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, 2008                    000-20616

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

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

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

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

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

                             Yes [X]    No  [ ]

   Indicate by check mark whether the registrant is a large accelerated filer,
 an accelerated filer, 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, 2008 was 7,070,139.




<PAGE>


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements


         Peoples Bancorporation, Inc. and Subsidiaries
                  Consolidated Balance Sheets
         (Dollars in thousands except per share data)
<TABLE>
<CAPTION>
                                                                                        September 30,  September 30,   December 31,
                                                                                            2008           2007            2007
                                                                                          Unaudited      Unaudited        Audited
ASSETS
<S>                                                                                     <C>             <C>             <C>
CASH AND DUE FROM BANKS .............................................................   $  12,555       $  10,679       $   8,618
INTEREST-BEARING DEPOSITS IN OTHER BANKS ............................................           -             466             643
FEDERAL FUNDS SOLD ..................................................................      10,650           3,439           1,263
                                                                                        ---------       ---------       ---------
     Total cash and cash equivalents ................................................      23,205          14,584          10,524
SECURITIES
     Trading ........................................................................         192               -               -
     Available for sale .............................................................      75,665          80,397          84,796
     Held to maturity (market value of $12,647, $13,142
         and $13,113) ...............................................................      12,656          13,121          13,102
     Other investments, at cost .....................................................       3,507           3,344           4,795
LOANS-less allowance for loan losses of $7,636, $3,994 and $4,310 ...................     399,692         396,483         414,688
PREMISES AND EQUIPMENT, net of accumulated
     depreciation and amortization ..................................................      13,466          12,432          13,757
ACCRUED INTEREST RECEIVABLE .........................................................       2,861           3,149           3,321
OTHE REAL ESTATE OWNED ..............................................................       2,038             712           1,023
CASH SURRENDER VALUE OF LIFE INSURANCE ..............................................      11,690          11,242          11,350
OTHER ASSETS ........................................................................       5,851           1,709           1,087
                                                                                        ---------       ---------       ---------
         TOTAL ASSETS ...............................................................   $ 550,823       $ 537,173       $ 558,443
                                                                                        =========       =========       =========

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
DEPOSITS
     Noninterest-bearing ............................................................   $  44,750       $  51,146       $  53,950
     Interest-bearing ...............................................................     398,772         373,621         363,671
                                                                                        ---------       ---------       ---------
         Total deposits .............................................................     443,522         424,767         417,621

SECURITIES SOLD UNDER REPURCHASE AGREEMENTS .........................................      25,475          22,479          19,824
FEDERAL FUNDS PURCHASED .............................................................           -             358             429
NOTES PAYABLE TO FEDERAL HOME LOAN BANK .............................................      34,000          36,000          65,100
ACCRUED INTEREST PAYABLE ............................................................       2,554           4,070           4,465
OTHER LIABILITIES ...................................................................       1,768             574             763
                                                                                        ---------       ---------       ---------
         Total Liabilities ..........................................................     507,319         488,248         508,202
                                                                                        ---------       ---------       ---------
SHAREHOLDERS' EQUITY
Common  stock - 15,000,000 shares authorized, $1.11
       Par value per share, 7,065,263 shares, 7,056,919 shares
       and 7,056,337 shares outstanding, respectively ...............................       7,843           7,833           7,833
Additional paid-in capital ..........................................................      41,712          38,943          41,624
Retained earnings (deficit) .........................................................      (6,666)          2,302               -
Accumulated other comprehensive income (loss) .......................................         615            (153)            784
                                                                                        ---------       ---------       ---------
         Total Shareholders' Equity .................................................      43,504          48,925          50,241
                                                                                        ---------       ---------       ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..........................................   $ 550,823       $ 537,173       $ 558,443
                                                                                        =========       =========       =========
</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,
                                                                               -------------                     -------------
                                                                          2008              2007             2008             2007
                                                                          ----              ----             ----             ----
INTEREST INCOME
<S>                                                                    <C>              <C>             <C>              <C>
   Interest and fees on loans ....................................     $     6,742      $     8,042     $    21,198      $    23,001
   Interest on securities
       Taxable ...................................................             716              752           2,315            2,204
       Tax-exempt ................................................             373              356           1,113            1,059
   Interest on federal funds .....................................              17               43              49              105
                                                                       -----------      -----------     -----------      -----------
Total interest income ............................................           7,848            9,193          24,675           26,369
                                                                       -----------      -----------     -----------      -----------
INTEREST EXPENSE
   Interest on deposits ..........................................           3,173            3,753          10,041           10,542
   Interest on federal funds purchased and securities
       sold under repurchase agreements ..........................              94              134             299              336
    Interest on notes payable Federal Home Loan Bank .............             350              523           1,477            1,223
                                                                       -----------      -----------     -----------      -----------
Total interest expense ...........................................           3,617            4,410          11,817           12,101
                                                                       -----------      -----------     -----------      -----------
Net interest income ..............................................           4,231            4,783          12,858           14,268
PROVISION FOR LOAN LOSSES ........................................           6,475              150           8,885              450
                                                                       -----------      -----------     -----------      -----------
Net interest income after provision for loan losses ..............          (2,244)           4,633           3,973           13,818
                                                                       -----------      -----------     -----------      -----------
NON-INTEREST INCOME
    Service charges on deposit accounts ..........................             492              467           1,409            1,338
    Customer service fees ........................................              27               23             106               95
    Mortgage banking .............................................              79              110             303              352
    Brokerage services ...........................................              41               64             158              147
    Bank owned life insurance ....................................             142              119             391              353
    Loss on sale of  available-for-sale securities ...............             (50)               -             (48)               -
    Gain (loss) on sale of assets acquired in settlement of loans.             (10)               9             (63)              16
    OTTI Write-Down on FHLMC Preferred Stock .....................          (2,890)               -          (2,890)               -
    Other noninterest income .....................................             165              133             485              567
                                                                       -----------      -----------     -----------      -----------
              Total noninterest income ...........................          (2,004)             925            (149)           2,868
                                                                       -----------      -----------     -----------      -----------
NON-INTEREST EXPENSES
   Salaries and benefits .........................................           2,452            2,335           7,234            6,971
   Occupancy .....................................................             247              216             720              632
   Equipment .....................................................             341              349           1,023              991
   Marketing and advertising .....................................              95              100             339              316
   Communications ................................................              67               61             197              183
   Printing and supplies .........................................              42               43             144              138
   Bank paid loan costs ..........................................             109               45             335              138
   Director fees .................................................             110              112             338              330
   ATM/Debit card expenses .......................................              99               98             274              261
   Legal and professional fees ...................................             162              105             386              279
   Regulatory assessments ........................................             124               78             310              187
   Other post employment benefits ................................              83               65             258              194
   Other operating expenses ......................................             388              346           1,112            1,063
                                                                       -----------      -----------     -----------      -----------
             Total noninterest expenses ..........................           4,319            3,953          12,670           11,683
                                                                       -----------      -----------     -----------      -----------
   Income (loss)  before income taxes ............................          (8,567)           1,605          (8,846)           5,003

PROVISION FOR INCOME TAXES (BENEFIT) .............................          (3,038)             424          (3,367)           1,353
                                                                       -----------      -----------     -----------      -----------
   Net income (loss) .............................................     $    (5,529)     $     1,181     $    (5,479)     $     3,650
                                                                       ===========      ===========     ===========      ===========
INCOME PER COMMON SHARE *
   BASIC .........................................................     $     (0.78)     $      0.16     $     (0.77)     $      0.52
                                                                       ===========      ===========     ===========      ===========
   DILUTED .......................................................     $     (0.78)     $      0.16     $     (0.77)     $      0.52
                                                                       ===========      ===========     ===========      ===========
WEIGHTED AVERAGE COMMON SHARES*
   BASIC .........................................................       7,062,827        7,055,759       7,059,577        7,046,153
                                                                       ===========      ===========     ===========      ===========
   DILUTED .......................................................       7,062,827        7,058,568       7,059,577        7,050,166
                                                                       ===========      ===========     ===========      ===========
CASH DIVIDENDS PAID PER COMMON SHARE .............................     $      0.05      $      0.05     $      0.15      $      0.15
                                                                       ===========      ===========     ===========      ===========
</TABLE>

* 2007 amounts restated for 5% stock dividend declared in December, 2007.

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, 2007 and 2008
                             (Dollars in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                                          Common stock          Additional    Retained      other           Total
                                                          ------------           paid-in      Earnings  comprehensive  shareholders'
                                                      Shares         Amount      capital      (deficit) income (loss)     equity
                                                      ------         ------      -------      -----------------------     ------
<S>                                                  <C>          <C>          <C>           <C>           <C>           <C>
Balance, December 31, 2006 ......................    6,999,897    $    7,773   $   38,614    $     (341)   $       18    $   46,064
                                                                                                                         ----------
Net income ......................................            -                          -         3,650             -         3,650
Other comprehensive income, net of tax:
   Unrealized holding losses on
     securities available for sale,
     net of income tax (benefit) of ($79) .......            -             -            -             -          (171)         (171)
                                                                                                                         ----------
Comprehensive income ............................                                                                             3,479
Cash dividends ..................................            -             -            -        (1,007)            -        (1,007)
Proceeds from stock options
     exercised ..................................       57,022            60          144             -             -           204
Tax benefit of stock options ....................            -             -          119             -             -           119
Stock-based compensation ........................            -             -           66             -             -            66
                                                    ----------    ----------   ----------    ----------    ----------    ----------
Balance, September 30, 2007 .....................    7,056,919    $    7,833   $   38,943    $    2,302    $     (153)   $   48,925
                                                    ==========    ==========   ==========    ==========    ==========    ==========


Balance, December 31, 2007 ......................    7,056,337    $    7,833   $   41,624    $        -    $      784    $   50,241
                                                                                                                         ----------
Net income (loss) ...............................            -             -                     (5,479)            -        (5,479)
Other comprehensive income, net of tax:
   Unrealized holding losses on
     securities available for sale,
     net of income tax (benefit) of $(87) .......            -             -            -             -          (121)         (121)
    Reclassification adjustment
     for gains included in net
     income, net of income taxes of $16 .........            -             -            -             -           (48)          (48)
                                                                                                                         ----------
Comprehensive income (loss) .....................                                                                            (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
                                                    ==========    ==========   ==========    ==========    ==========    ==========
</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)

<TABLE>
<CAPTION>
                                                                                                                 (Unaudited)
                                                                                                              Nine months Ended
                                                                                                                September 30,
                                                                                                                -------------
                                                                                                          2008                 2007
                                                                                                          ----                 ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                                    <C>                 <C>
   Net income (loss) .......................................................................           $ (5,479)           $  3,650
   Adjustments to reconcile net income (loss) to net cash provided
     by (used in) operating activities:
   Gain on sale of premises and equipment ..................................................                 (7)               (177)
   Loss on sale of securities available for sale ...........................................                 48                   -
   Loss (gain) on sale of assets acquired in settlement of loans ...........................                 63                  (7)
   Other than temporary impairment write-down on FHLMC stock ...............................              2,890                   -
   Provision for loan losses ...............................................................              8,885                 450
   Benefit from deferred income taxes ......................................................                  -                (253)
   Depreciation and amortization ...........................................................                851                 810
   Amortization and accretion (net) of premiums and
     discounts on securities ...............................................................                 13                  43
   Stock-based compensation ................................................................                 53                  66
   Postretirement cost of insurance for split-dollar life
       Insurance coverage ..................................................................               (128)                  -
   Decrease (increase) in accrued interest receivable ......................................                460                (106)
   Increase in other assets ................................................................             (8,525)               (385)
   Increase (decrease) in accrued interest payable .........................................             (1,911)              1,144
   Decrease in other liabilities ...........................................................              1,005                (837)
                                                                                                       --------            --------
     Net cash provided by (used in) operating activities ...................................             (1,782)              4,398
                                                                                                       --------            --------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of securities held to maturity ................................................               (444)                  -
   Purchases of securities available for sale ..............................................             (8,033)             (9,171)
   Sales of other investments ..............................................................              1,288                 939
   Proceeds from principal pay-downs on securities available for sale ......................              6,075               5,621
   Proceeds from the maturities and calls of securities available for sale .................              2,750               4,600
   Proceeds from the sale of securities available for sale .................................              4,965                   -
   Proceeds from the maturity of securities held to maturity ...............................                865                 315
   Investment in bank owned life insurance .... ............................................               (340)               (308)
   Proceeds from the sale of other real estate owned .......................................                908                 112
   Net (increase) decrease in loans ........................................................              7,973             (42,922)
   Proceeds from the sale of premises and equipment ........................................                 97                 510
   Purchase of premises and equipment ......................................................               (650)             (2,458)
                                                                                                       --------            --------
     Net cash provided by (used in) investing activities ...................................             15,454             (42,762)
                                                                                                       --------            --------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in deposits ................................................................             25,901              39,722
   Net increase in securities sold under repurchase agreements .............................              5,651               4,111
   Net increase (decrease) in federal funds purchased ......................................               (429)                358
   Net decrease in notes payable to Federal Home Loan Bank .................................            (31,100)            (14,000)
   Proceeds from the exercise of stock options .............................................                 45                 204
   Tax benefit of stock options exercised ..................................................                  -                 119
   Cash dividend ...........................................................................             (1,059)             (1,007)
                                                                                                       --------            --------
     Net cash provided by (used in) financing activities ...................................               (991)             29,507
                                                                                                       --------            --------
     Net increase (decrease) in cash and cash equivalents ..................................             12,681              (8,857)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .............................................             10,524              23,441
                                                                                                       --------            --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................................................           $ 23,205            $ 14,584
                                                                                                       ========            ========

CASH PAID FOR
     Interest ..............................................................................           $ 13,727            $ 10,957
                                                                                                       ========            ========
     Income Taxes ..........................................................................           $    126            $  1,082
                                                                                                       ========            ========
</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 2007 Annual Report on Form
10-K and incorporated herein by reference.

STATEMENT OF CASH FLOWS

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

COMMON STOCK

     The Board of Directors  declared a cash  dividend of $0.05 per common share
to  shareholders of record March 14, 2008, June 16, 2008 and September 16, 2008,
payable March 28, 2008, June 30, 2008 and September 30, 2008, respectively.

EARNINGS PER SHARE

     Statement of Financial  Account  Standards  ("SFAS") No. 128,  Earnings per
Share requires that the Company  present basic and diluted net income per common
share.  The assumed  conversion of stock options creates the difference  between
basic and  diluted  net  income per share.  Income  per share is  calculated  by
dividing net income by the weighted average number of common shares  outstanding
for each  period  presented.  The  weighted  average  number  of  common  shares
outstanding  for basic net  income per common  share for the nine  months  ended
September  30, 2008 and 2007 was  7,059,577  and  7,046,153,  respectively.  The
weighted average number of common shares  outstanding for diluted net income per
common share was 7,059,577 and 7,050,166 for the nine months ended September 30,
2008 and 2007. Weighted average shares in 2007 have been restated to reflect the
5% stock dividend declared in December 2007.

STOCK-BASED COMPENSATION

     The Company has four stock option plans, the "1993 Employee Incentive Stock
Option  Plan," the "1997  Non-Employee  Directors  Stock Option Plan," the "2004
Stock Option Plan" and the "2007 Non-Employee  Directors Stock Option Plan." The
"1993  Employee  Incentive  Stock Option Plan"  expired in 2003,  but options to
purchase 21,163 shares remain  outstanding and exercisable  under this plan. The
"1997 Non-Employee  Directors Stock Option Plan" expired in 2007, but options to
purchase 44,628 shares remain outstanding and exercisable under this plan. Under
the "2004  Stock  Option  Plan,"  the Board of  Directors  may grant  options to
officers  and  employees  to purchase  common stock of the Company at prices not
less than 100  percent of the fair value of the stock on the date of grant.  The
outstanding  options become exercisable in various  increments  beginning on the
date of grant and expire  not more than ten years from the date of grant.  Under


                                       5
<PAGE>

the "2007  Non-Employee  Directors  Stock Option Plan," upon  adjournment of the
Company's  annual meeting of shareholders  each year, each person who has served
as a  non-employee  director  of  the  Company  or  one  the  Banks  during  the
immediately  preceding year is granted  options to purchase 500 shares of common
stock up to a maximum  of 5,000 per  director  in the  aggregate  under both the
"2007  Non-Employee  Directors  Stock  Option  Plan" and the "1997  Non-Employee
Directors  Stock  Option  Plan." The  exercise  price shall not be less than 100
percent  of the fair  value of the  stock on the  grant  date.  The  outstanding
options  become  exercisable on the grant date and expire at the earliest of one
year after the director's death or permanent and total disability, 90 days after
the  director  ceases  to be a  director  for any  reason  other  than  death or
permanent  and total  disability  or ten years from the grant date. At September
30, 2008, an aggregate of 377,150  shares were reserved for issuance on exercise
of options under all four of these plans.  During the first nine months of 2008,
options to purchase 16,000 shares were granted with a weighted  average exercise
price of $6.92  per  share.  The  following  is a summary  of the  status of the
Company's  plans as of  September  30, 2008 and  changes  during the nine months
ended September 30, 2008.


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

Outstanding, December 31, 2007 ....................    168,749        $10.29
Granted ...........................................     16,000        $ 6.92
Exercised .........................................     (9,739)       $ 5.34
Forfeited .........................................    (21,246)       $ 9.85
                                                                      ------
Outstanding, September 30, 2008 ...................    153,764        $10.32
                                                       =======        ======

Options Exercisable, September 30, 2008 ...........    120,626
                                                       =======


 INCOME TAXES

         The provision  for income taxes  includes  deferred  taxes on temporary
differences  between the recognition of certain income and expense items for tax
and  financial  statement  purposes.  Income taxes are computed on the liability
method as described in SFAS No 109, Accounting for Income Taxes.

         As of January 1, 2007,  the  Company  adopted  the  provisions  of FASB
Interpretation  No.  48,  Accounting  for  Uncertainty  in  Income  Taxes  -  an
interpretation of FASB Statement No. 109 ("FIN 48"), which provides criteria for
the  recognition,  measurement,  presentation  and  disclosure  of uncertain tax
positions.  The Company has analyzed the tax  positions  expected to be taken in
its tax returns and  concluded  it has no  liability  related to  uncertain  tax
positions in accordance with FIN 48.



                                       6
<PAGE>

         The Company's  policy is to record  interest and  penalties  related to
income tax matters as income tax expense.  Accrued  interest and penalties  were
immaterial as of September 30, 2008.


POSTRETIRMENT SPLIT-DOLLAR LIFE INSURANCE

         In September  2006,  The FASB ratified the  consensuses  reached by the
FASB's Emerging Issues Task Force ("EITF") relating to EITF 06-4, Accounting for
the Deferred  Compensation  and  Postretirement  Benefit  Aspects of Endorsement
Split-Dollar Life Insurance Arrangements ("EITF 06-4"). The consensus stipulates
that an  agreement  by an employer to share a portion of the  proceeds of a life
insurance  policy  with  an  employee  during  the  postretirement  period  is a
postretirement  benefit arrangement  required to be accounted for under SFAS No.
106 or Accounting  Opinion ("APB") No. 12, Omnibus Opinion - 1967. The consensus
concludes  that the purchase of a split-dollar  life  insurance  policy does not
constitute a settlement under SFAS No. 106 and,  therefore,  a liability for the
postretirement  obligation must be recognized  under SFAS No. 106 if the benefit
is offered under an arrangement  that  constitutes a plan or under APB No. 12 if
it is not part of a plan.  Issue  06-04  is  effective  for  annual  or  interim
reporting periods beginning after December 15, 2007.

            In March 2007,  the EITF reached a final  conclusion on Issue 06-10,
Accounting for Collateral Assignment  Split-Dollar Life Insurance  Arrangements.
The  consensus   concludes   that  a  liability   must  be  recognized  for  the
postretirement  obligation related to a collateral assignment  split-dollar life
insurance  arrangement in accordance  with SFAS No. 106 or APB No. 12. Any asset
should be  recognized  and  measured  based on the nature and  substance  of the
collateral  assignment  split-dollar life insurance  arrangement.  The effective
date of EITF 06-10 is for fiscal years beginning after December 15, 2007.

            The  adoption  of EITF 06-4 and 06-10 by the  Company  on January 1,
2008 resulted in a $128,000 decrease to the Company's retained earnings.


MANAGEMENT'S OPINION

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


                                       7
<PAGE>

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
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;


                                       8
<PAGE>

          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.
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 2007 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


                                       9
<PAGE>

judgment  involved in determining  the amount of the Allowance.  The Company has
developed  policies and  procedures for assessing the adequacy of the Allowance,
recognizing  that this process  requires a number of  assumptions  and estimates
with respect to its loan portfolio. The Company's assessments may be impacted in
future  periods by  changes in  economic  conditions,  the impact of  regulatory
examinations,  and the discovery of information with respect to borrowers, which
is not  known to  management  at the time of the  issuance  of the  consolidated
financial statements. Refer to the discussion under 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   2007   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.




                                       10
<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  2007 Annual Report on Form 10-K.  Results of operations  for the
three-month and nine-month  periods ended September 30, 2008 are not necessarily
indicative of the results to be attained for any other period.

Overview

         The  Company  has 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.





                                       11
<PAGE>


                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EARNINGS PERFORMANCE

Overview

         The  consolidated  Company's net loss for the third quarter of 2008 was
$(5,529,000)  or $(0.78) per diluted share  compared to net income of $1,181,000
or $0.16  per  diluted  share for the  third  quarter  of 2007,  a  decrease  of
$6,710,000 or 568.2%.  Net loss for the nine months ended September 30, 2008 was
$(5,479,000)  or $(0.77) per diluted share  compared to net income of $3,650,000
or $0.52 per diluted  share for the nine months  ended  September  30,  2007,  a
decrease of $9,129,000  or 250.1%  Return on average  equity for the nine months
and  three   months  ended   September   30,  2008  was  (14.96)%  and  (46.38)%
respectively, compared to 10.23% and 9.64% respectively, for the nine months and
three months ended September 30, 2007. Return on average assets for the nine and
three  months  ended  September  30, 2008 was (1.31)% and (3.97)%  respectively,
compared to 0.96% and 0.89%  respectively,  for the nine months and three months
ended  September 30, 2007.  The  decreases in the Company's net income,  diluted
earnings per share, return on average equity and return on average assets in the
first nine months of 2008 are largely  attributable to increased  provisions for
loan  losses,  and the  other  than  temporary  impairment  write-down  on FHLMC
preferred stock discussed under "Balance Sheet Review - Securities."

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  decreased  $552,000,  or 11.5%,  to $4,231,000 in the quarter ended
September 30, 2008 compared to  $4,783,000  for the quarter ended  September 30,
2007.  For the nine months ended  September 30, 2008 net interest  income before
provision for loan losses decreased  $1,410,000 or 9.9% to $12,858,000  compared
to $14,268,000  for the nine months ended  September 30, 2007. The Company's net
interest  margin for the three months and nine months ended  September  30, 2008
was  3.26%  and 3.30%  respectively,  compared  to 3.81% and 4.00% for the three
months and nine months ended  September 30, 2007.  The decrease in the Company's
net interest  income and its net interest margin is largely due to a decrease in
market  interest  rates,  which  lowered  yields on loans  more than it  lowered
funding  costs  of  interest   bearing   liabilities.   The  decrease  was  also
attributable   to  lower  fees  on  loans  and  an  increase  in  the  Company's
non-performing assets.

         The Company's  total interest  income for the third quarter of 2008 was
$7,848,000  compared to $9,193,000  for the third quarter of 2007, a decrease of
$1,345,000,  or 14.6%. Total interest income for the nine months ended September
30, 2008 was  $24,675,000  compared  to  $26,369,000  for the nine months  ended


                                       12
<PAGE>

September  30,  2007,  a decrease of  $1,694,000  or 6.4%.  Interest and fees on
loans, the largest component of total interest income,  decreased  $1,300,000 in
the third  quarter of 2008 to $6,742,000  compared to  $8,042,000  for the third
quarter  of 2007,  a decrease  of 16.2%.  Interest  and fees on loans  decreased
$1,803,000 for the nine months ended September 30, 2008 to $21,198,000  compared
to $23,001,000 for the nine months ended September 30, 2007, a decrease of 7.8%.
The decreases in interest and fees on loans for the  three-month  and nine-month
periods   were  due  to  lower  market   interest   rates  and  an  increase  in
non-performing  assets,  partially  offset by higher  outstanding loan balances.
Interest on taxable  securities,  the second largest component of total interest
income,  decreased  $36,000 in the third quarter of 2008 to $716,000 compared to
$752,000 for the third quarter of 2007, a decrease of 4.8%.  Interest on taxable
securities  increased  $111,000 for the nine months ended  September 30, 2008 to
$2,315,000  compared to $2,204,000 for the nine months ended September 30, 2007,
an increase of 5.0%.

         The Company's total interest  expense for the third quarter of 2008 was
$3,617,000  compared to $4,410,000  for the third quarter of 2007, a decrease of
$793,000,  or 18.0%.  Total interest expense for the nine months ended September
30, 2008 was  $11,817,000,  compared to  $12,101,000  for the nine months  ended
September  30,  2007,  a  decrease  of  $284,000  or 2.3%.  Interest  expense on
deposits, the largest component of total interest expense, decreased by $580,000
in the third quarter of 2008 to $3,173,000  compared to $3,753,000 for the third
quarter of 2007, a decrease of 15.5%.  Interest on deposits  decreased  $501,000
for the  nine  months  ended  September  30,  2008 to  $10,041,000  compared  to
$10,542,000  for the nine months ended  September  30, 2007, a decrease of 4.8%.
The decrease in interest  expense on deposits is largely  attributable  to lower
interest  rates paid on these  accounts,  partially  offset by higher  balances.
Interest on notes payable to the Federal Home Loan Bank of Atlanta ("FHLB"), the
second largest component of total interest expense,  decreased $173,000 or 33.1%
to $350,000 for the three months ended  September  30, 2008 compared to $523,000
for the  three  months  ended  September  30,  2007.  The  decrease  is  largely
attributable  to lower  interest  rates,  partially  offset  by  higher  average
balances  on these  accounts.  Interest on notes  payable to the FHLB  increased
$254,000 or 20.8% to $1,477,000  for the first nine months of 2008,  compared to
$1,223,000  for  the  first  nine  months  of  2007.  The  increase  is  largely
attributable to higher average  balances in these accounts,  partially offset by
lower interest  rates.  Interest on federal funds  purchased and securities sold
under  repurchase  agreements,  the third  largest  component of total  interest
expense,  decreased  $40,000 or 30.0% to  $94,000  in the third  quarter of 2008
compared to $134,000 for the third  quarter of 2007.  Interest on federal  funds
purchased and securities sold under repurchase  agreements  decreased $37,000 or
11.0% to $299,000 in the first nine months of 2008  compared to $336,000 for the
same period in 2007. The decrease in interest expense on federal funds purchased
and securities sold under repurchase agreements is largely attributable to lower
interest rates paid on these accounts.

Provision for Loan Losses

         The  provision for loan losses  charged to operations  during the three
months  ended  September  30, 2008 was  $6,475,000  compared to $150,000 for the


                                       13
<PAGE>

three months ended  September  30, 2007,  an increase of $6,325,000 or 4,416.7%.
The  provision for loan losses  charged to operations  for the nine months ended
September 30, 2008 increased  $8,435,000 or 1,874.4% to $8,885,000,  compared to
$450,000 for the nine months ended  September  30,  2007.  The  increases in the
Company's  provision for loan losses for the three-month and nine-month  periods
of 2008 are due to a substantial  deterioration  of credit quality in the Banks'
loan  portfolios.  These estimates are based on  management's  evaluation of the
Company's overall credit quality and its estimate of loan losses inherent in the
loan portfolio and are reflective of the current  economic  environment in which
the banks operate. See "BALANCE SHEET REVIEW - Allowance for Loan Losses."

Non-interest Income

         Non-interest income decreased  $2,929,000 or 316.6% to $(2,004,000) for
the third  quarter of 2008  compared to $925,000 for the third  quarter of 2007.
Non-interest  income decreased  $3,017,000 or 105.2% to $(149,000) for the first
nine months of 2008  compared to  $2,868,000  for the first nine months of 2007.
The substantial  decrease in non-interest income is primarily  attributable to a
$2,890,000  other-than-temporary  impairment  write-down on the Company's  FHLMC
Preferred Stock, which was recorded in the third quarter of 2008. The impairment
came as the direct  result of FHLMC,  also known as "Freddie  Mac," being forced
into conservatorship by the United States Treasury in September 2008. There were
no similar write-downs during 2007.

         Service fees on deposit accounts, the largest component of non-interest
income,  increased  $25,000 or 5.3% to  $492,000  for the third  quarter of 2008
compared  to $467,000  for the third  quarter of 2007.  Service  fees on deposit
accounts  increased  $71,000 or 5.3% to $1,409,000  for the first nine months of
2008 compared to $1,338,000 for the first nine months of 2007.

         Bank  owned life  insurance  income  increased  $23,000 or 19.3% in the
third quarter of 2008 to $142,000  compared to $119,000 for the third quarter of
2007,  and  increased  $38,000 or 10.8% to  $391,000 in the first nine months of
2008 compared to $353,000 in the first nine months of 2007. The increase in bank
owned life insurance  income is  attributable to higher growth rates on the cash
surrender values of these policies.

         Mortgage  banking income  decreased  $31,000 or 28.2% to $79,000 in the
third quarter for 2008  compared to $110,000 in the third  quarter of 2007,  and
decreased $49,000 or 13.9% in the first nine months of 2008 to $303,000 compared
to $352,000 for the first nine months of 2007.  These decreases in the levels of
mortgage  banking income are largely due to the decline in residential  mortgage
loan  originations  at the Banks as a result of  weaknesses  in the real  estate
markets.

         Brokerage service income decreased from $64,000 in the third quarter of
2007 to $41,000 in the third  quarter of 2008,  a decrease  of $23,000 or 35.9%,
due to slower retail activity.  Broker service income increased  $11,000 or 7.5%
to $158,000  in the first nine months of 2008  compared to $147,000 in the first


                                       14
<PAGE>

nine months of 2007, somewhat  attributable to a temporary disruption of service
in the first  quarter  of 2007  that  resulted  from a change  in  broker-dealer
affiliation.

         Customer service fees increased $4,000 or 17.4% to $27,000 in the third
quarter of 2008 compared to $23,000 in the third quarter of 2007,  and increased
$11,000  or 11.6% in the first  nine  months  of 2008 to  $106,000  compared  to
$95,000 for the same period of 2007. These increases are largely attributable to
the increase in certain fees charged for deposit services  effective December 1,
2007.

         Other  non-interest  income  increased  $32,000 or 24.1% from  $133,000
during the third quarter of 2007 to $165,000 for the third quarter of 2008,  due
primarily to an increase in interchange income of $27,000 or 24.8% from $109,000
during the third quarter of 2007 to $136,000 in the third quarter of 2008. Other
non-interest  income decreased $82,000 or 14.5% in the first nine months of 2008
to $485,000 compared to $567,000 in the first nine months of 2007. This decrease
is largely  attributable to a $169,000 gain on the sale of a portion of a parcel
of land that was realized during the first quarter of 2007.

         There was a loss of $10,000 in the third quarter of 2008 on the sale of
assets  acquired in  settlement of loans and a loss of $63,000 in the first nine
months  of 2008.  This  compares  to a $9,000  gain on the sale of assets in the
third quarter of 2007, and a gain of $16,000 in the first nine months of 2007.

         The Company recorded a $48,000 loss on the sale of securities available
for sale in the first  nine  months  of 2008 and a  $50,000  loss on the sale of
securities  available for sale in the third quarter of 2008. There were no gains
or losses realized on the sale of securities available for sale during the first
nine months or the third quarter of 2007.

Non-interest Expense

         Total non-interest  expense increased $365,000,  or 9.2%, to $4,318,000
for the third  quarter of 2008 from  $3,953,000  for the third  quarter of 2007.
Total non-interest  expense increased $986,000,  or 8.4%, to $12,669,000 for the
first nine  months of 2008 from  $11,683,000  for the first nine months of 2007.
Salaries and benefits, the largest component of non-interest expense,  increased
$117,000,  or 5.0%, to $2,452,000 for the third quarter of 2008 from  $2,335,000
for the third  quarter of 2007.  Salaries and benefits  increased  $263,000,  or
3.8%, to $7,234,000  for the first nine months of 2008 from  $6,971,000  for the
first nine months of 2007.

         Occupancy and furniture and equipment expenses  increased  $23,000,  or
4.1%, to $588,000 in the third quarter of 2008 compared to $565,000 in the third
quarter of 2007.  Occupancy  and  furniture  and  equipment  expenses  increased
$120,000,  or 7.4%,  to  $1,743,000 in the first nine months of 2008 compared to
$1,623,000 in the first nine months of 2007.  The increase is largely due to the
opening of two new full-service banking facilities in the fourth quarter of 2007
by The Peoples National Bank.



                                       15
<PAGE>

         Marketing  and  advertising  expense  decreased  $5,000  or  5.0%  from
$100,000 in the third quarter of 2007 to $95,000 during the same period in 2008,
and  increased  $23,000 or 7.3% to  $339,000  for the first nine  months of 2008
compared  to  $316,000  for the  first  nine  months of 2007,  primarily  due to
advertising  for  the two new  offices  of The  Peoples  National  Bank  and the
introduction of a new checking account product.

         Bank paid loan costs  increased  $64,000 or 142.2% to  $109,000  in the
third quarter of 2008  compared to $45,000 in the third quarter 2007.  Bank paid
loan costs increased $197,000 or 142.8% to $335,000 for the first nine months of
2008 compared to $138,000 for the first nine months of 2007.  Of this  increase,
$81,000 is associated  with the  repossession  of collateral  for defaulted real
estate loans,  and $77,000 of this increase is attributable to the write-down to
its current market value of an asset acquired in settlement of a loan.

         Legal and professional  fees increased $57,000 or 54.3% to $162,000 for
the third  quarter of 2008  compared to $105,000 for the third  quarter of 2007.
Legal and  professional  fees increased  $107,000 or 38.4% from $279,000 for the
first nine  months of 2007 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.

         Regulatory  assessments increased $46,000 or 59.0% from $78,000 for the
third  quarter of 2007 to  $124,000  for the third  quarter of 2008.  Regulatory
assessments increased $123,000 or 65.8% to $310,000 for the first nine months of
2008  compared  to  $187,000  for the  first  nine  months  of 2007.  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.  The FDIC  changed its  assessment  calculation  process
effective January 1, 2007. Eligible insured depository institutions were granted
a one-time  assessment  credit.  Of the Company's three Banks,  only The Peoples
National  Bank was granted a one-time  credit of  approximately  $112,000.  This
credit was  exhausted  during the first  quarter  of 2008,  contributing  to the
higher expense going forward.

         Other post-employment  benefits expense increased $18,000 or 27.7% from
$65,000 in the third quarter of 2007 to $83,000  during the same period in 2008,
and  increased  $64,000 or 33.0% to  $258,000  for the first nine months of 2008
compared to  $194,000  for the first nine months of 2007.  These  increases  are
primarily  due to an  increase  in the  cost  of the  Company  CEO's  retirement
package.

         All other operating expenses were $705,000 in the third quarter of 2008
compared to $660,000  for the third  quarter of 2007,  an increase of $45,000 or
6.8%. All other  operating  expenses were $2,064,000 in the first nine months of
2008  compared to  $1,975,000  for the first nine months of 2007, an increase of
$89,000 or 4.5%.


                                       16
<PAGE>

Income Taxes

         The  provision  for income taxes  decreased  $3,462,000  or 816.5% to a
benefit of $(3,038,000) for the third quarter of 2008 compared to a provision of
$424,000 for the third quarter of 2007. The provision for income taxes decreased
$4,720,000 or 348.8% to a benefit of  $(3,367,000)  for the first nine months of
2008  compared to a provision of  $1,353,000  for the first nine months of 2007.
The decrease in the provision for income taxes is primarily  attributable to the
decrease  in  income.  The  provision  for  income  taxes  is an  estimate,  and
management  considers several factors in making this estimate  including current
pre-tax  income  levels,  tax-exempt  income,  and a comparison  of prior period
estimates to actual income taxes.


BALANCE SHEET REVIEW

Loans

         Outstanding  loans represent the largest component of earning assets at
80.0% of total earning assets.  As of September 30, 2008, the Company held total
gross loans outstanding of $407,328,000 a decrease of $11,670,000, or 2.9%, from
$418,998,000  in total  gross  loans  outstanding  at  December  31, 2007 and an
increase  of  $6,851,000,  or  1.7%,  from  $400,477,000  in total  gross  loans
outstanding at September 30, 2007.

Loan Portfolio Composition
(Dollars in Thousands)
<TABLE>
<CAPTION>
                                                                                             September 30,              December 31,
                                                                                             -------------              ------------
                                                                                         2008              2007              2007
                                                                                         ----              ----              ----
                                                                                     (Unaudited)                          (Audited)

<S>                                                                                   <C>                <C>                <C>
Commercial and Industrial - not secured by real estate ....................           $ 47,278           $ 44,034           $ 47,885
Commercial and Industrial - secured by real estate ........................            114,002            107,112            107,531
Residential real estate - mortgage ........................................            117,275            103,182            108,161
Residential real estate - construction ....................................            114,974            131,224            138,926
Consumer loans ............................................................             13,799             14,925             16,495
                                                                                      --------           --------           --------
     Gross Loans ..........................................................           $407,328           $400,477           $418,998
                                                                                      ========           ========           ========
</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 nine months and three months
ended September 30, 2008 was 6.73% and 6.47% respectively, compared to 8.17% and
8.13% for the nine months and three months ended September 30, 2007. The Federal
Reserve  decreased  the federal funds target rate by 100 basis points during the
fourth quarter of 2007 and another 250 basis points during the first nine months
of  2008.  A  large  portion  of  the  Company's  adjustable-rate  loans,  which
constitute approximately 38.8% of the loan portfolio, reprice almost immediately
following an interest-rate change by the Federal Reserve.

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



                                       17
<PAGE>

         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 demands for funds fall within each Bank's legal lending
limits and which are potential  deposit customers of the Banks. This category of
loans includes loans made to individuals, partnerships, and corporate borrowers,
which are obtained for a variety of business  purposes.  Particular  emphasis is
placed on loans to small- and medium-sized businesses.  The Company's commercial
loans 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, 2008, approximately $9,385,000, or 19.5%, of commercial
loans were unsecured.

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

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

Allowance for Loan Losses

         The allowance for loan losses at September 30, 2008 was $7,636,000,  or
1.87%  of  loans  outstanding,   compared  to  $4,310,000,  or  1.03%  of  loans
outstanding,  at  December  31,  2007,  and to  $3,994,000,  or  1.00%  of loans
outstanding,  at September 30, 2007. The allowance for loan losses is based upon
management's continuing evaluation of the collectibility of past-due loans based
on the  historical  loan  loss  experience  of  the  Company,  current  economic
conditions affecting the ability of all borrowers to repay, the volume of loans,
the quality of collateral  securing  non-performing and problem loans, and other
factors deserving recognition.

         At  September  30,  2008 the Company had  $16,752,000  in  non-accruing
loans,  $406,000 in restructured  loans, no loans more than ninety days past due
and still accruing  interest,  and  $2,038,000 in Other Real Estate Owned.  This
compares to $7,505,000 in non-accruing loans, $412,000 in restructured loans, no
loans more than ninety days past due and still accruing interest, and $1,023,000
in other real estate  owned at December  31,  2007.  At  September  30, 2007 the
Company had $1,436,000 in non-accruing loans, $416,000 in restructured loans, no


                                       18
<PAGE>

loans more than ninety days past due and still accruing  interest,  and $712,000
in Other Real Estate Owned. The substantial  increase in non-accruing loans from
September 30, 2007 to September  30, 2008 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, 2008  consisted of $15,387,000  in mortgage  loans,  $1,316,000 in
commercial  loans and  $49,000 in  consumer  loans.  Non-performing  assets as a
percentage of loans and other real estate owned were 4.59%,  2.02%, and 0.64% at
September 30, 2008, December 31, 2007 and September 30, 2007, respectively.

         Net  charge-offs  during the nine months ended  September 30, 2008 were
$5,559,000  compared to net  charge-offs of $660,000 for the year ended December
31, 2007 and net charge-offs of $562,000 for the nine months ended September 30,
2007. The allowance for loan losses as a percentage of non-performing  loans was
71%,  54%, and 216% as of September 30, 2008,  December 31, 2007,  and September
30, 2007, 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 continues
to closely monitor the levels of non-performing  and potential problem loans and
will work to address the  weaknesses  in these  credits to enhance the amount of
ultimate  collection or recovery of these assets.  With increases in the overall
level of non-performing  and potential problem loans,  management  increases the
provision  and allowance  for loan losses,  which in turn  decreases net income.
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 provision  for loan losses may be
needed in the future.

         The  Company  accounts  for  impaired  loans  in  accordance  with  the
provisions of SFAS No. 114,  Accounting  by Creditors for  Impairment of a Loan.
SFAS No.  114,  as amended by SFAS No.  118,  requires  that  impaired  loans be
measured  based  on the  present  value of  expected  future  cash  flows or the
underlying collateral values as defined in the pronouncement.  When the ultimate
collectibility of an impaired loan's principal is in doubt, wholly or partially,
all cash receipts are then applied to principal.  The Company had impaired loans
of  approximately  $13,820,000  at September 30, 2008 and $2,024,000 at December
31,  2007,  all of which were  included  in  non-accruing  loans.  There were no
impaired loans at September 30, 2007.

Securities

         The Company  invests  primarily in  obligations of the United States or
obligations  guaranteed as to principal and interest by the United States, other
taxable securities, and in certain obligations of states and municipalities. The
Company  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, 2008 securities  totaled  $92,020,000,  which  represents 17.9% of


                                       19
<PAGE>

total  earning  assets.   Securities  decreased  $10,673,000,   or  10.4%,  from
$102,693,000  invested as of December 31, 2007,  and  decreased  $4,842,000,  or
5.0%,  from  $96,862,000  invested as of  September  30,  2007.  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, 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.  This compares to an amortized
cost of $83,608,000  and a market value of $84,796,000 for an unrealized gain of
$1,188,000  on the  Company's  investments  classified  as available for sale at
December  31,  2007.  At  September  30, 2007 the  Company's  total  investments
classified  as available  for sale had an amortized  cost of  $80,629,000  and a
market value of  $80,397,000  for an  unrealized  loss of  $232,000.  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  positions  until a market  price  recovery  or  maturity,  and
therefore  these  securities  are  generally  not  considered   impaired  on  an
other-than-temporary basis.

         The   Company   incurred   a   write-down   of   $2,890,000   for   the
other-than-temporary  impairment  of 120,000  shares of  preferred  stock in the
Federal Home Loan Mortgage  Corporation  ("FHLMC").  The impairment  came as the
direct  result of the FHLMC,  also known as  "Freddie  Mac,"  being  forced into
conservatorship  by the United States Treasury in September 2008.  There were no
similar  write-downs  during  2007.  These  shares  are  currently  held  in the
Company's trading account at a market value of $192,000,  and they represent the
only asset in the Company's trading account.

Other Real Estate Owned

         The Company's  other real estate owned  acquired in settlement of loans
was $2,038,000 at September 30, 2008, an increase of $1,015,000,  or 99.2%, from
the  $1,023,000  held at December  31, 2007 and an  increase of  $1,326,000,  or
186.2% from the $712,000  held at September 30, 2007.  In 2008  properties  from
four loan relationships  totaling  $1,861,000 were taken into possession;  seven
properties  totaling  $769,000  were  sold;  and values of two  properties  were
written down by $77,000.


Cash Surrender Value of Life Insurance

         The Company's cash surrender value of life insurance was $11,690,000 at
September 30, 2008, an increase of $340,000,  or 3.0%, from the $11,350,000 held
at December 31, 2007 and an increase of $448,000,  or 4.0%, from the $11,242,000
held at September 30, 2007. The increase in cash surrender  value life insurance
is due to normal  appreciation in the cash surrender  value  associated with the


                                       20
<PAGE>

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  increased  $12,681,000,  or
120.5%,  to $23,205,000  at September 30, 2008 from  $10,524,000 at December 31,
2007,  and increased  $8,621,000,  or 59.1%,  from  $14,584,000 at September 30,
2007. The substantial  swings in the level of cash and cash  equivalents are due
to  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  increased  $25,901,000,  or 6.2%, to  $443,522,000 at
September 30, 2008 from  $417,621,000 at December 31, 2007 and grew $18,755,000,
or 4.4%,  from  $424,767,000  at  September  30, 2007.  Competition  for deposit
accounts is primarily based on the interest rates paid, location convenience and
services offered.

         During the nine  months  ended  September  30,  2008,  interest-bearing
deposits averaged  $381,443,000  compared to $352,765,000 for the same period of
2007.  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,  2008,  brokered
deposits  totaled  $71,246,000,  compared  to  $28,087,000  and  $32,656,000  in
brokered deposits at December 31, 2007 and September 30, 2007, respectively. 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 3.51%
during the nine months ended  September  30, 2008 compared to 4.00% for the same
period of 2007 and 4.02% for the twelve  months  ended  December  31,  2007.  In
pricing  deposits,  the Company considers its liquidity needs, the direction and
levels of interest rates,  and local market  conditions.  At September 30, 2008,
interest-bearing deposits comprised 89.9% of total deposits compared to 87.1% at
December 31, 2007 and 88.0% at September 30, 2007.

         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 69% at September 30, 2008, 77% at December 31,
2007  and  78% at  September  30,  2007.  Time  deposits  of  $100,000  or  more


                                       21
<PAGE>

represented 31.4% of total deposits at September 30, 2008, 23.7% at December 31,
2007 and 23.4% at September 30, 2007.  The Company's  larger  denomination  time
deposits are generally  garnered from customers within the local market areas of
its  banks,  and  therefore  may have a  greater  degree  of  stability  than is
typically associated with this source of funds at other financial institutions.

Borrowings

         The Company's  borrowings  are  comprised of federal  funds  purchased,
securities sold under repurchase  agreements,  and both short-term and long-term
advances  from the  Federal  Home Loan Bank  ("FHLB").  At  September  30,  2008
short-term  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.  At December  31,  2007  short-term  borrowings  totaled
$85,353,000  and  were  comprised  of  $429,000  in  federal  funds   purchased,
$65,100,000 in short-term  advances from the FHLB and  $19,824,000 in securities
sold under  repurchase  agreements.  September  30, 2007  short-term  borrowings
totaled  $58,837,000 and were comprised of $358,000 in federal funds  purchased,
$36,000,000 in short-term  advances from the FHLB and  $22,479,000 in securities
sold under repurchase  agreements.  Short-term borrowings 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, and  securities  available
for sale. In addition, the Company (through the Banks) has the ability to borrow
funds on a  short-term  basis from the  Federal  Reserve  System and to purchase
federal funds from other financial  institutions.  The Banks are also members of
the Federal Home Loan Bank System and have the ability to borrow both short-term
and  long-term  funds on a secured  basis.  At September  30, 2008,  The Peoples
National Bank had total  borrowing  capacity from the FHLB equal to $70,270,000,
and the unused portion of this line of credit was $43,270,000. Bank of Anderson,
N.A. had total borrowing  capacity from the FHLB equal to  $28,270,000,  and the
unused  portion of this line of credit was  $21,270,000  at September  30, 2008.
Seneca  National Bank had  established  secured lines of credit with the FHLB at
September  30, 2008 of  $6,680,000,  all of which was unused.  At September  30,
2008,  the Banks also had unused  federal  funds  lines of credit  with  various
correspondent banks totaling $37,000,000.

         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 each  subsidiary bank and from
dividends paid to the parent company by the Banks.



                                       22
<PAGE>

         During  the  first  nine  months  of 2008,  the  Company  made  capital
expenditures of approximately  $650,000.  These expenditures were related to the
construction  and  furnishing  of  a  full-service   retail  banking  office  in
Greenville,  SC for The Peoples  National Bank, the purchase of three  vehicles,
the purchase of some  electronic  data  processing  equipment,  and other lesser
expenditures in the normal course of business.

         Although Company  management  currently  believes its liquidity sources
are adequate to meet its  operating  needs,  there can be no assurance  that the
Company will not experience liquidity pressure if the recent government programs
implemented to address the national liquidity crisis are not successful.




                                       23
<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,  2008,  the  Banks had  issued  commitments  to extend  credit of
$88,266,000  through various types of  arrangements.  The commitments  generally
expire in one year. Past experience  indicates that many of these commitments to
extend credit will expire not fully used. As described  under  "Liquidity,"  the
Company  believes that it has adequate  sources of liquidity to fund commitments
that are drawn upon by the borrowers.

         In  addition  to  commitments  to extend  credit,  the Banks also issue
standby  letters of credit,  which are  assurances to a third party that it will
not  suffer  a loss  if the  Bank's  customer  fails  to  meet  its  contractual
obligation to the third party.  Standby letters of credit totaled  $2,917,000 at
September 30, 2008. Past experience indicates that many of these standby letters
of credit will expire unused. However, through its various sources of liquidity,
the Company  believes  that it will have the  necessary  resources to meet these
obligations  should the need arise.  Various types of collateral  secure most of
the  standby  letters  of credit.  The  Company  believes  that the risk of loss
associated  with  standby  letters of credit is  comparable  to the risk of loss
associated with its loan portfolio. Moreover, the fair value associated with any
standby letters of credit issued by the Company is immaterial to the Company.

         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.




                                       24
<PAGE>


CAPITAL ADEQUACY AND RESOURCES

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

         The Company and the Banks are  required  to  maintain  certain  capital
ratios by federal banking regulators. The following table sets forth the capital
ratios for the Company and the Banks as of September 30, 2008:


                                 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 ..........  $    48,304    11.15%         N/A         N/A    $   34,658     8.00%
Tier 1 Risk-based Capital .........       42,889     9.90          N/A         N/A        17,329     4.00
Leverage Ratio ....................       42,889     7.69          N/A         N/A        22,309     4.00

The Peoples National Bank:
Total Risk-based Capital ..........  $    29,345    10.17%    $   28,854    10.00%    $   23,084     8.00%
Tier 1 Risk-based Capital .........       25,636     8.88         17,322     6.00         11,548     4.00
Leverage Ratio ....................       25,636     7.34         17,463     5.00         13,971     4.00

Bank of Anderson, N. A.:
Total Risk-based Capital ..........  $    12,440    13.27%    $    9,375    10.00%    $    7,500     8.00%
Tier 1 Risk-based Capital .........       11,268    12.02          5,625     6.00          3,750     4.00
Leverage Ratio ....................       11,268     7.96          7,078     5.00          5,662     4.00

Seneca National Bank:
Total Risk-based Capital ..........  $     5,763    11.39%    $    5,060    10.00%    $    4,048     8.00%
Tier 1 Risk-based Capital .........        5,205    10.29          3,035     6.00          2,023     4.00
Leverage Ratio ....................        5,205     7.50          3,470     5.00          2,776     4.00
</TABLE>

         The  Company has a line of credit  with  another  bank in the amount of
$15,000,000 which is available for the purpose of supplying  additional  capital
if  needed  for the  Company's  three  subsidiary  banks.  The line of credit is
secured by all of the common stock of the Company's banks and was implemented on
October 1,  2008.  Management  views this line of credit as a prudent  safeguard
against  uncertain  economic  conditions.  The  Company  is also  exploring  the
possibility  of selling  preferred  stock to the U. S.  Treasury  pursuant  to a
program established under the Emergency Economic  Stabilization Act of 2008. The
amount  that  would be raised by such a sale  would be  between 1% and 3% of its
risk-based assets.


<
                                       25
<PAGE>


RECENTLY ISSUED ACCOUNTING STANDARDS

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

         In  December  2007,   the  FASB  issued  SFAS  No.   141(R),   Business
Combinations,  ("SFAS 141(R)") which replaces SFAS 141. SFAS 141(R)  establishes
principles  and  requirements  for how an  acquirer  in a  business  combination
recognizes  and measures in its financial  statements  the  identifiable  assets
acquired, the liabilities assumed, and any controlling interest;  recognizes and
measures goodwill acquired in the business  combination or a gain from a bargain
purchase;  and  determines  what  information to disclose to enable users of the
financial  statements  to  evaluate  the  nature  and  financial  effects of the
business  combination.  SFAS 141(R) is effective for acquisitions by the Company
taking  place on or  after  January  1,  2009.  Early  adoption  is  prohibited.
Accordingly,  a calendar  year-end  company is required  to record and  disclose
business  combinations  following existing  accounting guidance until January 1,
2009.  The  Company  will  assess the impact of SFAS 141(R) if and when a future
acquisition occurs.

         In  December  2007,  the  FASB  issued  SFAS  No.  160,  Noncontrolling
Interests  in  Consolidated  Financial  Statements  - an amendment of ARB No. 51
("SFAS 160").  SFAS 160 establishes  new accounting and reporting  standards for
the  noncontrolling  interest in a subsidiary and for the  deconsolidation  of a
subsidiary.  Before this  statement,  limited  guidance  existed  for  reporting
noncontrolling interests (minority interest). As a result, diversity in practice
exists. In some cases minority interest is reported as a liability and in others
it is  reported  in  the  mezzanine  section  between  liabilities  and  equity.
Specifically,  SFAS 160 requires the  recognition of a  noncontrolling  interest
(minority  interest)  as equity in the  consolidated  financial  statements  and
separate from the parent's equity. The amount of net income  attributable to the
noncontrolling  interest will be included in consolidated net income on the face
of the income statement. SFAS 160 clarifies that changes in a parent's ownership
interest  in a  subsidiary  that do not  result in  deconsolidation  are  equity
transactions  if the parent  retains  its  controlling  financial  interest.  In
addition,  this statement  requires that a parent  recognize gain or loss in net
income when a subsidiary is  deconsolidated.  Such gain or loss will be measured
using  the  fair  value  of  the   noncontrolling   equity   investment  on  the
deconsolidation  date. SFAS 160 also includes expanded  disclosure  requirements
regarding the interests of the parent and its noncontrolling interests. SFAS 160
is effective for the Company on January 1, 2009. Earlier adoption is prohibited.
The Company is currently evaluating the impact, if any, the adoption of SFAS 160
will have on its financial position, results of operations and cash flows.

         In  March  2008,  the  FASB  issued  SFAS No.  161,  Disclosures  about
Derivative  Instruments and Hedging  Activities  ("SFAS 161"). SFAS 161 requires
enhanced  disclosures  about an  entity's  derivative  and  hedging  activities,
thereby  improving the  transparency of financial  reporting.  It is intended to
enhance  the  current  disclosure  framework  in  SFAS  133  by  requiring  that
objectives for using derivative  instruments be disclosed in terms of underlying


                                       26
<PAGE>

risk and accounting  designation.  This disclosure better conveys the purpose of
derivative  use in terms of the risks  that the entity is  intending  to manage.
SFAS 161 is  effective  for the Company on January 1, 2009.  This  pronouncement
does  not  impact   accounting   measurements  but  will  result  in  additional
disclosures  if the  Company is  involved  in  material  derivative  and hedging
activities at that time.

         In  February  2008,  the FASB  issued FASB Staff  Position  No.  140-3,
Accounting  for  Transfers  of  Financial   Assets  and   Repurchase   Financing
Transactions  ("FSP  140-3").  This FSP provides  guidance on  accounting  for a
transfer of a financial asset and the transferor's  repurchase  financing of the
asset.  This FSP presumes  that an initial  transfer of a financial  asset and a
repurchase  financing  are  considered  part  of the  same  arrangement  (linked
transaction)  under SFAS 140. However,  if certain criteria are met, the initial
transfer and repurchase  financing are not evaluated as a linked transaction and
are  evaluated  separately  under  SFAS 140.  FSP 140-3  will be  effective  for
financial  statements issued for fiscal years beginning after November 15, 2008,
and interim  periods  within those fiscal years and earlier  application  is not
permitted.  Accordingly,  this FSP is  effective  for the  Company on January 1,
2009. The Company is currently  evaluating  the impact,  if any, the adoption of
FSP 140-3 will have on its financial  position,  results of operations  and cash
flows.

         In  April  2008,  the  FASB  issued  FASB  Staff  Position  No.  142-3,
Determination  of the Useful Life of Intangible  Assets ("FSP 142-3").  This FSP
amends the factors that should be considered in developing  renewal or extension
assumptions  used to determine the useful life of a recognized  intangible asset
under SFAS 142, Goodwill and Other Intangible  Assets. The intent of this FSP is
to improve the  consistency  between the useful life of a recognized  intangible
asset under SFAS 142 and the period of  expected  cash flows used to measure the
fair value of the asset under SFAS 141(R), Business Combinations, and other U.S.
generally accepted  accounting  principles.  This FSP is effective for financial
statements  issued for fiscal years  beginning  after  December  15,  2008,  and
interim  periods  within those fiscal  years and early  adoption is  prohibited.
Accordingly,  this FSP is  effective  for the  Company on  January 1, 2009.  The
Company does not believe the  adoption of FSP 142-3 will have a material  impact
on its financial position, results of operations or cash flows.

         In May, 2008, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standard  ("SFAS") No. 162, The Hierarchy of
Generally  Accepted  Accounting  Principles,  ("SFAS  No.  162").  SFAS No.  162
identifies the sources of accounting  principles and the framework for selecting
the   principles   used  in  the   preparation   of  financial   statements   of
nongovernmental  entities  that  are  presented  in  conformity  with  generally
accepted accounting principles (GAAP) in the United States (the GAAP hierarchy).
SFAS No. 162 will be  effective  60 days  following  the SEC's  approval  of the
Public Company  Accounting  Oversight Board's amendments to AU Section 411, "The
Meaning of Present  Fairly in  Conformity  With  Generally  Accepted  Accounting
Principles."  The FASB has  stated  that it does not  expect  SFAS No.  162 will
result in a change in current  practice.  The  application  of SFAS No. 162 will
have no effect on the  Company's  financial  position,  results of operations or
cash flows.



                                       27
<PAGE>

         The FASB  issued  FASB  Staff  Position  No. APB 14-1,  Accounting  for
Convertible  Debt  Instruments  That  May Be  Settled  in Cash  upon  Conversion
(Including  Partial Cash Settlement),  ("FSP No. APB 14-1").  The Staff Position
specifies that issuers of convertible  debt  instruments  that may be settled in
cash upon  conversion  should  separately  account for the  liability and equity
components  in a manner  that will  reflect  the  entity's  nonconvertible  debt
borrowing rate when interest cost is recognized in subsequent  periods.  FSP No.
APB 14-1 provides  guidance for initial and  subsequent  measurement  as well as
derecognition  provisions.   The  Staff  Position  is  effective  for  financial
statements  issued for fiscal years  beginning  after  December  15,  2008,  and
interim periods within those fiscal years. Early adoption is not permitted.  The
adoption of this Staff  Position  will have no material  effect on the Company's
financial position, results of operations or cash flows.

         In June 2008,  the FASB issued  FASB Staff  Position  No. EITF  03-6-1,
Determining Whether Instruments Granted in Share-Based Payment  Transactions are
Participating Securities,  ("FSP EITF 03-6-1"). The Staff Position provides that
unvested  share-based  payment  awards  that  contain  nonforfeitable  rights to
dividends  or dividend  equivalents  are  participating  securities  and must be
included in the earnings per share computation. FSP EITF 03-6-1 is effective for
financial  statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those years. All prior-period earnings per share data
presented must be adjusted retrospectively.  Early application is not permitted.
The  adoption  of this  Staff  Position  will  have no  material  effect  on the
Company's financial position, result of operation or cash flows.

         FSP SFAS 133-1 and FIN 45-4,  Disclosures about Credit  Derivatives and
Certain   Guarantees;   An  Amendment  of  FASB   Statement  No.  133  and  FASB
Interpretation No. 45; and Clarification of the Effective Date of FASB Statement
No. 161, ("FSP SFAS 133-1 and FIN 45-4") was issued  September  2008,  effective
for reporting  periods  (annual or interim)  ending after November 15, 2008. FSP
SFAS  133-1  and FIN 45-4  amends  SFAS No.  133 to  require  sellers  of credit
derivatives  to  disclose  the  nature of the  credit  derivative,  the  maximum
potential  amount of future  payments,  fair  value of the  derivative,  and the
nature of any recourse  provisions.  Disclosures  must be made for entire hybrid
instruments that have embedded credit derivatives.

         The staff  position  also  amends FIN 45 to require  disclosure  of the
current  status  of the  payment /  performance  risk of the  credit  derivative
guarantee. If an entity utilizes internal groupings as a basis for the risk, how
the  groupings  are  determined  must be  disclosed  as well as how the  risk is
managed. The staff position encourages that the amendments be applied in periods
earlier than the effective date to facilitate  comparisons at initial  adoption.
After initial adoption, comparative disclosures are required only for subsequent
periods.

         FSP SFAS 133-1 and FIN 45 clarifies the effective  date of SFAS No. 161
such that  required  disclosures  should be provided  for any  reporting  period
(annual or quarterly)  beginning  after  November 15, 2008. The adoption of this


                                       28
<PAGE>

Staff Position will have no material effect on the Company's financial position,
results of operation or cash flows.

         The  SEC's  Office of the  Chief  Accountant  and the staff of the FASB
issued press release 2008-234 on September 30, 2008 ("Press Release") to provide
clarifications on fair value accounting.  The press release includes guidance on
the use of management's  internal assumptions and the use of "market" quotes. It
also reiterates the factors in SEC Staff  Accounting  Bulletin  ("SAB") Topic 5M
which should be considered when determining other-than-temporary impairment; the
length of time and  extent to which the  market  value has been less that  cost;
financial  condition and near-term  prospects of the issuer;  and the intent and
ability of the holder to retain its investment  for a period of time  sufficient
to allow for any anticipated recovery in market value.

         On October 10, 2008,  the FASB issued FSP SFAS 157-3,  Determining  the
Fair  Value of a  Financial  Asset  When the Market for That Asset is Not Active
("FSP SFAS 157-3").  This FSP clarifies  the  application  of SFAS No. 157, Fair
Value  Measurements  in a market  that is not active and  provides an example to
illustrate key considerations in determining the fair value of a financial asset
when  the  market  for that  asset  is not  active.  The FSP is  effective  upon
issuance,  including prior periods for which financial  statements have not been
issued.  For the Company,  this FSP is effective for the quarter ended September
30, 2008.

         The Company  considered  the  guidance in the Press  Release and in FSP
SFAS 157-3 when conducting its review for other-than-temporary  impairment as of
September  30,  2008 and  determined  that it did not  result in a change to its
impairment estimation techniques.

         Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value
Measurements   ("SFAS  157")  which  provides  a  framework  for  measuring  and
disclosing fair value under generally accepted accounting  principles.  SFAS 157
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).

         SFAS  157  defines  fair  value 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. SFAS 157 also
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


                                       29
<PAGE>

                 an active  exchange  market,  as well as U.S.  Treasury,  other U.S.  Government and agency
                 mortgage-backed  debt  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 certain  derivative  contracts and impaired
                 loans.

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
                 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, 2008:

<TABLE>
<CAPTION>
                                                          Quoted market price       Significant other       Significant unobservable
                                                           in active markets        observable inputs                inputs
                                                                (Level 1)                (Level 2)                  (Level 3)
                                                                ---------                ---------                  ---------
<S>                                                           <C>                       <C>                       <C>
Available for sale
  investment securities ...........................           $75,238,000               $   618,000               $           -

Impaired loans ....................................                     -                13,820,000                           -
                                                              -----------               -----------               -------------
Total .............................................           $75,238,000               $14,438,000               $           -
                                                              ===========               ===========               =============
</TABLE>


         The  Company  has no  liabilities  carried at fair value or measured at
fair value on a nonrecurring basis.

         The Company is  predominantly a cash-flow based lender with real estate
serving as collateral on a substantial majority of loans. Loans which are deemed
to be impaired are primarily  valued on a nonrecurring  basis at the fair values
of the underlying  real estate  collateral.  Such fair values are obtained using

                                       30
<PAGE>


independent  appraisals,  which the Company considers to be level 2 inputs.  The
aggregate   carrying  amount  of  impaired  loans  at  September  30,  2008  was
$13,820,000.

         FASB Staff Position No. FAS 157-2 delays the implementation of SFAS 157
until the first  quarter of 2009 with  respect  to  goodwill,  other  intangible
assets,  real estate and other assets  acquired  through  foreclosure  and other
non-financial assets measured at fair value on a nonrecurring basis.

         The Company has no assets or liabilities whose fair values are measured
using level 3 inputs.

         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.




                                       31
<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, 2008
the Company was positioned so that net interest  income would increase  $660,000
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 $728,000 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.



                                       32
<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.







                                       33
<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.



                                       34
<PAGE>


PART II.  OTHER INFORMATION

Item 1A.  Risk Factors

         The following are additional  risk factors for the Company,  to be read
in  conjunction  with Item 1A, "Risk Factors - Risks Related to Our Industry" in
the Company's Form 10-K for the year ended December 31, 2007.

          1.   There can be no  assurance  that recent  government  actions will
               help stabilize the U.S. financial system.

         In response to the financial  crises  affecting the banking  system and
financial  markets  and going  concern  threats  to  investment  banks and other
financial  institutions,  various  branches and agencies of the U.S.  government
have  put in place  laws,  regulations  and  programs  to  address  capital  and
liquidity issues in the banking system.  There can be no assurance,  however, as
to the actual impact that such laws,  regulations  and programs will have on the
financial  markets,  including the extreme levels of  volatility,  liquidity and
confidence issues and limited credit  availability  currently being experienced.
The  failure  of such laws,  regulations  and  programs  to help  stabilize  the
financial  markets and a continuation or worsening of current  financial  market
conditions  could  materially  and  adversely  affect  our  business,  financial
condition,  results of operations,  access to credit or the trading price of our
common stock.

          2.   Current levels of market volatility are unprecedented.

         Although many markets have been experiencing  volatility and disruption
for months,  in the past few weeks,  the  volatility and disruption of financial
and credit markets has reached  unprecedented  levels for recent times.  In some
cases,  the markets have produced  downward  pressure on stock prices and credit
availability  for certain  issuers  without regard to those issuers'  underlying
financial  strength.  If  current  levels of market  disruption  and  volatility
continue or worsen,  there can be no assurance  that we will not  experience  an
adverse effect,  which may be material,  on our ability to access capital and on
our business, financial condition and results of operations.

          3.   The soundness of other  financial  institutions  could  adversely
               affect us.

         Financial  services  institutions  are  interrelated  as  a  result  of
trading,  clearing,  counterparty,  or other relationships.  We have exposure to
many  different   industries  and  counterparties,   and  we  routinely  execute
transactions with  counterparties in the financial services industry,  including
brokers,  dealers,  commercial banks, investment banks, and government sponsored
enterprises. Many of these transactions expose us to credit risk in the event of
default of our  counterparty.  In addition,  our credit risk may be  exacerbated
when the collateral held by us cannot be realized or is liquidated at prices not
sufficient  to recover the full amount of the loan or other  obligation  due us.
There is no assurance  that any such losses would not  materially  and adversely
affect our results of operations or earnings.



                                       35
<PAGE>

          4.   Current market  developments  may adversely  affect our industry,
               business and results of operations.

         Dramatic  declines in the housing  market  during the prior year,  with
falling home prices and increasing foreclosures and unemployment,  have resulted
in significant write-downs of asset values by financial institutions,  including
government-sponsored  entities and major commercial and investment banks.  These
write-downs,  initially of  mortgage-backed  securities  but spreading to credit
default  swaps  and other  derivative  securities  have  caused  many  financial
institutions  to seek  additional  capital,  to merge with  larger and  stronger
institutions and, in some cases, to fail. Reflecting concern about the stability
of the  financial  markets  generally and the strength of  counterparties,  many
lenders and institutional  investors have reduced,  and in some cases, ceased to
provide  funding to  borrowers,  including  other  financial  institutions.  The
resulting lack of available credit,  lack of confidence in the financial sector,
increased  volatility in the  financial  markets and reduced  business  activity
could  materially  and adversely,  directly or indirectly,  affect our business,
financial condition and results of operations.

Item 6.       Exhibits

              Exhibits.

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





                                       36
<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 14, 2008                   By:    /s/ R. Riggie Ridgeway
                                                 ------------------------
                                                   R. Riggie Ridgeway
                                                   Chief Executive Officer


Dated:  November 14, 2008                   By:   /s/ Robert E. Dye, Jr.
                                                ------------------------
                                                   Robert E. Dye, Jr.
                                                   Senior Vice President and CFO
                                                   (principal financial officer)





                                       37
<PAGE>





                                  Exhibit Index

Exhibit No.                 Description of Exhibit

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






                                       38