| For the Quarterly Period Ended | Commission file |
|--------------------------------|-----------------|
| March 31, 2011                 | 000-20616       |

| 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)          |

|  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. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

| Peoples Bancorporation, Inc. and Subsidiaries                                     |   |   |   |
|-----------------------------------------------------------------------------------|--------|--------|--------|
| Consolidated Balance Sheets(Dollars in thousands except per share and share data) |   |   |   |

|                                                                                                                                                                                                         |   | March 31,2011 |          |   | December 31,2010 |   |          | March 31,2010 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|---------------|--------|------------------|--------|---------------|---------------|--------|
|                                                                                                                                                                                                         |   | Unaudited     |          |   | Audited          |   |          | Unaudited     |   |
| ASSETS                                                                                                                                                                                                       |   |          |          |   |             |   |          |          |   |
| CASH AND DUE FROM BANKS                                                                                                                                                                                      |   | $             | 9,015         |   |             | $      | 6,612         |          |   | $ | 8,562 |   |
| INTEREST-BEARING DEPOSITS IN OTHER BANKS                                                                                                                                                                     |   |          | 8             |   |             |   | 1             |          |   |   | 476 |   |
| FEDERAL FUNDS SOLD                                                                                                                                                                                           |   |          | 18,366        |   |             |   |  10,631  |          |   |   |  18,586 |   |
|      Total cash and cash equivalents                                                                                                                                                     |   |          | 27,389        |   |             |   | 17,244        |          |   |   | 27,624 |   |
| SECURITIES                                                                                                                                                                                                   |   |          |          |   |             |   |          |          |   |   |   |   |
| Trading assets                                                                                                                                                                                               |   |          | 204           |   |             |   | 76            |          |   |   | 152 |   |
| Available for sale                                                                                                                                                                                           |   |          | 138,884       |   |             |   | 130,650       |          |   |   | 103,119 |   |
| Held to maturity (market value of $6,878, $7,375                                                                                                                                                             |   |          |          |   |             |   |          |          |   |   |   |   |
| and $8,029)                                                                                                                                                                                                  |   |          | 6,727         |   |             |   | 7,249         |          |   |   | 7,809 |   |
|         Other investments, at cost                                                                                                                                        |   |          | 4,319         |   |             |   | 4,319         |          |   |   | 4,456 |   |
| LOANS-less allowance for loan losses of $8,082, $7,919 and $8,665                                                                                                                                            |   |          | 323,161       |   |             |   | 332,794       |          |   |   | 360,457 |   |
| PREMISES AND EQUIPMENT, net of accumulated                                                                                                                                                                   |   |          |          |   |             |   |          |          |   |   |   |   |
| depreciation and amortization                                                                                                                                                                                |   |          | 10,864        |   |             |   | 11,023        |          |   |   | 12,154 |   |
| ACCRUED INTEREST RECEIVABLE                                                                                                                                                                                  |   |          | 2,222         |   |             |   | 2,288         |          |   |   | 2,272 |   |
| ASSETS ACQUIRED IN SETTLEMENT OF LOANS                                                                                                                                                                       |   |          | 13,313        |   |             |   | 13,344        |          |   |   | 12,596 |   |
| CASH SURRENDER VALUE OF LIFE INSURANCE                                                                                                                                                                       |   |          | 12,909        |   |             |   | 12,791        |          |   |   | 12,424 |   |
| OTHER ASSETS                                                                                                                                                                                                 |   |          |  8,896   |   |             |   |  9,292   |          |   |   |  9,363 |   |
| TOTAL ASSETS                                                                                                                                                                                                 |   | $             | 548,888       |   |             | $      | 541,070       |          |   | $ | 552,426 |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                                                                   |   |          |          |   |             |   |          |          |   |   |   |   |
| LIABILITIES                                                                                                                                                                                                  |   |          |          |   |             |   |          |          |   |   |   |   |
| DEPOSITS                                                                                                                                                                                                     |   |          |          |   |             |   |          |          |   |   |   |   |
| Noninterest-bearing                                                                                                                                                                                          |   | $             | 52,202        |   |             | $      | 48,151        |          |   | $ | 50,015 |   |
| Interest-bearing                                                                                                                                                                                             |   |          |  427,689 |   |             |   |  426,603 |          |   |   |  429,958 |   |
| Total deposits                                                                                                                                                                                               |   |          | 479,891       |   |             |   | 474,754       |          |   |   | 479,973 |   |
| SECURITIES SOLD UNDER REPURCHASE                                                                                                                                                                             |   |          |          |   |             |   |          |          |   |   |   |   |
| AGREEMENTS                                                                                                                                                                                                   |   |          | 12,445        |   |             |   | 10,362        |          |   |   | 15,051 |   |
| ACCRUED INTEREST PAYABLE                                                                                                                                                                                     |   |          | 1,588         |   |             |   | 1,639         |          |   |   | 2,025 |   |
| OTHER LIABILITIES                                                                                                                                                                                            |   |          |  2,332   |   |             |   |  2,017   |          |   |   |  2,112 |   |
| Total Liabilities                                                                                                                                                                                            |   |          |  496,256 |   |             |   |  488,772 |          |   |   |  499,161 |   |
| SHAREHOLDERS’ EQUITY                                                                                                                                                                                   |   |          |          |   |             |   |          |          |   |   |   |   |
| Preferred stock – 15,000,000 shares authorized Preferred stock Series T - $1,000 per share liquidation preference;    issued and outstanding-12,660 shares at March 31, 2011, |   |          |          |   |             |   |          |          |   |   |   |   |
|     December 31, 2010 and March 31, 2010.                                                                                                                                                     |   |          | 12,176        |   |             |   | 12,139        |          |   |   | 12,028 |   |
| Preferred stock Series W - $1,000 per share liquidation preference;    issued and outstanding – 633 shares at March 31, 2011,                                                           |   |          |          |   |             |   |          |          |   |   |   |   |
|     December 31, 2010 and March 31, 2010.                                                                                                                                                     |   |          | 678           |   |             |   | 682           |          |   |   | 693 |   |
| Common stock – 15,000,000 shares authorized, $1.11                                                                                                                                                     |   |          |          |   |             |   |          |          |   |   |   |   |
|    par value per share, 7,003,063 shares issued and outstanding at                                                                                                                                 |   |          |          |   |             |   |          |          |   |   |   |   |
|    March 31, 2011, December 31, 2010 and March 31, 2010.                                                                                                                                      |   |          | 7,774         |   |             |   | 7,774         |          |   |   | 7,774 |   |
| Additional paid-in capital                                                                                                                                                                                   |   |          | 41,707        |   |             |   | 41,701        |          |   |   | 41,666 |   |
| Retained earnings (deficit)                                                                                                                                                                                  |   |          | (9,918        | )      |             |   | (10,142       | )             |   |   | (11,007 | ) |
| Accumulated other comprehensive income                                                                                                                                                                       |   |          |  215     |   |             |   |  144     |          |   |   |  2,111 |   |
| Total Shareholders’ Equity                                                                                                                                                                             |   |          |  52,632  |   |             |   |  52,298  |          |   |   |  53,265 |   |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                                                             |   | $             | 548,888       |   |             | $      | 541,070       |          |   | $ | 552,426 |   |

----

| Peoples Bancorporation, Inc. and Subsidiaries                                                            |   |               |      |
|----------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|
| Consolidated Statements of Income (Loss)                                                                 |   |               |
| (Dollars in thousands except share and per share  data)                                        |   | Three Months Ended |
|                                                                                                     |   | March 31,          |
|                                                                                                     |   | 2011               |      |   | 2010 |
|                                                                                                     |   | (Unaudited)        |
| INTEREST INCOME                                                                                          |   |               |      |   |   |
| Interest and fees on loans                                                                               |   | $                  | 4,862     |   |   | $ | 5,489 |   |
| Interest on securities                                                                                   |   |               |      |   |   |   |
| Taxable                                                                                                  |   |               | 1,003     |   |   |   | 864 |   |
| Tax-exempt                                                                                               |   |               | 366       |   |   |   | 367 |   |
| Interest on federal funds                                                                                |   |               | 9         |   |   |   | 8 |   |
| Total interest income                                                                                    |   |               | 6,240     |   |   |   | 6,728 |   |
|                                                                                                     |   |               |      |   |   |   |
| INTEREST EXPENSE                                                                                         |   |               |      |   |   |   |
| Interest on deposits                                                                                     |   |               | 1,493     |   |   |   | 1,970 |   |
| Interest on federal funds purchased and securities                                                       |   |               |      |   |   |   |
| sold under repurchase agreements                                                                         |   |               | 21        |   |   |   | 20 |   |
| Total interest expense                                                                                   |   |               | 1,514     |   |   |   | 1,990 |   |
|      Net interest income                                                        |   |               | 4,726     |   |   |   | 4,738 |   |
|                                                                                                     |   |               |      |   |   |   |
| PROVISION FOR LOAN LOSSES                                                                                |   |               | 1,040     |   |   |   | 3,425 |   |
| Net interest income after provision for loan losses                                                      |   |               | 3,686     |   |   |   | 1,313 |   |
|                                                                                                     |   |               |      |   |   |   |
| NON-INTEREST INCOME                                                                                      |   |               |      |   |   |   |
| Service charges on deposit accounts                                                                      |   |               | 333       |   |   |   | 363 |   |
| Customer service fees                                                                                    |   |               | 40        |   |   |   | 40 |   |
| Mortgage banking                                                                                         |   |               | 100       |   |   |   | 85 |   |
| Brokerage services                                                                                       |   |               | 56        |   |   |   | 53 |   |
| Bank owned life insurance                                                                                |   |               | 138       |   |   |   | 136 |   |
| Other noninterest income                                                                                 |   |               | 386       |   |   |   | 257 |   |
|            Total non-interest income              |   |               | 1,053     |   |   |   | 934 |   |
|  NON-INTEREST EXPENSES                                                                              |   |               |      |   |   |   |
| Salaries and benefits                                                                                    |   |               | 2,045     |   |   |   | 2,061 |   |
| Occupancy and equipment                                                                                  |   |               | 463       |   |   |   | 511 |   |
|     Marketing and advertising                                                        |   |               | 53        |   |   |   | 45 |   |
|     Communications                                                                   |   |               | 53        |   |   |   | 63 |   |
|     Printing and supplies                                                            |   |               | 28        |   |   |   | 37 |   |
|     Bank paid loan costs                                                             |   |               | 40        |   |   |   | 45 |   |
|     Net cost of operation of other real estate                                       |   |               | 556       |   |   |   | 334 |   |
|     ATM/Debit card expenses                                                          |   |               | 69        |   |   |   | 60 |   |
|     Legal and professional fees                                                      |   |               | 96        |   |   |   | 99 |   |
|     Director fees                                                                    |   |               | 78        |   |   |   | 94 |   |
|     Regulatory assessments                                                           |   |               | 379       |   |   |   | 322 |   |
|     Other post employment benefits                                                   |   |               | 100       |   |   |   | 88 |   |
| Other operating expenses                                                                                 |   |               | 344       |   |   |   | 373 |   |
|           Total non-interest expenses                  |   |               | 4,304     |   |   |   | 4,132 |   |
| Income (loss) before income taxes                                                                        |   |               | 435       |   |   |   | (1,885 | ) |
| PROVISION (BENEFIT) FOR INCOME TAXES                                                                     |   |               | 5         |   |   |   | (785 | ) |
|                                                                                                     |   |               |      |   |   |   |
| Net income (loss)                                                                                        |   |               | 430       |   |   |   | (1,100 | ) |
| Deductions to determine amounts available to common shareholders                                         |   |               |      |   |   |   |
| Dividends declared or accumulated on preferred stock                                                     |   |               | 173       |   |   |   | 172 |   |
| Net accretion of discount on preferred stock                                                             |   |               | 33        |   |   |   | 33 |   |
|                                                                                                     |   |               |      |   |   |   |
| Net income (loss) available to common shareholders                                                       |   | $                  | 224       |   |   | $ | (1,305 | ) |
|                                                                                                     |   |               |      |   |   |   |
| INCOME  (LOSS) PER COMMON SHARE:                                                               |   |               |      |   |   |   |
| BASIC                                                                                                    |   | $                  | 0.03      |   |   | $ | (0.19 | ) |
| DILUTED                                                                                                  |   | $                  | 0.03      |   |   | $ | (0.19 | ) |
| WEIGHTED AVERAGE COMMON SHARES:                                                                          |   |               |      |   |   |   |
| BASIC                                                                                                    |   |               | 7,003,063 |   |   |   | 7,003,063 |   |
| DILUTED                                                                                                  |   |               | 7,003,063 |   |   |   | 7,003,063 |   |
| DIVIDENDS PAID PER COMMON SHARE                                                                          |   | $                  | -         |   |   | $ | - |   |
|                                                                                                     |   |
| See Notes to Unaudited Consolidated Financial Statements which are an integral part of these statements. |   |

----

|                                                 |                  |   |   |                 |   |               |   |   |   | AdditionalPaid-inCapital |   |   | RetainedEarnings(Deficit) |   |      | Accumu-latedOtherCompre-hensiveIncome |   |   |  TotalShare-holderEquity |   |
|------------------------------------------------------|-----------------------|--------|--------|----------------------|--------|--------------------|--------|--------|--------|--------------------------|--------|--------|---------------------------|--------|-----------|---------------------------------------|--------|--------|-------------------------------|--------|
|                                                 | Preferred Stock  |   |   | Preferred Stock      |   |               |   |   |   |                     |   |   |                      |   |      |                                  |
|                                                 |  Series T        |   |   |   Series W |   |  Common Stock |   |   |   |                     |   |   |                      |   |      |
|                                                 | Shares                |   |   | Amount               |   |               | Shares |   |   | Amount                   |   |   | Shares                    |   |      | Amount                                |   |   |                          |   |   |   |   |   |   |
|                                                 |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2009                           | 12,660                |   |   | $                    | 11,991 |               |   | 633    |   |                     | $      | 697    |                      |   | 7,003,063 |                                  |   | $      | 7,774                         |   |   | $ | 41,658 |   |   | $ | (9,702 | ) |   | $ | 2,025 |   |   | $ | 54,443 |   |
| Net income (loss)                                    | -                     |   |   |                 | -      |               |   | -      |   |                     |   | -      |                      |   | -         |                                  |   |   | -                             |   |   |   | - |   |   |   | (1,100 | ) |   |   | - |   |   |   | (1,100 | ) |
| Other comprehensive Income,    net of tax: |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding gains on                          |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   securities available for sale,           |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    net income tax of $44              | -                     |   |   |                 | -      |               |   | -      |   |                     |   | -      |                      |   | -         |                                  |   |   | -                             |   |   |   | - |   |   |   | - |   |   |   | 86 |   |   |   | 86 |   |
| Comprehensive income (loss)                          |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (1,014 | ) |
| Cash dividends on                                    |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    preferred stock                    | -                     |   |   |                 | -      |               |   | -      |   |                     |   | -      |                      |   | -         |                                  |   |   | -                             |   |   |   | - |   |   |   | (172 | ) |   |   | - |   |   |   | (172 | ) |
| Accretion (amortization)                             |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    of preferred stock                 | -                     |   |   |                 | 37     |               |   | -      |   |                     |   | (4     | )                         |   | -         |                                  |   |   | -                             |   |   |   | - |   |   |   | (33 | ) |   |   | - |   |   |   | - |   |
| Stock-based compensation                             | -                     |   |   |                 | -      |               |   | -      |   |                     |   | -      |                      |   | -         |                                  |   |   | -                             |   |   |   | 8 |   |   |   | - |   |   |   | - |   |   |   | 8 |   |
|                                                 |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, March 31, 2010                              | 12,660                |   |   | $                    | 12,028 |               |   | 633    |   |                     | $      | 693    |                      |   | 7,003,063 |                                  |   | $      | 7,774                         |   |   | $ | 41,666 |   |   | $ | (11,007 | ) |   | $ | 2,111 |   |   | $ | 53,265 |   |
|                                                 |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2010                      | 12,660                |   |   | $                    | 12,139 |               |   | 633    |   |                     | $      | 682    |                      |   | 7,003,063 |                                  |   | $      | 7,774                         |   |   | $ | 41,701 |   |   | $ | (10,142 | ) |   | $ | 144 |   |   | $ | 52,298 |   |
| Net income                                           | -                     |   |   |                 | -      |               |   | -      |   |                     |   | -      |                      |   | -         |                                  |   |   | -                             |   |   |   | - |   |   |   | 430 |   |   |   | - |   |   |   | 430 |   |
| Other comprehensive Income,    net of tax: |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding losses on                         |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   securities available for sale,           |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    net income tax of $38              | -                     |   |   |                 | -      |               |   | -      |   |                     |   | -      |                      |   | -         |                                  |   |   | -                             |   |   |   | - |   |   |   | - |   |   |   | 71 |   |   |   | 71 |   |
| Comprehensive income                                 |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 501 |   |
| Cash dividends on                                    |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    preferred stock                    | -                     |   |   |                 | -      |               |   | -      |   |                     |   | -      |                      |   | -         |                                  |   |   | -                             |   |   |   | - |   |   |   | (173 | ) |   |   | - |   |   |   | (173 | ) |
| Accretion (amortization)                             |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    of preferred stock                 | -                     |   |   |                 | 37     |               |   | -      |   |                     |   | (4     | )                         |   | -         |                                  |   |   | -                             |   |   |   | - |   |   |   | (33 | ) |   |   | - |   |   |   | - |   |
| Stock-based compensation                             | -                     |   |   |                 | -      |               |   | -      |   |                     |   | -      |                      |   | -         |                                  |   |   | -                             |   |   |   | 6 |   |   |   | - |   |   |   | - |   |   |   | 6 |   |
|                                                 |                  |   |   |                 |   |               |   |   |   |                     |   |   |                      |   |      |                                  |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, March 31, 2011                              | 12,660                |   |   | $                    | 12,176 |               |   | 633    |   |                     | $      | 678    |                      |   | 7,003,063 |                                  |   | $      | 7,774                         |   |   | $ | 41,707 |   |   | $ | (9,918 | ) |   | $ | 215 |   |   | $ | 52,632 |   |

----

|           Peoples Bancorporation, Inc. and Subsidiaries                                                                                            |   |               |         |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------------|
|                Consolidated Statements of Cash Flows                                                                      |   |               |         |
|                              (Dollars in thousands) |   | Three months Ended |
|                                                                                                                                                                                                 |   | March 31,          |
|                                                                                                                                                                                                 |   | 2011               |         |   | 2010 |
|                                                                                                                                                                                                 |   | (Unaudited)        |         |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                                                                                                                                 |   |               |         |   |   |   |
| Net income (loss)                                                                                                                                                                                    |   | $                  | 430          |   |   | $ | (1,100 | ) |
| Adjustments to reconcile net income (loss) to net cash  provided by                                                                                                                        |   |               |         |   |   |   |   |   |
|  operating activities:                                                                                                                                                                          |   |               |         |   |   |   |   |   |
| Gain from trading assets                                                                                                                                                                             |   |               | (128         | ) |   |   | (24 | ) |
|     (Gain) loss on sale of other real estate                                                                                                                                     |   |               | (119         | )  |   |   | 5 |   |
| Provision for loan losses                                                                                                                                                                            |   |               | 1,040        |   |   |   | 3,425 |   |
| Depreciation and amortization                                                                                                                                                                        |   |               | 194          |   |   |   | 229 |   |
| Amortization and accretion (net) of premiums and                                                                                                                                                     |   |               |         |   |   |   |   |   |
| discounts on securities                                                                                                                                                                              |   |               | 226          |   |   |   | 74 |   |
|     Stock-based compensation                                                                                                                                                     |   |               | 6            |   |   |   | 8 |   |
| Decrease in accrued interest receivable                                                                                                                                                              |   |               | 66           |   |   |   | 99 |   |
| (Increase) decrease in other assets                                                                                                                                                                  |   |               | 478          |   |   |   | (531 | ) |
| Decrease in accrued interest payable                                                                                                                                                                 |   |               | (51          | ) |   |   | (24 | ) |
| Increase in other liabilities                                                                                                                                                                        |   |               |  315    |   |   |   |  183 |   |
| Net cash provided by operating activities                                                                                                                                                            |   |               |  2,457  |   |   |   |  2,344 |   |
|                                                                                                                                                                                                 |   |               |         |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                                                                                                                 |   |               |         |   |   |   |   |   |
| Purchases of securities available for sale                                                                                                                                                           |   |               | (14,648      | ) |   |   | (7,153 | ) |
| Proceeds from principal pay-downs on securities available for sale                                                                                                                                   |   |               | 6,293        |   |   |   | 5,315 |   |
| Proceeds from the maturities and calls of securities available for sale                                                                                                                              |   |               | -            |   |   |   | 2,000 |   |
| Proceeds from the maturities and calls of securities held to maturity                                                                                                                                |   |               | 525          |   |   |   | 595 |   |
|     Increase in cash surrender value of life insurance                                                                                                                           |   |               | (118         | ) |   |   | (120 | ) |
| Proceeds from the sale of other real estate owned                                                                                                                                                    |   |               | 2,064        |   |   |   | 1,792 |   |
| Net (increase) decrease in loans                                                                                                                                                                     |   |               | 6,174        |   |   |   | (637 | ) |
| Write down of assets acquired in settlement of loans                                                                                                                                                 |   |               | 386          |   |   |   | 55 |   |
| Purchase of premises and equipment                                                                                                                                                                   |   |               |  (35    | ) |   |   |  (113 | ) |
| Net cash provided by investing activities                                                                                                                                                            |   |               |  641    |   |   |   |  1,734 |   |
|                                                                                                                                                                                                 |   |               |         |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                                                                                                                                 |   |               |         |   |   |   |   |   |
| Net increase (decrease) in deposits                                                                                                                                                                  |   |               | 5,137        |   |   |   | (5,023 | ) |
| Net increase in securities sold under repurchase agreements                                                                                                                                          |   |               | 2,083        |   |   |   | 2,266 |   |
|     Net decrease in federal funds purchased                                                                                                                                      |   |               | -            |   |   |   | (399 | ) |
|     Cash dividends paid on preferred stock                                                                                                                                       |   |               |  (173   | ) |   |   |  (172 | ) |
| Net cash used in (provided by) financing activities                                                                                                                                                  |   |               |  7,047  |   |   |   |  (3,328 | ) |
| Net increase in cash and cash equivalents                                                                                                                                                            |   |               | 10,145       |   |   |   | 750 |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                                                                                                                       |   |               |  17,244 |   |   |   |  26,874 |   |
| CASH AND CASH EQUIVALENTS, END OF  PERIOD                                                                                                                                                  |   | $                  | 27,389       |   |   | $ | 27,624 |   |
|                                                                                                                                                                                                 |   |               |         |   |   |   |   |   |
| CASH PAID FOR                                                                                                                                                                                        |   |               |         |   |   |   |   |   |
| Interest                                                                                                                                                                                             |   | $                  | 1,565        |   |   | $ | 2,015 |   |
| Income taxes                                                                                                                                                                                         |   | $                  | 35           |   |   | $ | 41 |   |
| NON-CASH TRANSACTIONS                                                                                                                                                                                |   |               |         |   |   |   |   |   |
| Change in unrealized gain  on available for sale securities                                                                                                                                |   | $                  | 71           |   |   | $ | 86 |   |
| Loans transferred to other real estate                                                                                                                                                               |   | $                  | 2,419        |   |   | $ | 2,899 |   |
|                                                                                                                                                                                                 |   |               |         |   |   |   |   |   |

----

|                                        |   | Three Months EndedMarch 31, |      |
|---------------------------------------------|--------|-----------------------------|-----------|
|                                        |   | 2011                        |      |   | 2010 |   |
| Net (loss) income available to common       |   |                        |      |   |   |   |
|   shareholders (in thousands)     |   | $                           | 224       |   |   | $ | (1,305 | ) |
|                                        |   |                        |      |   |   |   |   |   |
| Weighted average shares outstanding:        |   |                        |      |   |   |   |   |   |
| Basic                                       |   |                        | 7,003,063 |   |   |   | 7,003,063 |   |
| Effect of dilutive securities:              |   |                        |      |   |   |   |   |   |
|      Stock options |   |                        | -         |   |   |   | - |   |
| Diluted                                     |   |                        | 7,003,063 |   |   |   | 7,003,063 |   |
|                                        |   |                        |      |   |   |   |   |   |
| Income (loss) per common share:             |   |                        |      |   |   |   |   |   |
| Basic                                       |   | $                           | 0.03      |   |   | $ | (0.19 | ) |
| Diluted                                     |   | $                           | 0.03      |   |   | $ | (0.19 | ) |

----

|                                           |   | Amortized |          |   | Unrealized holding |   |   | Fair   |   |
|------------------------------------------------|--------|-----------|---------------|--------|--------------------|--------|--------|--------|--------|
|                                           |   | Cost      |          |   | Gains              |   |   | Losses |   |   | value |   |
| EQUITY SECURITIES                              |   | $         | 204           |   |               | $      | -      |   |   | $ | - |   |   | $ | 204 |   |
|                                           |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
| SECURITIES AVAILABLE FOR SALE:                 |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
| GOVERNMENT SPONSORED ENTERPRISE                |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
| SECURITIES                                     |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Maturing after five years but within ten years |   | $         | 1,588         |   |               | $      | 111    |   |   | $ | - |   |   | $ | 1,699 |   |
|                                           |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
| MORTGAGE BACKED SECURITIES                     |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Maturing within one year                       |   |      | 230           |   |               |   | 11     |   |   |   | - |   |   |   | 241 |   |
| Maturing after one year but within five years  |   |      | 65,219        |   |               |   | 1,337  |   |   |   | 405 |   |   |   | 66,151 |   |
| Maturing after five years but within ten years |   |      | 8,921         |   |               |   | -      |   |   |   | 172 |   |   |   | 8,749 |   |
| Maturing after ten years                       |   |      | 26,022        |   |               |   | 53     |   |   |   | 916 |   |   |   | 25,159 |   |
|                                           |   |      |  100,392 |   |               |   | 1,401  |   |   |   | 1,493 |   |   |   |  100,300 |   |
| OBLIGATIONS OF STATES AND POLITICAL            |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
| SUBDIVISIONS                                   |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Maturing after one year but within five years  |   |      | 1,297         |   |               |   | 83     |   |   |   | - |   |   |   | 1,380 |   |
| Maturing after five years but within ten years |   |      | 14,368        |   |               |   | 268    |   |   |   | 100 |   |   |   | 14,536 |   |
| Maturing after ten years                       |   |      | 20,311        |   |               |   | 233    |   |   |   | 176 |   |   |   | 20,368 |   |
|                                           |   |      | 35,976        |   |               |   | 584    |   |   |   | 276 |   |   |   | 36,284 |   |
| OTHER SECURITIES                               |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Maturing after ten years                       |   |      | 601           |   |               |   | -      |   |   |   | - |   |   |   | 601 |   |
|                                           |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Total securities available for sale            |   | $         | 138,557       |   |               | $      | 2,096  |   |   | $ | 1,769 |   |   | $ | 138,884 |   |
|                                           |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
| SECURITIES HELD TO MATURITY:                   |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
| OBLIGATIONS OF STATES AND POLITICAL            |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
| SUBDIVISIONS                                   |   |      |          |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Maturing within one year                       |   | $         | 1,913         |   |               | $      | 25     |   |   | $ | - |   |   | $ | 1,938 |   |
| Maturing after one but within five years       |   |      | 1,324         |   |               |   | 49     |   |   |   | - |   |   |   | 1,373 |   |
| Maturing after five years but within ten years |   |      | 2,969         |   |               |   | 72     |   |   |   | - |   |   |   | 3,041 |   |
| Maturing after ten years                       |   |      | 521           |   |               |   | 5      |   |   |   | - |   |   |   | 526 |   |
| Total securities held to maturity              |   | $         | 6,727         |   |               | $      | 151    |   |   | $ | - |   |   | $ | 6,878 |   |

----

|                                           |   | Amortized |    |   | Unrealized holding |   |   | Fair   |   |
|------------------------------------------------|--------|-----------|---------|--------|--------------------|--------|--------|--------|--------|
|                                           |   | Cost      |    |   | Gains              |   |   | Losses |   |   | value |   |
| EQUITY SECURITIES                              |   | $         | 76      |   |               | $      | -      |   |   | $ | - |   |   | $ | 76 |   |
|                                           |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| SECURITIES AVAILABLE FOR SALE:                 |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| GOVERNMENT SPONSORED ENTERPRISE                |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| SECURITIES                                     |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Maturing after five years but within ten years |   | $         | 1,588   |   |               | $      | 138    |   |   | $ | - |   |   | $ | 1,726 |   |
|                                           |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| MORTGAGE BACKED SECURITIES                     |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Maturing after one year but within five years  |   |      | 61,031  |   |               |   | 1,345  |   |   |   | 406 |   |   |   | 61,970 |   |
| Maturing after five years but within ten years |   |      | 11,832  |   |               |   | 75     |   |   |   | 223 |   |   |   | 11,684 |   |
| Maturing after ten years                       |   |      | 22,797  |   |               |   | 87     |   |   |   | 632 |   |   |   | 22,252 |   |
|                                           |   |      | 95,660  |   |               |   | 1,507  |   |   |   | 1,261 |   |   |   | 95,906 |   |
| OBLIGATIONS OF STATES AND POLITICAL            |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| SUBDIVISIONS                                   |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Maturing after one year but within five years  |   |      | 1,297   |   |               |   | 83     |   |   |   | - |   |   |   | 1,380 |   |
| Maturing after five years but within ten years |   |      | 10,575  |   |               |   | 108    |   |   |   | 108 |   |   |   | 10,575 |   |
| Maturing after ten years                       |   |      | 20,713  |   |               |   | 116    |   |   |   | 343 |   |   |   | 20,486 |   |
|                                           |   |      | 32,585  |   |               |   | 307    |   |   |   | 451 |   |   |   | 32,441 |   |
| OTHER SECURITIES                               |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Maturing after ten years                       |   |      | 601     |   |               |   | -      |   |   |   | 24 |   |   |   | 577 |   |
|                                           |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Total securities available for sale            |   | $         | 130,434 |   |               | $      | 1,952  |   |   | $ | 1,736 |   |   | $ | 130,650 |   |
|                                           |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| SECURITIES HELD TO MATURITY:                   |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| OBLIGATIONS OF STATES AND POLITICAL            |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| SUBDIVISIONS                                   |   |      |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Maturing within one year                       |   | $         | 1,546   |   |               | $      | 17     |   |   | $ | - |   |   | $ | 1,563 |   |
| Maturing after one but within five years       |   |      | 1,918   |   |               |   | 61     |   |   |   | - |   |   |   | 1,979 |   |
| Maturing after five years but within ten years |   |      | 3,271   |   |               |   | 55     |   |   |   | - |   |   |   | 3,326 |   |
| Maturing after ten years                       |   |      | 514     |   |               |   | -      |   |   |   | 7 |   |   |   | 507 |   |
| Total securities held to maturity              |   | $         | 7,249   |   |               | $      | 133    |   |   | $ | 7 |   |   | $ | 7,375 |   |

|                                           |   | Amortized |   |   | Unrealized holding |   |   | Fair   |   |
|------------------------------------------------|--------|-----------|--------|--------|--------------------|--------|--------|--------|--------|
|                                           |   | Cost      |   |   | Gains              |   |   | Losses |   |   | value |   |
| EQUITY SECURITIES                              |   | $         | 152    |   |               | $      | -      |   |   | $ | - |   |   | $ | 152 |   |
|                                           |   |      |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| SECURITIES AVAILABLE FOR SALE:                 |   |      |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |      |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| GOVERNMENT SPONSORED ENTERPRISE                |   |      |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| SECURITIES                                     |   |      |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Maturing after five years but within ten years |   | $         | 4,801  |   |               | $      | 338    |   |   | $ | - |   |   | $ | 5,139 |   |
|                                           |   |      |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |      |   |   |               |   |   |   |   |   |   |   |   |   |   |   |

|                                           |   |   Amortized |   |   |   Unrealized holding |   |   |   Fair   |   |
|------------------------------------------------|--------|------------------|--------|--------|---------------------------|--------|--------|---------------|--------|
|                                           |   |   Cost      |   |   |   Gains              |   |   |   Losses |   |   |   value |   |
| MORTGAGE BACKED SECURITIES                     |   |             |   |   |                      |   |   |          |   |   |   |   |
| Maturing within one year                       |   |             | 1,097  |   |                      |   | 30     |          |   |   | - |   |   |   | 1,127 |   |
| Maturing after one year but within five years  |   |             | 50,557 |   |                      |   | 2,132  |          |   |   | 13 |   |   |   | 52,676 |   |
| Maturing after five years but within ten years |   |             | 10,368 |   |                      |   | 130    |          |   |   | 81 |   |   |   | 10,417 |   |
| Maturing after ten years                       |   |             | 3,552  |   |                      |   | 133    |          |   |   | - |   |   |   | 3,685 |   |
|                                           |   |             | 65,574 |   |                      |   | 2,425  |          |   |   | 94 |   |   |   | 67,905 |   |
| OBLIGATIONS OF STATES AND POLITICAL            |   |             |   |   |                      |   |   |          |   |   |   |   |   |   |   |   |
| SUBDIVISIONS                                   |   |             |   |   |                      |   |   |          |   |   |   |   |   |   |   |   |
| Maturing after one year but within five years  |   |             | 457    |   |                      |   | 38     |          |   |   | - |   |   |   | 495 |   |
| Maturing after five years but within ten years |   |             | 5,426  |   |                      |   | 171    |          |   |   | 6 |   |   |   | 5,591 |   |
| Maturing after ten years                       |   |             | 23,059 |   |                      |   | 458    |          |   |   | 98 |   |   |   | 23,419 |   |
|                                           |   |             | 28,942 |   |                      |   | 667    |          |   |   | 104 |   |   |   | 29,505 |   |
| OTHER SECURITIES                               |   |             |   |   |                      |   |   |          |   |   |   |   |   |   |   |   |
| Maturing after ten years                       |   |             | 603    |   |                      |   | -      |          |   |   | 33 |   |   |   | 570 |   |
|                                           |   |             |   |   |                      |   |   |          |   |   |   |   |   |   |   |   |
| Total securities available for sale            |   | $                | 99,920 |   |                      | $      | 3,430  |          |   | $ | 231 |   |   | $ | 103,119 |   |
|                                           |   |             |   |   |                      |   |   |          |   |   |   |   |   |   |   |   |
| SECURITIES HELD TO MATURITY:                   |   |             |   |   |                      |   |   |          |   |   |   |   |   |   |   |   |
|                                           |   |             |   |   |                      |   |   |          |   |   |   |   |   |   |   |   |
| OBLIGATIONS OF STATES AND POLITICAL            |   |             |   |   |                      |   |   |          |   |   |   |   |   |   |   |   |
| SUBDIVISIONS                                   |   |             |   |   |                      |   |   |          |   |   |   |   |   |   |   |   |
| Maturing within one year                       |   | $                | 377    |   |                      | $      | 8      |          |   | $ | - |   |   | $ | 385 |   |
| Maturing after one but within five years       |   |             | 2,942  |   |                      |   | 117    |          |   |   | - |   |   |   | 3,059 |   |
| Maturing after five years but within ten years |   |             | 3,056  |   |                      |   | 58     |          |   |   | - |   |   |   | 3,114 |   |
| Maturing after ten years                       |   |             | 1,434  |   |                      |   | 37     |          |   |   | - |   |   |   | 1,471 |   |
| Total securities held to maturity              |   | $                | 7,809  |   |                      | $      | 220    |          |   | $ | - |   |   | $ | 8,029 |   |

----

|                              |   | Less than 12 Months |   |   | 12 Months or More |   |   | Total  |   |
|-----------------------------------|--------|---------------------|--------|--------|-------------------|--------|--------|--------|--------|
|                              |   | Fair                |   |   | Unrealized        |   |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                              |   | Value               |   |   | Losses            |   |   | Value  |   |   | Losses |   |   | Value |   |   | Losses |   |
| Mortgage backed securities        |   | $                   | 44,864 |   |              | $      | 1,487  |   |   | $ | 494 |   |   | $ | 6 |   |   | $ | 45,358 |   |   | $ | 1,493 |   |
| States and political subdivisions |   |                | 12,391 |   |              |   | 265    |   |   |   | 139 |   |   |   | 11 |   |   |   | 12,530 |   |   |   | 276 |   |
| Total                             |   | $                   | 57,255 |   |              | $      | 1,752  |   |   | $ | 633 |   |   | $ | 17 |   |   | $ | 57,888 |   |   | $ | 1,769 |   |

|                             |   | Less than 12 Months |   |   | 12 Months or More |   |   | Total  |   |
|----------------------------------|--------|---------------------|--------|--------|-------------------|--------|--------|--------|--------|
|                             |   | Fair                |   |   | Unrealized        |   |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                             |   | Value               |   |   | Losses            |   |   | Value  |   |   | Losses |   |   | Value |   |   | Losses |   |
| Mortgage backed securities       |   | $                   | 52,426 |   |              | $      | 1,260  |   |   | $ | 602 |   |   | $ | 1 |   |   | $ | 53,028 |   |   | $ | 1,261 |   |
| Other securities                 |   |                | 488    |   |              |   | 24     |   |   |   | - |   |   |   | - |   |   |   | 488 |   |   |   | 24 |   |
| State and political subdivisions |   |                | 15,074 |   |              |   | 436    |   |   |   | 136 |   |   |   | 15 |   |   |   | 15,210 |   |   |   | 451 |   |
| Total                            |   | $                   | 67,988 |   |              | $      | 1,720  |   |   | $ | 738 |   |   | $ | 16 |   |   | $ | 68,726 |   |   | $ | 1,736 |   |

|                             |   | Less than 12 Months |   |   | 12 Months or More |   |   | Total  |   |
|----------------------------------|--------|---------------------|--------|--------|-------------------|--------|--------|--------|--------|
|                             |   | Fair                |   |   | Unrealized        |   |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                             |   | Value               |   |   | Losses            |   |   | Value  |   |   | Losses |   |   | Value |   |   | Losses |   |
| State and political subdivisions |   | $                   | 507    |   |              | $      | 7      |   |   | $ | - |   |   | $ | - |   |   | $ | 507 |   |   | $ | 7 |   |
| Total                            |   | $                   | 507    |   |              | $      | 7      |   |   | $ | - |   |   | $ | - |   |   | $ | 507 |   |   | $ | 7 |   |

|                              |   | Less than 12 Months |   |   | 12 Months or More |   |   | Total  |   |
|-----------------------------------|--------|---------------------|--------|--------|-------------------|--------|--------|--------|--------|
|                              |   | Fair                |   |   | Unrealized        |   |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                              |   | Value               |   |   | Losses            |   |   | Value  |   |   | Losses |   |   | Value |   |   | Losses |   |
| Mortgage backed securities        |   | $                   | 9,237  |   |              | $      | 94     |   |   | $ | - |   |   | $ | - |   |   | $ | 9,237 |   |   | $ | 94 |   |
| Other Securities                  |   |                | -      |   |              |   | -      |   |   |   | 481 |   |   |   | 33 |   |   |   | 481 |   |   |   | 33 |   |
| States and political subdivisions |   |                | 4,796  |   |              |   | 104    |   |   |   | - |   |   |   | - |   |   |   | 4,796 |   |   |   | 104 |   |
| Total                             |   | $                   | 14,033 |   |              | $      | 198    |   |   | $ | 481 |   |   | $ | 33 |   |   | $ | 14,514 |   |   | $ | 231 |   |

----

|                                |   | March 31, |    |   | December 31, |   |    | March 31, |   |
|-------------------------------------|--------|-----------|---------|--------|--------------|--------|---------|-----------|--------|
|                                |   | 2011      |    |   | 2010         |   |    | 2010      |   |
|                                |   |      |    |   |         |   |    |      |   |
| Commercial                          |   | $         | 27,447  |   |         | $      | 28,362  |      |   | $ | 32,905 |   |
| Real Estate:                        |   |      |    |   |         |   |    |      |   |   |   |   |
|   Residential real estate |   |      | 102,844 |   |         |   | 106,759 |      |   |   | 108,932 |   |
|   Commercial real estate  |   |      | 190,909 |   |         |   | 192,351 |      |   |   | 212,562 |   |
|   Commercial construction |   |      | 3,356   |   |         |   | 6,152   |      |   |   | 7,388 |   |
| Consumer and other                  |   |      | 6,687   |   |         |   | 7,089   |      |   |   | 7,335 |   |
|                                |   |      | 331,243 |   |         |   | 340,713 |      |   |   | 369,122 |   |
| Less allowance for loan losses      |   |      | (8,082  | )      |         |   | (7,919  | )         |   |   | (8,665 | ) |
|                                |   | $         | 323,161 |   |         | $      | 332,794 |      |   | $ | 360,457 |   |

|                |   | March 31, |          |   | December31, |   |          | March 31, |   |
|---------------------|--------|-----------|---------------|--------|-------------|--------|---------------|-----------|--------|
|                |   | 2011      |          |   | 2010        |   |          | 2010      |   |
| Variable rate loans |   | $         | 100,989       |   |        | $      | 107,250       |      |   | $ | 116,286 |   |
| Fixed rate loans    |   |      |  230,254 |   |        |   |  233,463 |      |   |   |  252,836 |   |
|                |   | $         | 331,243       |   |        | $      | 340,713       |      |   | $ | 369,122 |   |

----

|                       |   | March 31, |   |   | December 31, |   |   | March 31, |   |
|----------------------------|--------|-----------|--------|--------|--------------|--------|--------|-----------|--------|
|                       |   | 2011      |   |   | 2010         |   |   | 2010      |   |
| BALANCE, BEGINNING OF YEAR |   | $         | 7,919  |   |         | $      | 7,431  |      |   | $ | 7,431 |   |
| Provision for loan losses  |   |      | 1,040  |   |         |   | 6,625  |      |   |   | 3,425 |   |
| Loans charged off          |   |      | (884   | )      |         |   | (6,572 | )         |   |   | (2,214 | ) |
| Loans recovered            |   |      | 7      |   |         |   | 435    |      |   |   | 23 |   |
| BALANCE, END OF YEAR       |   | $         | 8,082  |   |         | $      | 7,919  |      |   | $ | 8,665 |   |

|                                |   | March 31, 2011 |   |   | December 31, 2010 |   |   | March 31, 2010 |   |
|-------------------------------------|--------|----------------|--------|--------|-------------------|--------|--------|----------------|--------|
|                                |   | Charge-offs    |   |   | Recoveries        |   |   | Charge-offs    |   |   | Recoveries |   |   | Charge-offs |   |   | Recoveries |   |
| Commercial                          |   | $              | 116    |   |              | $      | 3      |           |   | $ | 1,866 |   |   | $ | 329 |   |   | $ | 304 |   |   | $ | 9 |   |
| Residential real estate             |   |           | 385    |   |              |   | -      |           |   |   | 1,160 |   |   |   | 77 |   |   |   | 89 |   |   |   | 12 |   |
| Commercial real estate              |   |           | 21     |   |              |   | 1      |           |   |   | 938 |   |   |   | 6 |   |   |   | 50 |   |   |   | 1 |   |
| Commercial Construction             |   |           | 303    |   |              |   | -      |           |   |   | 2,589 |   |   |   | 5 |   |   |   | 1,760 |   |   |   | - |   |
| Consumer and other                  |   |           | 59     |   |              |   | 3      |           |   |   | 19 |   |   |   | 18 |   |   |   | 11 |   |   |   | 1 |   |
|      Total |   | $              | 884    |   |              | $      | 7      |           |   | $ | 6,572 |   |   | $ | 435 |   |   | $ | 2,214 |   |   | $ | 23 |   |

|                                 |   |   Commercial |   |   |    Residential  Real Estate |   |    |     Commercial  Real Estate |   |   |     Commercial     Construction |   |   |  Consumerand Other |   |   | Total  |   |
|--------------------------------------|--------|-------------------|--------|--------|--------------------------------------------|--------|---------|-------------------------------------------------|--------|--------|--------------------------------------------------------------------|--------|--------|-------------------------|--------|--------|--------|--------|
| Specific Reserves:                   |   |              |   |   |                                       |   |    |                                            |   |   |                                                               |   |   |                    |   |   |   |   |
| Impaired Loans                       |   | $                 | -      |   |                                       | $      | -       |                                            |   | $      | 128                                                                |   |   | $                       | -      |   |   | $      | - |   |   | $ | 128 |   |
| General Reserve                      |   |              | 695    |   |                                       |   | 910     |                                            |   |   | 5,636                                                              |   |   |                    | 496    |   |   |   | 217 |   |   |   | 7,954 |   |
|      Total  |   | $                 | 695    |   |                                       | $      | 910     |                                            |   | $      | 5,764                                                              |   |   | $                       | 496    |   |   | $      | 217 |   |   | $ | 8,082 |   |
|                                 |   |              |   |   |                                       |   |    |                                            |   |   |                                                               |   |   |                    |   |   |   |   |   |   |   |   |   |   |
| Loans individually                   |   |              |   |   |                                       |   |    |                                            |   |   |                                                               |   |   |                    |   |   |   |   |   |   |   |   |   |   |
|   evaluated for impairment |   | $                 | -      |   |                                       | $      | 4,559   |                                            |   | $      | 11,165                                                             |   |   | $                       | 502    |   |   | $      | 28 |   |   | $ | 16,254 |   |
| Loans collectively                   |   |              |   |   |                                       |   |    |                                            |   |   |                                                               |   |   |                    |   |   |   |   |   |   |   |   |   |   |
|   evaluated for impairment |   |              | 27,447 |   |                                       |   | 98,285  |                                            |   |   | 179,745                                                            |   |   |                    | 2,854  |   |   |   | 6,658 |   |   |   | 314,989 |   |
|      Total  |   | $                 | 27,447 |   |                                       | $      | 102,844 |                                            |   | $      | 190,910                                                            |   |   | $                       | 3,356  |   |   | $      | 6,686 |   |   | $ | 331,243 |   |

|                                 |   |   Commercial |   |   |    Residential   Real Estate |   |    |   Commercial Real Estate |   |   |      Commercial      Construction |   |   | Consumerand Other |   |   |   Total |   |
|--------------------------------------|--------|-------------------|--------|--------|--------------------------------------------------|--------|---------|------------------------------------|--------|--------|-------------------------------------------------------------------------------------|--------|--------|-------------------|--------|--------|--------------|--------|
| Specific Reserves:                   |   |              |   |   |                                             |   |    |                               |   |   |                                                                                |   |   |              |   |   |         |   |
| Impaired Loans                       |   | $                 | -      |   |                                             | $      | 186     |                               |   | $      | 951                                                                                 |   |   | $                 | -      |   |         | $      | - |   |   | $ | 1,137 |   |
| General Reserve                      |   |              | 513    |   |                                             |   | 900     |                               |   |   | 4,677                                                                               |   |   |              | 527    |   |         |   | 165 |   |   |   | 6,782 |   |
|      Total  |   | $                 | 513    |   |                                             | $      | 1,086   |                               |   | $      | 5,628                                                                               |   |   | $                 | 527    |   |         | $      | 165 |   |   | $ | 7,919 |   |
|                                 |   |              |   |   |                                             |   |    |                               |   |   |                                                                                |   |   |              |   |   |         |   |   |   |   |   |   |   |
| Loans individually                   |   |              |   |   |                                             |   |    |                               |   |   |                                                                                |   |   |              |   |   |         |   |   |   |   |   |   |   |
|   evaluated for impairment |   | $                 | 483    |   |                                             | $      | 3,916   |                               |   | $      | 11,203                                                                              |   |   | $                 | -      |   |         | $      | 17 |   |   | $ | 15,619 |   |
| Loans collectively                   |   |              |   |   |                                             |   |    |                               |   |   |                                                                                |   |   |              |   |   |         |   |   |   |   |   |   |   |
|   evaluated for impairment |   |              | 27,879 |   |                                             |   | 102,843 |                               |   |   | 181,148                                                                             |   |   |              | 6,152  |   |         |   | 7,072 |   |   |   | 325,094 |   |
|      Total  |   | $                 | 28,362 |   |                                             | $      | 106,759 |                               |   | $      | 192,351                                                                             |   |   | $                 | 6,152  |   |         | $      | 7,089 |   |   | $ | 340,713 |   |
|                                 |   |              |   |   |                                             |   |    |                               |   |   |                                                                                |   |   |              |   |   |         |   |   |   |   |   |   |   |

----

|                                |   |                                  |   |   | Impaired Loans - With   |   |
|-------------------------------------|--------|---------------------------------------|--------|--------|-------------------------|--------|
|                                |   | Impaired Loans – With Allowance |   |   | No Allowance            |   |
|                                |   |                                  |   |   |                    |   |   |   Allowance for |   |   |   |   |   |   |   |
|                                |   |    Unpaid                   |   |   |    Recorded   |   |   | Loan Losses |   |   |    Unpaid |   |   |    Recorded |   |
|                                |   |    Principal                |   |   |    Investment |   |   |     Allocated |   |   |    Principal |   |   |    Investment |   |
| Commercial                          |   | $                                     | -      |   |                    | $      | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Real Estate:                        |   |                                  |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Residential real estate |   |                                  | -      |   |                    |   | - |   |   |   | - |   |   |   | 4559 |   |   |   | 5,042 |   |
|   Commercial real estate  |   |                                  | 709    |   |                    |   | 709 |   |   |   | 128 |   |   |   | 10,456 |   |   |   | 11,689 |   |
|   Commercial construction |   |                                  | -      |   |                    |   | - |   |   |   | - |   |   |   | 502 |   |   |   | 502 |   |
| Consumer and other                  |   |                                  | -      |   |                    |   | - |   |   |   | - |   |   |   | 28 |   |   |   | 28 |   |
|      Total |   | $                                     | 709    |   |                    | $      | 709 |   |   | $ | 128 |   |   | $ | 15,545 |   |   | $ | 17,261 |   |

|                                |   |                                  |   |   | Impaired Loans - With |   |
|-------------------------------------|--------|---------------------------------------|--------|--------|-----------------------|--------|
|                                |   | Impaired Loans – With Allowance |   |   | No Allowance          |   |
|                                |   |                                  |   |   |                  |   |   | Allowance for |   |   |   |   |   |   |   |
|                                |   | Unpaid                                |   |   | Recorded              |   |   | Loan Losses |   |   | Unpaid |   |   | Recorded |   |
|                                |   | Principal                             |   |   | Investment            |   |   | Allocated |   |   | Principal |   |   | Investment |   |
| Commercial                          |   | $                                     | -      |   |                  | $      | - |   |   | $ | - |   |   | $ | 483 |   |   | $ | 483 |   |
| Real Estate:                        |   |                                  |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Residential real estate |   |                                  | 740    |   |                  |   | 740 |   |   |   | 186 |   |   |   | 2,661 |   |   |   | 3,008 |   |
|   Commercial real estate  |   |                                  | 5,318  |   |                  |   | 4,505 |   |   |   | 951 |   |   |   | 6,158 |   |   |   | 5,635 |   |
|   Commercial construction |   |                                  | -      |   |                  |   | - |   |   |   | - |   |   |   | 1,047 |   |   |   | 1,231 |   |
| Consumer and other                  |   |                                  | -      |   |                  |   | - |   |   |   | - |   |   |   | 25 |   |   |   | 17 |   |
|      Total |   | $                                     | 6,058  |   |                  | $      | 5,245 |   |   | $ | 1,137 |   |   | $ | 10,374 |   |   | $ | 10,374 |   |

|                                                        |   |      2010 |   |
|-------------------------------------------------------------|--------|-------------------------------|--------|
| Impaired loans without valuation allowance                  |   | $                             | 7,766  |   |
| Impaired loans with a valuation allowance                   |   |                          | 9,246  |   |
| Total impaired loans                                        |   | $                             | 17,012 |   |
| Valuation allowance related to impaired loans               |   | $                             | 2,126  |   |
| Total non-accrual loans                                     |   | $                             | 16,496 |   |
| Total loans past due ninety days or more and still accruing |   | $                             | 120    |   |
|                                                        |   |                          |   |   |

----

|                                |   |              |   |   |              |   |   |    Greater than |   |   |            |   |   |           |   |   |         |   |
|-------------------------------------|--------|-------------------|--------|--------|-------------------|--------|--------|---------------------------|--------|--------|-----------------|--------|--------|----------------|--------|--------|--------------|--------|
|                                |   |   30-59 Days |   |   |   60-89 Days |   |   |   90 Days            |   |   |   Total    |   |   |   Total   |   |   |   Total |   |
|                                |   |   Past Due   |   |   |   Past Due   |   |   |   Past Due           |   |   |   Past Due |   |   |   Current |   |   |   Loans |   |
| Commercial                          |   | $                 | 44     |   |              | $      | -      |                      |   | $      | -               |   |   | $              | 44     |   |         | $      | 27,403 |   |   | $ | 27,447 |   |
| Real Estate:                        |   |              |   |   |              |   |   |                      |   |   |            |   |   |           |   |   |         |   |   |   |   |   |   |   |
|   Residential real estate |   |              | 165    |   |              |   | 16     |                      |   |   | 2,228           |   |   |           | 2,409  |   |         |   | 100,435 |   |   |   | 102,844 |   |
|   Commercial real estate  |   |              | 3,494  |   |              |   | 451    |                      |   |   | 4,410           |   |   |           | 8,355  |   |         |   | 182,555 |   |   |   | 190,910 |   |
|   Commercial construction |   |              | -      |   |              |   | -      |                      |   |   | -               |   |   |           | -      |   |         |   | 3,356 |   |   |   | 3,356 |   |
| Consumer and other                  |   |              | 2      |   |              |   | 3      |                      |   |   | 17              |   |   |           | 22     |   |         |   | 6,664 |   |   |   | 6,686 |   |
|      Total |   | $                 | 3,705  |   |              | $      | 470    |                      |   | $      | 6,655           |   |   | $              | 10,830 |   |         | $      | 320,413 |   |   | $ | 331,243 |   |

|                                |   |                    |   |   |                    |   |   |    Greater than |   |   |            |   |   |           |   |   |         |   |
|-------------------------------------|--------|-------------------------|--------|--------|-------------------------|--------|--------|---------------------------|--------|--------|-----------------|--------|--------|----------------|--------|--------|--------------|--------|
|                                |   |    30-59 Days |   |   |    60-89 Days |   |   |   90 Days            |   |   |   Total    |   |   |   Total   |   |   |   Total |   |
|                                |   |    Past Due   |   |   |   Past Due         |   |   |   Past Due           |   |   |   Past Due |   |   |   Current |   |   |   Loans |   |
| Commercial                          |   | $                       | 10     |   |                    | $      | -      |                      |   | $      | 483             |   |   | $              | 493    |   |         | $      | 27,869 |   |   | $ | 28,362 |   |
| Real Estate:                        |   |                    |   |   |                    |   |   |                      |   |   |            |   |   |           |   |   |         |   |   |   |   |   |   |   |
|   Residential real estate |   |                    | 1,842  |   |                    |   | 70     |                      |   |   | 612             |   |   |           | 2,524  |   |         |   | 104,235 |   |   |   | 106,759 |   |
|   Commercial real estate  |   |                    | 1,330  |   |                    |   | 1,785  |                      |   |   | 6,570           |   |   |           | 9,685  |   |         |   | 182,666 |   |   |   | 192,351 |   |
|   Commercial construction |   |                    | -      |   |                    |   | -      |                      |   |   | 728             |   |   |           | 728    |   |         |   | 5,424 |   |   |   | 6,152 |   |
| Consumer and other                  |   |                    | 25     |   |                    |   | 174    |                      |   |   | -               |   |   |           | 199    |   |         |   | 6,890 |   |   |   | 7,089 |   |
|      Total |   | $                       | 3,207  |   |                    | $      | 2,029  |                      |   | $      | 8,393           |   |   | $              | 13,629 |   |         | $      | 327,084 |   |   | $ | 340,713 |   |

----

| MMarch 31, 2011                     |   |                     |    |   |                            |   |    |                               |   |   |                           |   |   |     |   |
|-------------------------------------|--------|--------------------------|---------|--------|---------------------------------|--------|---------|------------------------------------|--------|--------|--------------------------------|--------|--------|----------|--------|
|                                |   |     Total |    |   |     Pass Credits |   |    |    Special  Mention |   |   |     Substandard |   |   | Doubtful |   |
| Commercial                          |   | $                        | 27,447  |   |                            | $      | 22,270  |                               |   | $      | 2,449                          |   |   | $        | 2,728  |   |   | $ | - |   |
| Real Estate:                        |   |                     |    |   |                            |   |    |                               |   |   |                           |   |   |     |   |   |   |   |   |   |
|   Residential real estate |   |                     | 102,844 |   |                            |   | 95,421  |                               |   |   | 5,237                          |   |   |     | 2,186  |   |   |   | - |   |
|   Commercial real estate  |   |                     | 190,909 |   |                            |   | 145,975 |                               |   |   | 26,809                         |   |   |     | 18,125 |   |   |   | - |   |
|   Commercial construction |   |                     | 3,356   |   |                            |   | 1,404   |                               |   |   | 915                            |   |   |     | 1,037  |   |   |   | - |   |
| Consumer and other                  |   |                     | 6,687   |   |                            |   | 6,233   |                               |   |   | 34                             |   |   |     | 420    |   |   |   | - |   |
|      Total |   | $                        | 331,243 |   |                            | $      | 271,303 |                               |   | $      | 35,444                         |   |   | $        | 24,496 |   |   | $ | - |   |

|                                |   |               |    |   |                            |   |    |                                     |   |   |                           |   |   |                        |   |
|-------------------------------------|--------|--------------------|---------|--------|---------------------------------|--------|---------|------------------------------------------|--------|--------|--------------------------------|--------|--------|-----------------------------|--------|
| December 31, 2010                   |   |               |    |   |                            |   |    |                                     |   |   |                           |   |   |                        |   |
|                                |   |    Total |    |   |     Pass Credits |   |    |    Special   Mention |   |   |     Substandard |   |   |     Doubtful |   |
| Commercial                          |   | $                  | 28,362  |   |                            | $      | 25,961  |                                     |   | $      | 1,064                          |   |   | $                           | 1,335  |   |   | $ | 2 |   |
| Real Estate:                        |   |               |    |   |                            |   |    |                                     |   |   |                           |   |   |                        |   |   |   |   |   |   |
|   Residential real estate |   |               | 106,759 |   |                            |   | 102,778 |                                     |   |   | 1,729                          |   |   |                        | 2,252  |   |   |   | - |   |
|   Commercial real estate  |   |               | 192,351 |   |                            |   | 140,917 |                                     |   |   | 17,851                         |   |   |                        | 33,583 |   |   |   | - |   |
|   Commercial construction |   |               | 6,152   |   |                            |   | 3,453   |                                     |   |   | 1,052                          |   |   |                        | 1,647  |   |   |   | - |   |
| Consumer and other                  |   |               | 7,089   |   |                            |   | 7,071   |                                     |   |   | 18                             |   |   |                        | -      |   |   |   | - |   |
|      Total |   | $                  | 340,713 |   |                            | $      | 280,180 |                                     |   | $      | 21,714                         |   |   | $                           | 38,817 |   |   | $ | 2 |   |

|                                                                             |   | March 31, |      |   | December 31, |   |   | March 31, |   |
|----------------------------------------------------------------------------------|--------|-----------|-----------|--------|--------------|--------|--------|-----------|--------|
|                                                                             |   | 2011      |      |   | 2010         |   |   | 2010      |   |
|                                                                             |   | Amount    |      |   |         | #      |   |      | Amount |   |   |   | # |   |   | Amount |   |   |   | # |   |
| Construction and     land development                        |   | $         | 10,507    |   |         |   | 39     |      |   | $ | 9,964 |   |   |   | 38 |   |   | $ | 11,232 |   |   |   | 59 |   |
| Residential real estate                                                          |   |      | 2,103     |   |         |   | 12     |      |   |   | 2,870 |   |   |   | 13 |   |   |   | 1,053 |   |   |   | 11 |   |
| Commercial real estate                                                           |   |      |  703 |   |         |   | 11     |      |   |   |  510 |   |   |   |  3 |   |   |   |  311 |   |   |   |  3 |   |
|   Total assets acquired     in settlement of loans |   | $         | 13,313    |   |         |   | 62     |      |   | $ | 13,344 |   |   |   | 54 |   |   | $ | 12,596 |   |   |   | 73 |   |

|                       |   | March 31, |   |   | December 31, |   |   | March 31, |   |
|----------------------------|--------|-----------|--------|--------|--------------|--------|--------|-----------|--------|
|                       |   | 2011      |   |   | 2010         |   |   | 2010      |   |
| BALANCE, BEGINNING OF YEAR |   | $         | 13,344 |   |         | $      | 11,490 |      |   | $ | 11,490 |   |
| Additions - foreclosures   |   |      | 2,420  |   |         |   | 9,943  |      |   |   | 2,898 |   |
| Sales                      |   |      | (2,029 | )      |         |   | (7,017 | )         |   |   | (1,721 | ) |
| Write downs                |   |      | (422   | )      |         |   | (522   | )         |   |   | (71 | ) |
| Valuation reserve          |   |      | -      |   |         |   | (550   | )         |   |   | - |   |
| BALANCE, END OF YEAR       |   | $         | 13,313 |   |         | $      | 13,344 |      |   | $ | 12,596 |   |

----

|                                |   |   Shares |         |   | WeightedAverageExercisePrice |   |   | WeightedAverageContractualTerm (Years) |   |   | AggregateIntrinsicValue |   |
|-------------------------------------|--------|--------------------|--------------|--------|------------------------------|--------|--------|----------------------------------------|--------|--------|-------------------------|--------|
| Outstanding, December 31, 2010      |   |               | 143,424      |   |                         | $      | 9.36   |                                   |   |   |                    |   |   |   |
| Granted                             |   |               | -            |   |                         |   | -      |                                   |   |   |                    |   |   |   |
| Exercised                           |   |               | -            |   |                         |   | -      |                                   |   |   |                    |   |   |   |
| Forfeited                           |   |               |  (5,646 | )      |                         |   | 8.53   |                                   |   |   |                    |   |   |   |
| Outstanding, March 31, 2011         |   |               | 137,778      |   |                         | $      | 9.39   |                                   |   |   | 5.78                    |   |   | $ | - |   |
|                                |   |               |         |   |                         |   |   |                                   |   |   |                    |   |   |   |   |   |
| Options exercisable, March 31, 2011 |   |               | 121,773      |   |                         | $      | 9.85   |                                   |   |   | 5.45                    |   |   | $ | - |   |

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

----

| Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly-structured or long-term derivative contracts. |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                           |   | Quoted market price in active markets for identical assets/liabilities |   |   | Significant other observable inputs |   |    | Significant unobservable inputs |   |   |   |   |
|------------------------------------------------|--------|------------------------------------------------------------------------|--------|--------|-------------------------------------|--------|---------|---------------------------------|--------|--------|--------|--------|
|                                           |   | (Level 1)                                                              |   |   | (Level 2)                           |   |    | (Level 3)                       |   |   | Total  |   |
| Recurring Basis:                               |   |                                                                   |   |   |                                |   |    |                            |   |   |   |   |
| Available for sale investment                  |   |                                                                   |   |   |                                |   |    |                            |   |   |   |   |
| securities:                                    |   |                                                                   |   |   |                                |   |    |                            |   |   |   |   |
|   Government Sponsored Securities    |   | $                                                                      | -      |   |                                | $      | 1,699   |                            |   | $      | -      |   |   | $ | 1,699 |   |
|   Mortgage Backed Securities         |   |                                                                   | -      |   |                                |   | 100,300 |                            |   |   | -      |   |   |   | 100,300 |   |
|   Obligations of States and          |   |                                                                   |   |   |                                |   |    |                            |   |   |   |   |   |   |   |   |
|     Political Subdivisions |   |                                                                   | -      |   |                                |   | 36,284  |                            |   |   | -      |   |   |   | 36,284 |   |
|   Other Securities                   |   |                                                                   | -      |   |                                |   | 601     |                            |   |   | -      |   |   |   | 601 |   |
| Trading Assets                                 |   |                                                                   | 204    |   |                                |   | -       |                            |   |   | -      |   |   |   | 204 |   |
| Total                                          |   | $                                                                      | 204    |   |                                | $      | 138,884 |                            |   | $      | -      |   |   | $ | 139,088 |   |
|                                           |   |                                                                   |   |   |                                |   |    |                            |   |   |   |   |   |   |   |   |

| Nonrecurring Basis:     |   |   |   |   |   |   |   |   |   |   |   |   |
|-------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Impaired loans          |   | $      | -      |   |   | $      | 16,126 |   |   | $      | -      |   |   | $ | 16,126 |   |
| Other real estate owned |   |   | -      |   |   |   | 13,313 |   |   |   | -      |   |   |   |  13,313 |   |
| Total                   |   | $      | -      |   |   | $      | 29,439 |   |   | $      | -      |   |   | $ | 29,439 |   |

|                                        |   | Quoted market price in active markets for identical assets/liabilities |   |   | Significant other observable inputs |   |    | Significant unobservable inputs |   |   |   |   |
|---------------------------------------------|--------|------------------------------------------------------------------------|--------|--------|-------------------------------------|--------|---------|---------------------------------|--------|--------|--------|--------|
|                                        |   | (Level 1)                                                              |   |   | (Level 2)                           |   |    | (Level 3)                       |   |   | Total  |   |
| Recurring Basis:                            |   |                                                                   |   |   |                                |   |    |                            |   |   |   |   |
| Available for sale investment               |   |                                                                   |   |   |                                |   |    |                            |   |   |   |   |
| securities:                                 |   |                                                                   |   |   |                                |   |    |                            |   |   |   |   |
|   Government Sponsored Securities |   | $                                                                      | -      |   |                                | $      | 1,726   |                            |   | $      | -      |   |   | $ | 1,726 |   |
|   Mortgage Backed Securities      |   |                                                                   | -      |   |                                |   | 95,906  |                            |   |   | -      |   |   |   | 95,906 |   |
|   Obligations of States and       |   |                                                                   |   |   |                                |   |    |                            |   |   |   |   |   |   |   |   |
|    Political Subdivisions    |   |                                                                   | -      |   |                                |   | 32,441  |                            |   |   | -      |   |   |   | 32,441 |   |
|   Other Securities                |   |                                                                   | -      |   |                                |   | 577     |                            |   |   | -      |   |   |   | 577 |   |
| Trading Assets                              |   |                                                                   | 76     |   |                                |   | -       |                            |   |   | -      |   |   |   | 76 |   |
| Total                                       |   | $                                                                      | 76     |   |                                | $      | 130,650 |                            |   | $      | -      |   |   | $ | 130,726 |   |
|                                        |   |                                                                   |   |   |                                |   |    |                            |   |   |   |   |   |   |   |   |
| Nonrecurring Basis:                         |   |                                                                   |   |   |                                |   |    |                            |   |   |   |   |   |   |   |   |
| Impaired loans                              |   | $                                                                      | -      |   |                                | $      | 14,482  |                            |   | $      | -      |   |   | $ | 14,482 |   |
| Other real estate owned                     |   |                                                                   | -      |   |                                |   | 13,344  |                            |   |   | -      |   |   |   | 13,344 |   |
| Total                                       |   | $                                                                      | -      |   |                                | $      | 27,826  |                            |   | $      | -      |   |   | $ | 27,826 |   |

----

----

|                                        |   | March 31,2011 |    |   | December 31,2010 |   |
|---------------------------------------------|--------|---------------|---------|--------|------------------|--------|
|                                        |   | Carrying      |    |   | Fair             |   |   | Carrying |   |   | Fair |   |
|                                        |   | amount        |    |   | value            |   |   | amount |   |   | value |   |
| Financial assets                            |   |          |    |   |             |   |   |   |   |   |   |   |
| Cash and due from banks                     |   | $             | 9,015   |   |             | $      | 9,015 |   |   | $ | 6,612 |   |   | $ | 6,612 |   |
| Interest-bearing deposits in other banks    |   |          | 8       |   |             |   | 8 |   |   |   | 1 |   |   |   | 1 |   |
| Federal funds sold                          |   |          | 18,366  |   |             |   | 18,366 |   |   |   | 10,631 |   |   |   | 10,631 |   |
| Trading assets                              |   |          | 204     |   |             |   | 204 |   |   |   | 76 |   |   |   | 76 |   |
| Securities available for sale               |   |          | 138,884 |   |             |   | 138,884 |   |   |   | 130,650 |   |   |   | 130,650 |   |
| Securities held to maturity                 |   |          | 6,727   |   |             |   | 6,878 |   |   |   | 7,249 |   |   |   | 7,375 |   |
| Other investments                           |   |          | 4,319   |   |             |   | 4,319 |   |   |   | 4,319 |   |   |   | 4,319 |   |
| Loans (gross)                               |   |          | 331,243 |   |             |   | 326,435 |   |   |   | 340,713 |   |   |   | 338,445 |   |
| Cash surrender value of life insurance      |   |          | 12,909  |   |             |   | 12,909 |   |   |   | 12,791 |   |   |   | 12,791 |   |
|                                        |   |          |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                      |   |          |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                    |   | $             | 479,891 |   |             | $      | 478,629 |   |   | $ | 474,754 |   |   | $ | 471,323 |   |
| Securities sold under repurchase agreements |   |          | 12,445  |   |             |   | 12,445 |   |   |   | 10,362 |   |   |   | 10,362 |   |

----

----

|  Item 2.  |  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS  |
|---------------------|--------------------------------------------------------------------------------------------------------------------|

----

| ·   | future economic and business conditions; |
|--------------------|------------------------------------------|

| ·   | lack of sustained growth in the economies of the Company's market areas; |
|--------------------|--------------------------------------------------------------------------|

| ·   | government monetary and fiscal policies; |
|--------------------|------------------------------------------|

| ·   | 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; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | credit risks; |
|--------------------|---------------|

| ·   | higher than anticipated levels of defaults on loans; |
|--------------------|------------------------------------------------------|

| ·   | perceptions by depositors about the safety of their deposits; |
|--------------------|---------------------------------------------------------------|

| ·   | ability to weather the current economic downturn; |
|--------------------|---------------------------------------------------|

| ·   | the failure of assumptions underlying the establishment of the allowance for loan losses and other estimates, including the value of collateral securing loans; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | changes in laws and regulations, including tax, banking and securities laws and regulations; |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | the effect of agreements with regulatory authorities, which restrict various activities and impose additional administrative requirements without commensurate benefits; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | changes in requirements of regulatory authorities; |
|--------------------|----------------------------------------------------|

| ·   | changes in accounting policies, rules and practices; |
|--------------------|------------------------------------------------------|

| ·   | cost and difficulty of implementing changes in technology or products; |
|--------------------|------------------------------------------------------------------------|

| ·   | loss of consumer or investor confidence; |
|--------------------|------------------------------------------|

| ·   | the effects of war or other conflicts, acts of terrorism or other  catastrophic events that may affect general economic conditions and economic confidence; and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

| Loan Portfolio Composition                |   | March 31,   |    |   | December 31, |   |    | March 31,   |   |
|-------------------------------------------|--------|-------------|---------|--------|--------------|--------|---------|-------------|--------|
| (Dollars in thousands)                    |   | 2011        |    |   | 2010         |   |    | 2010        |   |
|                                      |   | (Unaudited) |    |   | (Audited)    |   |    | (Unaudited) |   |
| Commercial                                |   | $           | 27,447  |   |         | $      | 28,362  |        |   | $ | 32,905 |   |
| Real Estate:                              |   |        |    |   |         |   |    |        |   |   |   |   |
|   Residential real estate       |   |        | 102,844 |   |         |   | 106,759 |        |   |   | 108,932 |   |
|   Commercial real estate        |   |        | 190,910 |   |         |   | 192,351 |        |   |   | 212,562 |   |
|   Commercial construction       |   |        | 3,356   |   |         |   | 6,152   |        |   |   | 7,388 |   |
| Consumer and other                        |   |        | 6,686   |   |         |   | 7,089   |        |   |   | 7,335 |   |
|      Gross loans |   | $           | 331,243 |   |         | $      | 340,713 |        |   | $ | 369,122 |   |

----

----

|   |   | March 31, |   |   | December 31, |   | March 31, |   |
|--------|--------|-----------|--------|--------|--------------|--------|-----------|--------|
|   |   | 2011      |   |   | 2010         |   | 2010      |   |
|   |   |      |   |   |         |   |      |   |   |   |   |   |

| Net charge-offs to average loans   outstanding during the period             |   |   | 0.26  | % |   |   | 1.71  | % |   |   | 0.59  | % |
|---------------------------------------------------------------------------------------------|--------|--------|-------|---|--------|--------|-------|---|--------|--------|-------|---|
| Net charge-offs to total loans   outstanding at end of period                |   |   | 0.26  | % |   |   | 1.80  | % |   |   | 0.59  | % |
| Allowance for loan losses to   average loans                                 |   |   | 2.41  | % |   |   | 2.20  | % |   |   | 2.33  | % |
| Allowance for loan losses to    total loans at end of  period |   |   | 2.44  | % |   |   | 2.32  | % |   |   | 2.35  | % |
| Net charge-offs to allowance for    loan losses at end of period        |   |   | 10.85 | % |   |   | 77.50 | % |   |   | 25.29 | % |
| Net charge-offs to provision for    loan losses                         |   |   | 84.33 | % |   |   | 92.63 | % |   |   | 63.97 | % |

----

| -   | The impact of changes in the international, national, regional and local economic and business conditions and developments that affect the collectibility of the loan portfolio, including those within our geographic market. |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | The cumulative impact of the extended duration of this economic deterioration on our borrowers, in particular those with real estate related loans. |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | Changes in the nature and volume in our loan portfolio. |
|---------------|---------------------------------------------------------|

| -   | The impact of changes in the experience, ability, and depth of the lending management and other relevant staff. |
|---------------|-----------------------------------------------------------------------------------------------------------------|

| -   | Changes in the value of underlying collateral for collateral-dependent loans. |
|---------------|-------------------------------------------------------------------------------|

| -   | The impact of changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans. |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | Changes in the quality of the Company’s loan review system. |
|---------------|-------------------------------------------------------------------|

----

|                                                                             |   | March 31, |      |   | December 31, |   |   | March 31, |   |
|----------------------------------------------------------------------------------|--------|-----------|-----------|--------|--------------|--------|--------|-----------|--------|
|                                                                             |   | 2011      |      |   | 2010         |   |   | 2010      |   |
|                                                                             |   | Amount    |      |   |         | #      |   |      | Amount |   |   |   | # |   |   | Amount |   |   |   | # |   |
| Construction and land    development                              |   | $         | 10,507    |   |         |   | 39     |      |   | $ | 9,964 |   |   |   | 38 |   |   | $ | 11,232 |   |   |   | 59 |   |
| Residential real estate                                                          |   |      | 2,103     |   |         |   | 12     |      |   |   | 2,870 |   |   |   | 13 |   |   |   | 1,053 |   |   |   | 11 |   |
| Commercial real estate                                                           |   |      |  703 |   |         |   | 11     |      |   |   |  510 |   |   |   |  3 |   |   |   |  311 |   |   |   |  3 |   |
|   Total assets acquired in     settlement of loans |   | $         | 13,313    |   |         |   | 62     |      |   | $ | 13,344 |   |   |   | 54 |   |   | $ | 12,596 |   |   |   | 73 |   |

----

----

----

----

|   |   |  Actual |   |   |  WellCapitalizedRequirement |   |              |  AdequatelyCapitalizedRequirement |   |
|--------|--------|--------------|--------|--------|----------------------------------|--------|-------------------|----------------------------------------|--------|
|   |   |         | Amount |   |                             |   | Ratio   |                                   |   |   | Amount   |   |   |   | Ratio   |   |   |   | Amount   |   |   |   | Ratio   |   |

| Total Risk-based Capital       |   | $      | 53,157 |   |   |   | 14.46  | %      |   |   | N/A    |   |   |   | N/A    |   |   | $      | 29,409 |   |   |   | 8.00   | %      |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Tier 1 Risk-based Capital      |   |   | 48,561 |   |   |   | 13.21  |   |   |   | N/A    |   |   |   | N/A    |   |   |   | 14,704 |   |   |   | 4.00   |   |
| Leverage Ratio                 |   |   | 48,561 |   |   |   | 8.98   |   |   |   | N/A    |   |   |   | N/A    |   |   |   | 21,631 |   |   |   | 4.00   |   |
|                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The Peoples National Bank (1): |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Risk-based Capital       |   | $      | 31,749 |   |   |   | 13.76  | %      |   | $      | 23,073 |   |   |   | 10.00  | %      |   | $      | 18,459 |   |   |   | 8.00   | %      |
| Tier 1 Risk-based Capital      |   |   | 28,827 |   |   |   | 12.49  |   |   |   | 13,848 |   |   |   | 6.00   |   |   |   | 9,232  |   |   |   | 4.00   |   |
| Leverage Ratio                 |   |   | 28,827 |   |   |   | 8.87   |   |   |   | 16,250 |   |   |   | 5.00   |   |   |   | 13,000 |   |   |   | 4.00   |   |
|                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank of Anderson, N. A. (1):   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Risk-based Capital       |   | $      | 13,343 |   |   |   | 15.74  | %      |   | $      | 8,477  |   |   |   | 10.00  | %      |   | $      | 6,782  |   |   |   | 8.00   | %      |
| Tier 1 Risk-based Capital      |   |   | 12,277 |   |   |   | 14.48  |   |   |   | 5,087  |   |   |   | 6.00   |   |   |   | 3,391  |   |   |   | 4.00   |   |
| Leverage Ratio                 |   |   | 12,277 |   |   |   | 8.50   |   |   |   | 7,222  |   |   |   | 5.00   |   |   |   | 5,777  |   |   |   | 4.00   |   |
|                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Seneca National Bank (1):      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Risk-based Capital       |   | $      | 7,195  |   |   |   | 13.82  | %      |   | $      | 5,206  |   |   |   | 10.00  | %      |   | $      | 4,165  |   |   |   | 8.00   | %      |
| Tier 1 Risk-based Capital      |   |   | 6,585  |   |   |   | 12.65  |   |   |   | 3,123  |   |   |   | 6.00   |   |   |   | 2,082  |   |   |   | 4.00   |   |
| Leverage Ratio                 |   |   | 6,585  |   |   |   | 8.82   |   |   |   | 3,733  |   |   |   | 5.00   |   |   |   | 2,986  |   |   |   | 4.00   |   |

----

----

----

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

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

| 32       | Section 1350 Certifications |
|----------------------------------------|-----------------------------|

----

|                           |   | PEOPLES BANCORPORATION, INC.                        |
|--------------------------------|--------|-----------------------------------------------------|
|                           |   |                                                |
|                           |   |                                                |
| Dated:  May 11, 2011 | By:    | /s/ L. Andrew Westbrook, III                        |
|                           |   | L. Andrew Westbrook, III                            |
|                           |   | President & Chief Executive Officer             |
|                           |   |                                                |
|                           |   |                                                |
| Dated:  May 11, 2011 | By:    | /s/ Robert E. Dye, Jr.                              |
|                           |   | Robert E. Dye, Jr.                                  |
|                           |   | Senior Vice President & Chief Financial Officer |
|                           |   | (principal financial officer)                       |
|                           |   |                                                |

----

----