009, the FASB issued  Accounting  Standards  Update No. 2009-05 ("ASU
2009-05"),  Fair Value  Measurements  and  Disclosures  (Topic  820) - Measuring
Liabilities  at Fair Value.  ASU 2009-05  applies to all  entities  that measure
liabilities  at fair  value  within  the scope of ASC  Topic  820.  ASU  2009-05
provides  clarification  that in  circumstances  in which a  quoted  price in an
active market for the identical  liability is not available,  a reporting entity
is required to measure fair value using one or more of the following techniques:

     1.   A valuation technique that uses:
          a.   The quoted  price of the  identical  liability  when traded as an
               asset
          b.   Quoted prices for similar liabilities or similar liabilities when
               traded as assets.
     2.   Another valuation  technique that is consistent with the principles of
          ASC Topic 820. Two  examples  would be an income  approach,  such as a
          technique that is based on the amount at the measurement date that the
          reporting  entity  would pay to transfer  the  identical  liability or
          would receive to enter into the identical liability.

         The amendments in ASU 2009-5 also clarify that when estimating the fair
value of a liability,  a reporting  entity is not required to include a separate
input or adjustment  to other inputs  relating to the existence of a restriction
that  prevents  the transfer of the  liability.  It also  clarifies  that both a
quoted price in an active market for the identical  liability at the measurement
date and the quoted price for the identical liability when traded as an asset in
an  active  market  when no  adjustments  to the  quoted  price of the asset are
required  are Level 1 fair value  measurements.  The  guidance  provided  in ASU
2009-5 is effective for the Company in the fourth  quarter of 2009.  Because the
Company does not currently have any liabilities that are recorded at fair value,
the adoption of this guidance will not have any impact on results of operations,
financial position or disclosures.

         In September  2009,  the FASB issued  Accounting  Standards  Update No.
2009-06 ("ASU 2009-06"),  Income Taxes (Topic 740) - Implementation  Guidance on
Accounting  for  Uncertainty  in Income  Taxes  and  Disclosure  Amendments  for
Nonpublic Entities. ASU 2009-06 provides additional  implementation  guidance on
accounting for uncertainty in income taxes by addressing 1) whether income taxes
paid  by an  entity  are  attributable  to the  entity  or its  owners,  2) what
constitutes  a  tax  position  for  a   pass-through   entity  or  a  tax-exempt
not-for-profit  entity,  and 3) how accounting  for  uncertainty in income taxes
should be applied  when a group of related  entities  comprise  both taxable and
nontaxable entities. ASU 2009-06 also eliminates certain disclosure requirements
for nonpublic entities.  The guidance and disclosure  amendments included in ASU
2009-06 were  effective  for the Company in the third quarter of 2009 and had no
impact on results of operations, financial position or disclosures.

         In September  2009,  the FASB issued  Accounting  Standards  Update No.
2009-07 ("ASU 2009-07"),  Accounting for Various Topics - Technical  Corrections
to SEC  Paragraphs.  ASU 2009-07  represents  technical  corrections  to various
topics  containing  SEC  guidance.  This  ASU did not  have  any  effect  on the
Company's results of operations, financial position or disclosures.

                                       13
<PAGE>

         In September  2009,  the FASB issued  Accounting  Standards  Update No.
2009-08 ("ASU 2009-08"),  Earnings Per Share - Amendments to Section 260-10-S99.
ASU 2009-08 represents technical  corrections to Topic 260-10-S99,  Earnings per
Share, based on EITF Topic D-53,  Computation of Earnings Per Share for a Period
that Includes a Redemption or an Induced Conversion of Preferred Stock. This ASU
did not have any  effect  on the  Company's  results  of  operations,  financial
position or disclosures.

         In September  2009,  the FASB issued  Accounting  Standards  Update No.
2009-09 ("ASU  2009-09"),  Accounting for  Investments - Equity Method and Joint
Ventures and Accounting for Equity-Based  Payments to Non-Employees - Amendments
to Sections  323-10-S99 and 505-50-S99.  ASU 2009-09  represents a correction to
Section  323-10-S99-4,  Accounting by an Investor for  Stock-Based  Compensation
Granted to Employees of an Equity  Method  Investee.  Section  323-10-S99-4  was
originally  entered  into the  Accounting  Standards  Codification  incorrectly.
Additionally,  it adds  observer  comment  Accounting  Recognition  for  Certain
Transactions Involving Equity Instruments Granted to Other Than Employees to the
Codification.  This ASU did not have any  effect  on the  Company's  results  of
operations, financial position or disclosures.

         In September  2009,  the FASB issued  Accounting  Standards  Update No.
2009-10 ("ASU 2009-10"),  Financial Services - Broker and Dealers: Investments -
Other - Amendment to Subtopic 940-325. ASU 2009-10 codifies the Observer comment
in paragraph  17 of EITF 02-3,  Issues  Involved in  Accounting  for  Derivative
Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and
Risk  Management.  This ASU did not have any effect on the Company's  results of
operations, financial position or disclosures.

         In September  2009,  the FASB issued  Accounting  Standards  Update No.
2009-11  ("ASU  2009-11"),  Extractive  Activities  - Oil and Gas - Amendment to
Section  932-10-S99.  ASU 2009-11  represents a technical  correction to the SEC
Observer comment in EITF 90-22, Accounting for Gas-Balancing Arrangements.  This
ASU is not  applicable  to the Company and  therefore did not have any effect on
the Company's results of operations, financial position or disclosures.

         In September  2009,  the FASB issued  Accounting  Standards  Update No.
2009-12 ("ASU 2009-12"),  Fair Value  Measurements and Disclosures (Topic 820) -
Investments in Certain Entities That Calculate Net Asset Value per Share (or Its
Equivalent).  ASU 2009-12 is not applicable to the Company and therefore did not
have any effect on the Company's  results of operations,  financial  position or
disclosures.

         In  October  2009,  the FASB  issued  Accounting  Standards  Update No.
2009-13 ("ASU 2009-13"),  Revenue Recognition (Topic 605) - Multiple-Deliverable
Revenue  Arrangements - a consensus of the FASB Emerging Issues Task Force.  ASU
2009-13 addresses the accounting for multiple-deliverable arrangements to enable
vendors to account for  products or services  (deliverables)  separately  rather
than as a combined unit. Subtopic 605-25, Revenue Recognition - Multiple-Element


                                       14
<PAGE>

Arrangements, establishes the accounting and reporting guidance for arrangements
under  which the vendor will  perform  multiple  revenue-generating  activities.
Specifically,  this subtopic  addresses how to separate  deliverables and how to
measure  and  allocate  arrangement  consideration  to  one  or  more  units  of
accounting.   The   amendments  in  this  ASU  will  be  effective  for  revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010 with early adoption permitted. This ASU is not applicable to
the  Company  and  therefore  will  have  no  effect  on  Company's  results  of
operations, financial position or disclosures.

         In  October  2009,  the FASB  issued  Accounting  Standards  Update No.
2009-14 ("ASU  2009-14"),  Software (Topic 985) - Certain  Revenue  Arrangements
That Include  Software  Elements - a consensus of the FASB Emerging  Issues Task
Force.  ASU 2009-14  addresses  concerns raised by constituents  relating to the
accounting for revenue arrangements that contain tangible products and software.
The  amendments  in  this  ASU  will  be  effective  prospectively  for  revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010 with early adoption permitted. This ASU is not applicable to
the Company and therefore  did not have any effect on the  Company's  results of
operations, financial position or disclosures.

         In  October  2009,  the FASB  issued  Accounting  Standards  Update No.
2009-15 ("ASU  2009-15"),  Accounting  for  Own-Share  Lending  Arrangements  in
Contemplation  of  Convertible  Debt  Issuance or Other  Financing.  ASU 2009-15
provides  accounting  guidance  for  own-share  lending  arrangements  issued in
contemplation   of  the  issuance  of  convertible   debt  or  other   financing
arrangements.  An entity,  for which the cost to an  investment  banking firm or
third-party  investors of borrowing  its shares is  prohibitive,  may enter into
share-lending arrangements that are executed separately but in connection with a
convertible   debt  offering.   Although  the  convertible  debt  instrument  is
ultimately  sold to investors,  the  share-lending  arrangement  is an agreement
between the entity and an  investment  bank and is intended  to  facilitate  the
ability of investors to hedge the conversion option in the entity's  convertible
debt.  Loaned  shares are  excluded  from basic and diluted  earnings  per share
unless default of the share-lending arrangement occurs, at which time the loaned
shares   would  be  included   in  the  basic  and  diluted   earnings-per-share
calculation. If dividends on the loaned shares are not reimbursed to the entity,
any  amounts,  including  contractual  dividends  and  participation  rights  in
undistributed  earnings,  attributable to the loaned shares shall be deducted in
computing income available to common  shareholders,  in a manner consistent with
the  two-class  method in paragraph  260-10-45-60B.  The Company has no plans to
issue  convertible  debt and,  therefore,  does not expect the update to have an
impact on its financial statements.

         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.


                                       15
<PAGE>

RECENT DEVELOPMENTS

         On April 24,  2009,  the  Company  sold  12,660  shares  of Fixed  Rate
Cumulative  Perpetual  Preferred Stock, Series T, (the "Series T Stock") and 633
shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series W (the "Series
W Stock") to the U. S. Treasury,  pursuant to its Capital Purchase Program,  for
an aggregate  purchase price of  $12,660,000.  Each share of the preferred stock
has a  liquidation  preference  of $1,000 and may be  redeemed  by the  Company,
subject to certain limitations, for $1,000 per share. The annual dividend on the
Series T Stock is 5% for the first  five  years and 9%  thereafter.  The  annual
dividend on the Series W Stock is 9%. The cumulative  dividend for the preferred
stock is accrued for and payable on February 15, May 15,  August 15 and November
15 of each year.  The Company has declared and paid $213,000 in preferred  stock
dividends  during the first  nine  months of 2009.  Other  terms of the Series T
Stock and the Series W Stock  limit the  Company's  ability to pay common  stock
dividends  or make  repurchases  of common  stock under  certain  circumstances.
Further,  the Company's  purchase agreement with the U. S. Treasury and the laws
authorizing  the  Capital  Purchase  Program  impose  various   limitations  and
requirements on the Company's compensation of its senior executive officers. See
the  Company's  Form 8-K filed with the  Securities  and Exchange  Commission on
April 28, 2009 for  additional  details of the preferred  stock and the purchase
agreement.

         The Company used a portion of the proceeds of the sale of the preferred
stock to repay  the  outstanding  $11,000,000  owed on a line of  credit  with a
correspondent  bank,  the proceeds of which had been used to inject capital into
the Company's Banks.

SUBSEQUENT EVENTS

         Management  performed an evaluation  to determine  whether or not there
have been any  reportable  subsequent  events since the balance sheet date.  The
evaluation  was  performed  through  November  13,  2009,  the date on which the
Company's 10-Q was filed with the Securities and Exchange Commission.


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.

                                       16
<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  Company's  2008 Annual Report on Form 10-K.  Results of operations  for the
three-month and nine-month  periods ended September 30, 2009 are not necessarily
indicative of the results to be attained for any other period.

Overview

         The Company is a bank  holding  company  with three  wholly  owned bank
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 nine  full-service  banking  offices  located in the
upstate area of South Carolina.

Cautionary Notice with Respect to Forward Looking Statements

          This report contains  "forward-looking  statements" within the meaning
of the securities  laws. The Private  Securities  Litigation  Reform Act of 1995
provides a safe harbor for forward-looking  statements.  In order to comply with
the 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
forwarding-looking statements.

          All statements that are not historical facts are statements that could
be  "forward-looking   statements."  You  can  identify  these   forward-looking
statements  through the use of words such as "may," "will,"  "should,"  "could,"
"would," "expect,"  "anticipate,"  "assume," "indicate,"  "contemplate," "seek,"
"plan,"  "predict,"  "target,"  "outlook,"   "potential,"  "believe,"  "intend,"
"estimate,"  "project,  " "continue,"  or other similar  words.  Forward-looking
statements include,  but are not limited to, statements  regarding the Company's
future business prospects,  revenues, working capital, liquidity, capital needs,
interest costs, income, business operations and proposed services.

          These  forward-looking  statements are based on current  expectations,
estimates and projections about the banking industry,  management's beliefs, and
assumptions made by management.  Such information includes,  without limitation,
discussions  as to estimates,  expectations,  beliefs,  plans,  strategies,  and
objectives  concerning  future  financial  and  operating   performance.   These


                                       17
<PAGE>

statements  are not guarantees of future  performance  and are subject to risks,
uncertainties and assumptions that are difficult to predict.  Therefore,  actual
results  may  differ  materially  from those  expressed  or  forecasted  in such
forward-looking  statements.  The risks and uncertainties  include,  but are not
limited to:

          o    future economic and business conditions;
          o    lack of sustained growth in the economies of the Company's market
               areas;
          o    government monetary and fiscal policies;
          o    the  effects  of  changes  in  interest   rates  on  the  levels,
               composition and costs of deposits, loan demand, and the values of
               loan collateral,  securities,  and interest  sensitive assets and
               liabilities;
          o    the  effects  of  competition  from  a  wide  variety  of  local,
               regional, national and other providers of financial,  investment,
               and insurance services, as well as competitors that offer banking
               products and  services by mail,  telephone,  computer  and/or the
               Internet;
          o    credit risks;
          o    higher than anticipated levels of defaults on loans;
          o    perceptions by depositors about the safety of their deposits;
          o    ability to weather the current economic downturn;
          o    loss  of  consumer  or  investor  confidence;
          o    the failure of assumptions  underlying the  establishment  of the
               allowance  for loan  losses and other  estimates,  including  the
               value of collateral securing loans;
          o    the risks of opening new offices, including,  without limitation,
               the related costs and time of building customer relationships and
               integrating operations as part of these endeavors and the failure
               to achieve expected gains,  revenue growth and/or expense savings
               from such endeavors;
          o    changes  in laws and  regulations,  including  tax,  banking  and
               securities laws and regulations;
          o    changes in accounting policies, rules and practices;
          o    changes  in  technology  or  products  may be more  difficult  or
               costly, or less effective, than anticipated;
          o    the effects of war or other conflicts, acts of terrorism or other
               catastrophic  events that may affect general economic  conditions
               and economic confidence; and
          o    other factors and information described in this report and in any
               of the  other  reports  that  we file  with  the  Securities  and
               Exchange Commission under the Securities Exchange Act of 1934.

          All  forward-looking  statements  are  expressly  qualified  in  their
entirety by this cautionary notice. The Company has no obligation,  and does not
undertake  to update,  revise or correct any of the  forward-looking  statements
after the date of this  report.  The Company  has  expressed  its  expectations,
beliefs and projections in good faith and believes they have a reasonable basis.


                                       18
<PAGE>

However,  there is no assurance that these expectations,  beliefs or projections
will result or be achieved or accomplished.

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  Note 1 to  the  Consolidated  Financial  Statements
included  in  Item  8  "Financial  Statements  and  Supplementary  Data"  of the
Company's 2008 Annual Report on Form 10-K.

         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.  Many of the Company's  estimates also rely
heavily  on real  estate  appraisals  by  third  parties  which  are  themselves
estimates.  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 the "Provision and Allowance for Loan Losses, Loan
Loss  Experience"  section in Item  7--"Management's  Discussion and Analysis of
Financial  Condition and Results of  Operations"  of the  Company's  2008 Annual
Report on Form 10-K and the "Balance  Sheet  Review--Allowance  for Loan Losses"
and "Earnings Performance--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.





                                       19
<PAGE>


                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EARNINGS PERFORMANCE

Overview

         The  consolidated  Company's net loss available to common  shareholders
for the third quarter of 2009 was $635,000 or $0.09 per diluted  share  compared
to a net loss of  $5,529,000 or $0.78 per diluted share for the third quarter of
2008, an improvement of $4,894,000.  Net income available to common shareholders
for the nine  months  ended  September  30, 2009 was $5,000 or $0.00 per diluted
share  compared to a net loss of  $5,479,000  or $0.78 per diluted share for the
nine months ended  September 30, 2008, an improvement  of $5,484,000.  Return on
average common equity,  net income (loss) available to common  shareholders as a
percentage of average total common equity,  for the nine months and three months
ended  September  30,  2009 was  0.82% and  (4.84)%  respectively,  compared  to
(14.96)% and (46.38)%  respectively,  for the nine months and three months ended
September 30, 2008.  Return on average  assets,  calculated as net income (loss)
divided by average  assets,  for the nine and three months ended  September  30,
2009 was 0.06%  and  (0.38)%  respectively,  compared  to  (1.31)%  and  (3.97)%
respectively, for the nine and three months ended September 30, 2008.

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  $147,000,  or 3.5%, to $4,378,000  for the quarter ended
September 30, 2009 compared to  $4,231,000  for the quarter ended  September 30,
2008.  For the nine months ended  September 30, 2009 net interest  income before
provision for loan losses increased $174,000 or 1.4% to $13,032,000  compared to
$12,858,000  for the nine months ended  September  30, 2008.  The  Company's net
interest  margin for the three months and nine months ended  September  30, 2009
was  3.45%  and 3.45%  respectively,  compared  to 3.26% and 3.30% for the three
months and nine months ended September 30, 2008.

         The Company's  total interest  income for the third quarter of 2009 was
$6,735,000  compared to $7,848,000  for the third quarter of 2008, a decrease of
$1,113,000,  or 14.2%. Total interest income for the nine months ended September
30, 2009 was  $21,150,000  compared  to  $24,675,000  for the nine months  ended
September  30, 2008,  a decrease of  $3,525,000  or 14.3%.  Interest and fees on
loans, the largest  component of total interest income,  decreased by $1,225,000
in the third quarter of 2009 to $5,517,000 from $6,742,000 for the third quarter
of 2008, a decrease of 18.2%. Interest and fees on loans decreased by $3,751,000
in the nine months ended September 30, 2009 to $17,447,000  from $21,198,000 for
the nine months ended  September 30, 2008, a decrease of 17.7%.  The decrease in
interest and fees on loans for the three-month and nine-month periods was due to
falling  interest  rates,  a decrease in outstanding  loan balances,  and higher
levels of  non-performing  assets.  Interest on taxable  securities,  the second


                                       20
<PAGE>

largest  component of total interest income,  increased by $131,000 in the third
quarter of 2009 to $847,000  compared to $716,000 for the third quarter of 2008,
an increase of 18.3%.  Interest on taxable securities increased $264,000 for the
nine months ended  September 30, 2009 to $2,579,000  compared to $2,315,000  for
the nine months ended September 30, 2008, an increase of 11.4%.  The increase in
interest on taxable  securities for the three-month  and nine-month  periods was
due to higher average balances.

         The Company's total interest  expense for the third quarter of 2009 was
$2,357,000  compared to $3,617,000  for the third quarter of 2008, a decrease of
$1,260,000, or 34.8%. Total interest expense for the nine months ended September
30, 2009 was  $8,118,000,  compared  to  $11,817,000  for the nine months  ended
September  30,  2008, a decrease of  $3,699,000  or 31.3%.  Interest  expense on
deposits, the largest component of total interest expense, decreased by $857,000
in the third quarter of 2009 to $2,316,000  compared to $3,173,000 for the third
quarter of 2008, a decrease of 27.0%.  Interest on deposits decreased $2,264,000
for the  nine  months  ended  September  30,  2009  to  $7,777,000  compared  to
$10,041,000  for the nine months ended  September 30, 2008, a decrease of 22.6%.
The decrease in interest  expense on deposits for the three-month and nine-month
periods is largely  attributable  to lower funding  rates,  partially  offset by
higher average balances. Interest on notes payable to the Federal Home Loan Bank
of Atlanta  ("FHLB"),  the second largest  component of total interest  expense,
decreased  $328,000 or 93.7% to $22,000 for the three months ended September 30,
2009  compared to $350,000 for the three months ended  September  30, 2008,  and
decreased $1,386,000 or 93.8% to $91,000 for the nine months ended September 30,
2009 compared to $1,477,000  for the nine months ended  September 30, 2008.  The
decrease is  attributable to  significantly  lower interest rates paid and lower
average balances.  Interest on federal funds purchased and securities sold under
repurchase  agreements,  the third largest  component of total interest expense,
decreased  $75,000 or 79.8% to $19,000 in the third  quarter of 2009 compared to
$94,000 for the third quarter of 2008.  Interest on federal funds  purchased and
securities  sold under  repurchase  agreements  decreased  $231,000  or 77.3% to
$68,000 in the first  nine  months of 2009  compared  to  $299,000  for the same
period of 2008.  The  decrease  in  interest  on  federal  funds  purchased  and
securities  sold under  repurchase  agreements is largely  attributable to lower
interest rates paid on lower average balances.  Interest on notes  payable-other
was $182,000 in the nine months ended  September 30, 2009 compared to no expense
during the same  period of 2008.  This  expense is  associated  with the line of
credit  that was drawn by the  Company  during the fourth  quarter of 2008,  and
subsequently  repaid  during  the  second  quarter of 2009 with a portion of the
proceeds of the sale of preferred stock to the U. S. Treasury.

Provision for Loan Losses

         The  provision for loan losses  charged to operations  during the three
months ended  September 30, 2009 was  $2,030,000  compared to $6,475,000 for the
three months ended  September 30, 2008, a decrease of  $4,445,000 or 68.6%.  The


                                       21
<PAGE>

provision  for loan  losses  charged to  operations  for the nine  months  ended
September  30, 2009  decreased  $5,277,000 or 59.4% to  $3,608,000,  compared to
$8,885,000  for the nine months ended  September  30,  2008.  The changes in the
Company's  provision for loan losses for the third quarter and first nine months
of 2009 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  $3,112,000 or 155.3% to $1,108,000 for
the third  quarter of 2009  compared to  $(2,004,000)  for the third  quarter of
2008. Non-interest income increased $3,189,000 or 2,140.3% to $3,040,000 for the
first nine months of 2009  compared to  $(149,000)  for the first nine months of
2008.  The  substantial  increase in  non-interest  income is primarily due to a
$2,890,000  write-down  due  to  the  other-than-temporary   impairment  on  the
Company's  FHLMC  Preferred  Stock  recorded in the third  quarter of 2008.  The
impairment  came as the direct  result of FHLMC,  also known as  "Freddie  Mac,"
being  placed in  conservatorship  in  September  2008.  There  were no  similar
write-downs during 2009.

         Service fees on deposit accounts, the largest component of non-interest
income,  decreased  $72,000 or 14.6% to $420,000  for the third  quarter of 2009
compared  to $492,000  for the third  quarter of 2008.  Service  fees on deposit
accounts  decreased $181,000 or 12.9% to $1,228,000 for the first nine months of
2009 compared to $1,409,000 for the first nine months of 2008.

         Mortgage  banking fees  decreased  from $79,000 in the third quarter of
2008 to $64,000 in the third  quarter of 2009,  a decrease  of $15,000 or 19.0%,
and  increased  $114,000  or 37.6% in the first nine  months of 2009 to $417,000
compared to $303,000  for the first nine  months of 2008.  These  changes in the
levels  of  mortgage  banking  income  are  due  to  swings  in the  demand  for
residential  mortgage  loans at the  Banks.  Bank owned  life  insurance  income
decreased  $3,000 or 2.1% in the third  quarter of 2009 to $139,000  compared to
$142,000  for the  third  quarter  of 2008,  and  increased  $18,000  or 4.6% to
$409,000 in the first nine months of 2009 compared to $391,000 in the first nine
months of 2008.  Brokerage  service  income  increased from $41,000 in the third
quarter of 2008 to $46,000 in the third  quarter of 2009,  an increase of $5,000
or 12.2% and  decreased  $15,000 or 9.5% to $143,000 in the first nine months of
2009  compared to $158,000  in the first nine months of 2008.  This  decrease in
brokerage  service income is due to lower commissions from the volume and mix of
products.

         There was a net gain of  $154,000  in the third  quarter of 2009 on the
sale of assets acquired in settlement of loans compared to a loss of $10,000 for
the third quarter of 2008, an improvement  of $164,000.  There was a net gain of
$192,000  in the first  nine  months of 2009 on the sale of assets  acquired  in
settlement of loans compared to a $63,000 loss in the first nine months of 2008,
an improvement of $255,000.  Customer  service fees decreased $6,000 or 22.2% to
$21,000 in the third  quarter of 2009  compared to $27,000 for the third quarter
of 2008,  and  decreased  $15,000 or 14.2% in the first  nine  months of 2009 to


                                       22
<PAGE>

$91,000  compared to $106,000  for the same period of 2008.  Other  non-interest
income increased $99,000 or 60.0% from $165,000 during the third quarter of 2008
to  $264,000  for the third  quarter of 2009 and  increased  $70,000 or 14.4% to
$555,000 in the first nine months of 2009 compared to $485,000 in the first nine
months of 2008. The nine months of 2009 increase was  substantially  constrained
by a write-down of $160,000 due to impairment  during the second quarter of 2009
of stock in Silverton Bank which became worthless.  Interchange  income on debit
cards  increased  $28,000  or 21.7% to  $157,000  in the third  quarter  of 2009
compared to $129,000 in the third quarter of 2008.  Interchange  income on debit
cards  increased  $61,000 or 15.7% to  $450,000 in the first nine months of 2009
compared to $389,000 in the first nine months of 2008.

         There were no gains  realized on the sale of  securities  available for
sale during the third  quarter of 2009  compared to a $5,000 gain on the sale of
available for sale securities  during the first nine months of 2009. The Company
recorded  a $50,000  loss on the sale of  securities  available  for sale in the
third  quarter  of 2008 and a  $48,000  loss on the sale of  available  for sale
securities during in the first nine months of 2008.

Non-interest Expense

         Total non-interest expense increased $160,000 or 3.7% to $4,479,000 for
the third quarter of 2009 from  $4,319,000 for the third quarter of 2008.  Total
non-interest  expense increased  $43,000,  or 0.3%, to $12,713,000 for the first
nine months of 2009 from $12,670,000 for the first nine months of 2008. Salaries
and benefits, the largest component of non-interest expense, decreased $355,000,
or 14.5%,  to $2,097,000  for the third quarter of 2009 from  $2,452,000 for the
third quarter of 2008.  Salaries and benefits decreased  $881,000,  or 12.2%, to
$6,353,000 for the first nine months of 2009 from  $7,234,000 for the first nine
month of 2008.  These decreases are largely due to a reduction in work force and
a freeze on most salary  increases  that was  imposed by the Company  during the
fourth quarter of 2008 in response to deteriorating economic conditions.

         Occupancy and furniture and  equipment  expenses  decreased  $32,000 or
5.4% to $556,000 in the third  quarter of 2009 compared to $588,000 in the third
quarter of 2008.  Occupancy  and  furniture  and  equipment  expenses  decreased
$102,000  or 5.9% to  $1,641,000  in the first nine  months of 2009  compared to
$1,743,000 in the first nine months of 2008.  Marketing and advertising  expense
decreased  $58,000 or 61.1% from $95,000 in the third quarter of 2008 to $37,000
during the third quarter of 2009 and  decreased  $230,000 or 67.9% from $339,000
in the first nine  months of 2008 to  $109,000  during the same  period of 2009.
Communication  expenses  decreased  $4,000  or 6.0%  from  $67,000  in the third
quarter  of 2008 to  $63,000  during  the third  quarter  of 2009 and  decreased
$10,000 or 5.1% from  $197,000 in the first nine months of 2008 to $187,000  for
the same period of 2009.  Printing and supplies  decreased  $6,000 or 14.3% from
$42,000 for the third  quarter of 2008 to $36,000 for the third  quarter of 2009
and  decreased  $30,000 or 20.8% from $144,000 for the first nine months of 2008
to $114,000  for the same  period of 2009.  These  decreases  were the result of


                                       23
<PAGE>

deliberate  efforts by  management  to limit and reduce  expenses in response to
deteriorating economic conditions.

         Bank paid loan costs  increased  $467,000  or 428.4% to $576,000 in the
third  quarter  of 2009  compared  to  $109,000  in the third  quarter  2008 and
increased  $748,000  or 223.3% to  $1,083,000  in the first nine  months of 2009
compared to $335,000  during the same period of 2008. Of the $1,083,000  expense
incurred  in the first nine  months of 2009,  $885,000  is  associated  with the
repossession  and  maintenance  of  collateral  on defaulted  real estate loans,
compared to just $180,000 during the same period of 2008.

         Legal and professional expenses increased $105,000 or 64.8% to $267,000
for the third quarter of 2009 compared to $162,000 for the third quarter of 2008
and  increased  $232,000 or 60.1% to $618,000  for the first nine months of 2009
compared to $386,000  for the first nine months of 2008.  The  increase in legal
and professional fees is primarily due to collection efforts on certain loans in
default and the outsourcing of portions of the Company's internal audit function
beginning in the second quarter of 2008.

         Regulatory  assessments  increased  $110,000 or 88.7% from $124,000 for
the  third  quarter  of 2008 to  $234,000  for the  third  quarter  of 2009  and
increased  $435,000 or 140.3% from $310,000 for the first nine months of 2008 to
$745,000 for the first nine months of 2009. Regulatory  assessments include fees
paid to the Federal Deposit Insurance Corporation ("FDIC") and the Office of the
Comptroller  of the Currency  ("OCC") by the Company's  three Banks.  During the
first  quarter  of  2009,  the  FDIC  announced  a  special  one-time  emergency
assessment  to be collected  September  30, 2009.  This  assessment  contributed
$222,000  of the  Company's  increased  expense  during the first nine months of
2009.  The FDIC has voted to require FDIC insured  institutions  to prepay their
estimated  quarterly  assessments for the years 2010, 2011, and 2012 on December
30, 2009. The  prepayments  will be booked at the end of each quarter during the
three year period,  and,  therefore,  will not immediately affect earnings.  The
FDIC also voted to adopt a uniform  three-basis  point  increase  in  assessment
rates  effective  January 1, 2011.  We expect that we will be required to pay an
estimated  $2,800,000  on  December  30, 2009 for our fourth  quarter  2009 FDIC
assessment  in  addition  to  prepayment  of all  of the  2010,  2011  and  2012
assessments.


         All other operating expenses were $613,000 in the third quarter of 2009
compared to  $680,000  for the third  quarter of 2008,  a decrease of $67,000 or
9.9% and decreased  $119,000 or 6.0% to $1,863,000  for the first nine months of
2009 compared to $1,982,000 for the first nine months of 2008.

Income Taxes

         The income tax benefit  decreased  $2,533,000 to a $505,000 tax benefit
for the third quarter of 2009 compared to a $3,038,000 tax benefit for the third
quarter of 2008. The income tax benefit  decreased  $2,860,000 to a $507,000 tax
benefit  for  the  first  nine  months  of 2009  compared  to a tax  benefit  of
$3,367,000 for the first nine months of 2008. The decrease in income tax benefit
is attributable to the decrease in net pre-tax losses.  The provision for income


                                       24
<PAGE>

taxes is an estimate,  and management  considers  several factors in making this
estimate  including  current  pre-tax  income  levels,  the amount of tax-exempt
income,  and a comparison of prior period  estimates to income taxes  ultimately
determined.

BALANCE SHEET REVIEW

Loans

         Outstanding  loans represent the largest component of earning assets at
76.0% of total earning assets.  As of September 30, 2009, the Company held total
gross loans  outstanding of  $383,720,000 a decrease of $14,991,000 or 3.8% from
$398,711,000  in total  gross  loans  outstanding  at  December  31,  2008 and a
decrease  of  $23,608,000  or  5.8%  from  $407,328,000  in  total  gross  loans
outstanding at September 30, 2008. The decrease in outstanding  loans during the
twelve-month  and  nine-month  periods is the result of decreased loan demand at
the Company's three bank  subsidiaries as well as significant  loan  charge-offs
during the respective periods.

<TABLE>
<CAPTION>
Loan Portfolio Composition                                                   September 30,       December 31,      September 30,
(Dollars in thousands)                                                       -------------       ------------      -------------
                                                                                2009                2008               2008
                                                                                ----                ----               ----
                                                                            (Unaudited)           (Audited)         (Unaudited)

<S>                                                                            <C>                <C>                <C>
Commercial and industrial  - not secured by real estate ...................    $ 40,838           $ 43,451           $ 47,278
Commercial and industrial - secured by real estate ........................     118,634            111,844            114,002
Residential real estate - mortgage ........................................     130,744            124,445            117,275
Residential real estate - construction ....................................      78,812            104,390            114,974
Consumer loans ............................................................      14,692             14,581             13,799
                                                                               --------           --------           --------
     Gross loans ..........................................................    $383,720           $398,711           $407,328
                                                                               ========           ========           ========
</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 and nine months
ended September 30, 2009 was 5.69% and 5.93% respectively, compared to 8.17% and
8.13% for the three months and nine months ended September 30, 2008. The Federal
Reserve  decreased  the federal funds target rate by a total of 400 basis points
during 2008.  A large  portion of the  Company's  adjustable-rate  loans,  which
constitute approximately 34.0% 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. The vast majority of these
loans is made to borrowers  located in South Carolina and is 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.
However,  the Banks do employ mortgage loan originators who originate such 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,


                                       25
<PAGE>

which are obtained for a variety of business  purposes.  Particular  emphasis is
placed on loans to small and medium-sized  businesses.  The Company's commercial
loans are spread  throughout a variety of industries,  with no industry or group
of related  industries  accounting  for a significant  portion of the commercial
loan  portfolio.  Commercial  loans are made on either a secured or an unsecured
basis.   When  taken,   security  usually  consists  of  liens  on  inventories,
receivables,  equipment,  furniture and fixtures. Unsecured commercial loans are
generally  short-term with emphasis on repayment strengths and low debt-to-worth
ratios. At September 30, 2009, approximately $7,239,000, or 17.7%, of commercial
loans-not secured by real estate 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

         Management of the Company  recognizes that, despite its best efforts to
minimize risk through its credit review process,  losses will inevitably  occur.
As we have  witnessed,  in times of local  economic  slowdown,  the credit  risk
inherent in the Company's loan portfolio will increase. The timing and amount of
loan losses that occur are  dependent  upon several  factors based upon economic
conditions  as  reflected  in the loan  portfolio  and the  economy  as a whole.
Factors  considered in the evaluation of the allowance for loan losses  include,
but are not limited to, estimated  probable  incurred losses from loan and other
credit arrangements, general economic conditions, credit risk grades assigned to
commercial and industrial  and commercial  real estate loans,  changes in credit
concentrations or pledged collateral,  historical loan and lease loss experience
and trends in portfolio volume, composition, delinquencies and non-accruals. The
allowance  for loan  losses is  established  to absorb  probable  loan  lossess.
Additions to the  allowance  are made through the  provision  for loan and lease
losses,  which is a charge to current  operating  earnings.  The adequacy of the
provision and the resulting allowance for loan and lease losses is determined by
management's continuing review of the loan portfolio,  including  identification
and review of individual problem situations that may affect a borrower's ability
to  repay,   delinquency  and  non-performing  loan  data,   collateral  values,
regulatory examination results,  external review results and changes in the size
and  character of the loan  portfolio.  Despite such a review,  the level of the
allowance  for loan and lease losses  remains an  estimate,  cannot be precisely
determined  and may be  subject to change  from  quarter  to  quarter.  Based on
current economic  conditions,  management believes that the current level of the
allowance  for loan and lease  losses is adequate  in  relation to the  probable
losses inherent in the portfolio.

         Commercial  loans are assigned credit risk ranking using a scale of ten
grades  with   allocations  for  probable  losses  made  for  pools  of  similar
risk-graded  loans.  Risk levels in the pass  category are covered by one of the


                                       26
<PAGE>

following numerical grades: 1, 2, 3a, 3b, 3c, or 3d. Loans with a "4" risk grade
have potential weaknesses and are watched carefully by management and are called
"Other  Loans  Especially  Mentioned"  or  OLEM.  Loans  with  signs  of  credit
deterioration  generally  are in grades 5 through 7 and are termed  "classified"
loans in accordance with guidelines established by the Banks' regulators.  These
classified   loans  are  either  included  in  pool   calculations  or  analyzed
individually  due  to  higher  risk   characteristics.   Non-accrual  loans  are
individually  evaluated for  impairment and are not included in these risk grade
pools. A loan is considered  "impaired" when, based upon current information and
events,  the  probability  that both the  principal  and  interest due under the
original  contractual  terms will not be collected in full is high.  The Company
measures impairment of collateral dependent loans based on the fair value of the
collateral less estimated costs to sell. Loans that are not collateral dependent
are charged off pending further collection results.  Allocations for loans which
are performing  satisfactorily,  generally in grades 1 through 3-d, are based on
historic  experience  for  other  performing  loans,  as well as,  environmental
pressures  on the  different  loan  types and are  assigned  allocation  factors
representing risk levels.

         It is the present intent of management to continue to monitor the level
of the  allowance  for loan losses in order to properly  reflect its estimate of
the  exposure,  if any,  represented  by  fluctuations  in the local real estate
market and the  underlying  value that market  provides as collateral to certain
segments of the loan portfolio.  The provision is continually evaluated relative
to portfolio  risk and  regulatory  guidelines  and will  continue to be closely
reviewed. In addition,  the bank's regulatory agency, as an integral part of its
examination process,  and the bank's independent  accountants closely review the
allowance  for loan and lease losses.  Either of these  entities may require the
Company to  recognize  additions  to the  allowance  based on their  independent
judgment of information available to them at the time of their reviews.

         The allowance for loan losses at September 30, 2009 was $7,357,000,  or
1.92%  of  loans  outstanding,   compared  to  $9,217,000,  or  2.31%  of  loans
outstanding,  at  December  31,  2008,  and to  $7,636,000,  or  1.87%  of loans
outstanding,  at  September  30,  2008.  At  September  30, 2009 the Company had
$20,153,000 in non-accruing loans,  $214,000 in loans more than ninety days past
due and still accruing interest and $10,073,000 in other real estate owned. This
compares to $16,950,000 in  non-accruing  loans,  no loans more than ninety days
past due and still  accruing  interest and $5,428,000 in other real estate owned
at December  31,  2008.  At September  30, 2008 the Company had  $16,752,000  in
non-accruing  loans,  no loans more than ninety days past due and still accruing
interest and $2,038,000 in other real estate owned. The increase in non-accruing
loans from  September  30,  2008 to  September  30,  2009 is due to the  overall
downturn in the residential  construction and residential  development  markets.
The  non-performing  loans are  primarily  secured by  residential  real  estate
consisting  of  1-to-4  family  homes  and   development   lots.  The  Company's
non-performing  loans at September 30, 2009 consisted of $19,167,000 in mortgage
loans,   $974,000  in  commercial   loans,   and  $12,000  in  consumer   loans.
Non-performing assets as a percentage of loans and other real estate were 7.73%,
5.54% and 4.59% at September 30, 2009, December 31, 2008 and September 30, 2008,
respectively.



                                       27
<PAGE>

         Net  charge-offs  during the nine months ended  September 30, 2009 were
$5,469,000 compared to net charge-offs of $8,913,000 for the year ended December
31, 2008 and net  charge-offs of $5,559,000 for the nine months ended  September
30, 2008. The allowance for loan losses as a percentage of non-performing  loans
was 36%, 54%, and 71% as of September 30, 2009, December 31, 2008, and September
30, 2008, respectively.

         Real estate  activity in the Company's  market area is  exhibiting  the
weaknesses  that have plagued other markets for over a year,  which has resulted
in the higher amounts of distressed assets discussed above.  Management believes
further  deterioration  of economic  conditions in the Company's market areas is
possible  in the short term,  especially  with  respect to real  estate  related
activities  and real  property  values.  Consequently,  Management  expects that
further increases in the provision for loan losses may be needed in the future.

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 certain  obligations of states and municipalities.  The
Company had  $214,000  in trading  assets at  September  30,  2009,  compared to
$47,000 at December  31, 2008 and $192,000 in trading  assets at  September  30,
2008.  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 September 30, 2009 securities totaled $114,290,000, which represented
22.6% of total earning assets.  Securities increased  $2,043,000,  or 1.8%, from
$112,247,000  invested as of December 31, 2008,  and increased  $22,270,000,  or
24.2%,  from  $92,020,000  invested as of September  30,  2008.  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 September 30, 2009 the  Company's  total  investments  classified as
available for sale had an amortized  cost of  $95,324,000  and a market value of
$99,641,000  for a net  unrealized  gain  of  $4,317,000.  This  compares  to an
amortized  cost  of  $93,767,000  and a  market  value  of  $96,003,000  for  an
unrealized  gain  of  $2,236,000  on the  Company's  investments  classified  as
available  for sale at December 31, 2008.  At September  30, 2008 the  Company's
total  investments  classified  as available  for sale had an amortized  cost of
$74,733,000  and a  market  value  of  $75,665,000  for an  unrealized  gain  of
$932,000.  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.  In cases where the market value is less than
book value,  the Company has the ability and intent to hold  securities that are
in an unrealized  loss position until a market price  recovery or maturity,  and
therefore    these    securities   are   not    considered    impaired   on   an
other-than-temporary basis.

         Securities  with carrying  amounts of $30,612,000 at September 30, 2009
were  pledged to secure  public  deposits  and for other  purposes  required  or
permitted by law.

                                       28
<PAGE>

Cash Surrender Value of Life Insurance

         The Company's cash surrender value of life insurance was $12,181,000 at
September 30, 2009, an increase of $366,000,  or 3.1%, from the $11,815,000 held
at December 31, 2008 and an increase of $491,000,  or 4.2%, from the $11,690,000
held at  September  30,  2008.  The  increase  in cash  surrender  value of life
insurance is due to normal  appreciation in the cash surrender value  associated
with the  ownership  of these  assets.  Earnings  from  the  ownership  of these
policies  are  informally   used  to  partially   offset  the  cost  of  certain
employee-related benefits.

Cash and Cash Equivalents

         The Company's cash and cash equivalents decreased $2,865,000, or 16.1%,
to $14,959,000 at September 30, 2009 from  $17,824,000 at December 31, 2008, and
decreased  $8,246,000,  or 35.5%,  from  $23,205,000  at September 30, 2008. The
substantial  swings in the level of cash and cash  equivalents are due to normal
fluctuations  in the Banks'  needs and  sources  for  immediate  and  short-term
liquidity.

Deposits

         The Banks' primary  source of funds for loans and  investments is their
deposits. Total deposits grew $12,122,000, or 2.7%, to $457,491,000 at September
30, 2009 from  $445,369,000 at December 31, 2008 and increased  $13,969,000,  or
3.1%, from $443,522,000 at September 30, 2008.  Competition for deposit accounts
is primarily based on the interest rates paid, location convenience and services
offered.

         During the nine  months  ended  September  30,  2009,  interest-bearing
deposits averaged  $399,811,000  compared to $381,443,000 for the same period of
2008.  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.  At September  30,  2009,  brokered
deposits  totaled  $51,475,000,  compared  to  $77,411,000  and  $71,246,000  in
brokered deposits at December 31, 2008 and September 30, 2008, respectively.  At
September 30, 2009,  $25,287,000 of the brokered  deposits  mentioned above were
acquired through the Certificate of Deposit Account Registry Service  ("CDARS"),
compared with  $32,953,000 at December 31, 2008 and $26,788,000 at September 30,
2008. The Company considers these funds to be an attractive  alternative funding
source  available to use while  continuing  its efforts to maintain and grow its
local deposit base.

         The average interest rate paid on  interest-bearing  deposits was 2.59%
during the nine months ended  September  30, 2009 compared to 3.51% for the same
period of 2008 and 3.40% for the twelve  months  ended  December  31,  2008.  In
pricing  deposits,  the Company considers its liquidity needs, the direction and
levels of interest rates,  and local market  conditions.  At September 30, 2009,


                                       29
<PAGE>

interest-bearing deposits comprised 90.0% of total deposits compared to 88.5% at
December 31, 2008 and 89.9% at September 30, 2008.

         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  still  continue to provide the Company with a large
source of  relatively  stable  funds.  Core  deposits as a  percentage  of total
deposits  averaged  approximately 76% at September 30, 2009, 78% at December 31,
2008  and  69% at  September  30,  2008.  Time  deposits  of  $100,000  or  more
represented 24.3% of total deposits at September 30, 2009, 22.0% at December 31,
2008 and 31.4% at September 30, 2008.  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  typically  comprised of federal  funds
purchased, securities sold under repurchase agreements, short-term advances from
the Federal Home Loan Bank  ("FHLB")  and a line of credit from a  correspondent
bank. At September 30, 2009 borrowings totaled $30,485,000 and were comprised of
$16,500,000 in short-term  advances from the FHLB, and $13,985,000 in securities
sold under  repurchase  agreements.  At  December  31, 2008  borrowings  totaled
$68,809,000  and were  comprised  of  $1,028,000  in  federal  funds  purchased,
$34,600,000 in short-term advances from the FHLB, $22,181,000 in securities sold
under  repurchase  agreements  and  $11,000,000  on a  line  of  credit  from  a
correspondent  bank.  September 30, 2008 borrowings totaled $59,475,000 and were
comprised of $34,000,000 in short-term advances from the FHLB and $25,475,000 in
securities  sold  under  repurchase  agreements.  Federal  funds  purchased  and
short-term  FHLB advances are used primarily for the immediate cash needs of the
Company.

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,  securities  available for
sale and a line of credit  established  with a correspondent  bank. 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 September  30,  2009,  The Peoples  National  Bank had total
borrowing capacity from the FHLB equal to $67,870,000, and the unused portion of


                                       30
<PAGE>

this line of credit was $60,370,000.  Bank of Anderson, N.A. had total borrowing
capacity from the FHLB equal to $26,270,000, and the unused portion of this line
of credit was  $17,270,000  at September  30,  2009.  Seneca  National  Bank had
established  secured  lines of credit  with the FHLB at  September  30,  2009 of
$10,540,000,  all of which was unused. At September 30, 2009, the Banks also had
unused federal funds lines of credit with various  correspondent  banks totaling
$23,500,000.

         Peoples  Bancorporation,  Inc., the parent holding company, has limited
liquidity needs outside of those of its subsidiaries,  and requires funds to pay
limited operating expenses and dividends.  The parent company's  liquidity needs
are fulfilled through  management fees assessed to each subsidiary bank and from
dividends passed up to the parent company from the Banks.

         During the first half of 2009, the Company made capital expenditures of
approximately $111,000 related primarily to new information technology equipment
and upgrades and a new heating and air system at one of our bank locations.  The
Company also makes other capital expenditures in 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.



                                       31
<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
September  30,  2009,  the  Banks had  issued  commitments  to extend  credit of
$75,833,000  through various types of  arrangements.  The commitments  generally
expire within 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  $2,679,000 at
September 30, 2009. 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.

         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.




                                       32
<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 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 September 30, 2009:


                                 CAPITAL RATIOS
                             (Dollars 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 ........    $    57,667    14.03%           N/A      N/A     $   32,882     8.00%
Tier 1 Risk-based Capital .......         52,508    12.78            N/A      N/A         16,434     4.00
Leverage Ratio ..................         52,508     9.65            N/A      N/A         21,765     4.00

The Peoples National Bank:
Total Risk-based Capital ........    $    35,135    13.18%    $   26,658    10.00%    $   21,326     8.00%
Tier 1 Risk-based Capital .......         31,781    12.92         14,759     6.00          9,839     4.00
Leverage Ratio ..................         31,781     9.44         16,833     5.00         13,467     4.00

Bank of Anderson,
N. A.(1):
Total Risk-based Capital ........    $    13,856    15.67%           N/A      N/A     $   10,611    12.00%
Tier 1 Risk-based Capital .......         12,749    14.42            N/A      N/A          8,841    10.00
Leverage Ratio ..................         12,749     9.66            N/A      N/A         10,558     8.00

Seneca National Bank:
Total Risk-based Capital ........    $     7,092    12.79%    $    5,545    10.00%    $    4,436     8.00%
Tier 1 Risk-based Capital .......          6,394    11.53          3,327     6.00          2,218     4.00
Leverage Ratio ..................          6,394     8.81          3,629     5.00          2,903     4.00
</TABLE>


(1)  Minimum  ratios have been revised to reflect  minimum  required  regulatory
     ratios for this bank as  required by the OCC.  Currently,  the OCC does not
     consider this bank well capitalized despite its actual capital ratios.

     Pursuant to the  requirements of the South Carolina  Business  Corporations
Act, the Company made an estimated  fair value  payment of $243,000  relating to
67,636  shares of common stock to  shareholders  who perfected  their  statutory


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<PAGE>

dissenters' rights in connection with the amendment to the Company's Articles of
Incorporation  to authorize the issuance of preferred  stock.  The  shareholders
have asserted that the fair value is greater than the amount paid by the Company
and, unless an agreement is reached as to the fair value, the additional  amount
due, if any, will be determined in a court of law.



























                                       34
<PAGE>


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 September 30, 2009
the Company was positioned so that net interest  income would increase  $566,000
over 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 $618,000 over the next twelve months if interest rates were to gradually
decline by 100 basis points over the same  period.  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.

         Additionally,  each  of the  Company's  banking  subsidiaries  measures
anticipated  changes  in its  theoretical  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.



                                       35
<PAGE>

         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.









                                       36
<PAGE>


Item 4T.          CONTROLS AND PROCEDURES

Disclosure 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.

Changes in Internal Control over Financial Reporting

         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.






                                       37
<PAGE>


PART II.  OTHER INFORMATION

Item 6.       Exhibits

              Exhibits.

               10.1 Extensions of Employment Agreements with William B. West and
                    L. Andrew Westbrook, III (Incorporated by reference to Forms
                    8-K filed July 27, 2009 and September 4, 2008)

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

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

               32   Section 1350 Certifications




                                       38
<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:  November 13, 2009                   By:    /s/ R. Riggie Ridgeway
                                                 ------------------------
                                                   R. Riggie Ridgeway
                                                   Chief Executive Officer


Dated:  November 13, 2009                   By:   /s/ Robert E. Dye, Jr.
                                                ------------------------
                                                   Robert E. Dye, Jr.
                                                   Senior Vice President and CFO
                                                   (principal financial officer)





                                       39
<PAGE>





                                  Exhibit Index

Exhibit No.              Description of Exhibit

      10.1      Extensions of Employment Agreements with William B. West and
                L. Andrew Westbrook, III (Incorporated by reference to Forms 8-K
                filed July 27, 2009 and September 4, 2008)
      31.1      Rule 13a-14(a) / 15d-14(a) Certifications
      31.2      Rule 13a-14(a) / 15d-14(a) Certifications
      32        Section 1350 Certifications









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