SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the Quarterly Period Ended Commission file
                          September 30, 2004 000-20616

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

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

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

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


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

                             Yes [X] No [ ]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12 b-2 of the Exchange Act).

                              Yes [ ] No [X]

The number of outstanding shares of the issuer's $1.11 par value common stock as
of November 10, 2004 was 5,533,887.




<PAGE>


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements


         Peoples Bancorporation, Inc. and Subsidiaries
                  Consolidated Balance Sheets
           (Dollars in thousands except share data)
<TABLE>
<CAPTION>
                                                                                         September 30,   September 30,  December 31,
                                                                                             2004           2003            2003
                                                                                           Unaudited      Unaudited       Audited
                                                                                           ---------      ---------       -------
ASSETS
<S>                                                                                       <C>              <C>             <C>
CASH AND DUE FROM BANKS ...........................................................       $   9,693        $  13,445       $   9,164
INTEREST-BEARING DEPOSITS IN OTHER BANKS ..........................................             891            1,023             214
FEDERAL FUNDS SOLD ................................................................             803           15,003          11,865
                                                                                          ---------        ---------       ---------
     Total cash and cash equivalents ..............................................          11,387           29,471          21,243
SECURITIES
     Available for sale ...........................................................          62,302           79,462          78,714
     Held for investment (market value of $7,493, $5,188 and $3,417) ..............           7,424            5,069           5,632
       Other investments, at cost .................................................           1,814            2,146           2,147
LOANS-less allowance for loan losses of $3,627, $3,745 and $3,438 .................         317,537          279,844         292,814
MORTGAGE LOANS HELD FOR SALE ......................................................           9,642           13,417           5,101
PREMISES AND EQUIPMENT, net of accumulated
     depreciation and amortization ................................................          11,222           10,111          10,231
ACCRUED INTEREST RECEIVABLE .......................................................           1,702            1,785           1,821
CASH SURRENDER VALUE OF LIFE INSURANCE ............................................           8,963            2,279           2,294
OTHER ASSETS ......................................................................           2,262            2,103           1,759
                                                                                          ---------        ---------       ---------
         TOTAL ASSETS .............................................................       $ 434,255        $ 425,687       $ 421,756
                                                                                          =========        =========       =========

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
DEPOSITS
     Noninterest-bearing ..........................................................       $  50,020        $  48,039       $  42,289
     Interest-bearing .............................................................         299,763          308,325         311,040
                                                                                          ---------        ---------       ---------
         Total deposits ...........................................................         349,783          356,364         353,329
SECURITIES SOLD UNDER REPURCHASE
     AGREEMENTS ...................................................................          31,908           24,903          24,390
FEDERAL FUNDS PURCHASED ...........................................................             378                -               -
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ...........................................          11,500            5,000           5,000
ACCRUED INTEREST PAYABLE ..........................................................           1,214            1,553           1,604
OTHER LIABILITIES .................................................................           1,748            1,752           1,272
                                                                                          ---------        ---------       ---------
         Total Liabilities ........................................................         396,531          389,572         385,595
                                                                                          ---------        ---------       ---------
SHAREHOLDERS' EQUITY *
Common Stock - 15,000,000 shares authorized, $1.11
     Par value per share, 5,533,887 shares, 5,261,866 shares
       and 5,524,131 shares outstanding, respectively  ............................           6,143            5,841           6,132
Additional paid-in capital ........................................................          29,577           25,775          29,523
Retained Earnings .................................................................           2,223            4,483             444
Accumulated other comprehensive income (loss) .....................................            (219)              16              62
                                                                                          ---------        ---------       ---------
         Total Shareholders' Equity ...............................................          37,724           36,115          36,161
                                                                                          ---------        ---------       ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................................       $ 434,255        $ 425,687       $ 421,756
                                                                                          =========        =========       =========
</TABLE>

* Share data has been  restated to reflect the 3-for-2  stock split  effected in
October 2004 and the 5% common stock dividend issued in November 2003.

                                       1
<PAGE>

                 Peoples Bancorporation, Inc. and Subsidiaries
                        Consolidated Statements of Income
                    (Dollars in thousands except share data)
                                    Unaudited

<TABLE>
<CAPTION>
                                                                                     Three Months Ended Nine Months Ended
                                                                                          September 30, September 30,
                                                                                          ---------------------------
                                                                          2004              2003             2004              2003
                                                                          ----              ----             ----              ----
INTEREST INCOME
<S>                                                                    <C>              <C>              <C>              <C>
   Interest and fees on loans ..................................       $    4,791       $    4,620       $   13,844       $   13,688
   Interest on securities
       Taxable .................................................              456              506            1,434            1,807
       Tax-exempt ..............................................               62               45              172              132
   Interest on federal funds ...................................               15               65               70              130
                                                                       ----------       ----------       ----------       ----------
Total interest income ..........................................            5,324            5,236           15,520           15,757
                                                                       ----------       ----------       ----------       ----------

INTEREST EXPENSE
   Interest on deposits ........................................            1,423            1,727            4,400            5,184
   Interest on federal funds purchased and securities
       sold under repurchase agreements ........................               89               83              219              323
    Interest on notes payable Federal Home Loan Bank ...........               72               62              198              216
                                                                       ----------       ----------       ----------       ----------
Total interest expense .........................................            1,584            1,872            4,817            5,723
                                                                       ----------       ----------       ----------       ----------

Net interest income ............................................            3,740            3,364           10,703           10,034

PROVISION FOR LOAN LOSSES ......................................              153              549              436            1,007
                                                                       ----------       ----------       ----------       ----------

Net interest income after provision for loan losses ............            3,587            2,815           10,267            9,027

NON-INTEREST INCOME
   Service fees and other income ...............................              816              628            2,435            1,915
   Gain on sale of mortgage loans held for sale ................              376            2,478            1,463            7,350
   Gain on sale of available for sale securities ...............                1                6              128               13
                                                                       ----------       ----------       ----------       ----------
                                                                            1,193            3,112            4,026            9,278
NON-INTEREST EXPENSES
   Salaries and benefits .......................................            1,985            2,347            6,239            6,492
   Occupancy ...................................................              172              156              498              454
   Equipment ...................................................              320              323              937              799
   Marketing and advertising ...................................               70               99              219              272
   Communications ..............................................               39               71              156              199
   Printing and supplies .......................................               54               75              150              206
   Bank paid loan costs ........................................               80              108              224              362
   Director fees ...............................................               69               67              210              210
   Executive retirement benefit expense ........................               29               53              477              132
   Other operating expenses ....................................              480              574            1,436            1,671
                                                                       ----------       ----------       ----------       ----------
             Total noninterest expenses ........................            3,298            3,873           10,546           10,797
                                                                       ----------       ----------       ----------       ----------
   Income before income taxes ..................................            1,482            2,054            3,747            7,508

PROVISION FOR INCOME TAXES .....................................              460              749            1,187            2,735
                                                                       ----------       ----------       ----------       ----------

   Net income ..................................................       $    1,022       $    1,305       $    2,560       $    4,773
                                                                       ==========       ==========       ==========       ==========

INCOME PER COMMON SHARE *
   BASIC .......................................................       $     0.18       $     0.24       $     0.46       $     0.86
                                                                       ==========       ==========       ==========       ==========
   DILUTED .....................................................       $     0.18       $     0.23       $     0.45       $     0.83
                                                                       ==========       ==========       ==========       ==========

WEIGHTED AVERAGE COMMON SHARES *
   BASIC .......................................................        5,533,887        5,524,960        5,527,383        5,524,960
                                                                       ==========       ==========       ==========       ==========
   DILUTED .....................................................        5,768,689        5,743,546        5,732,573        5,731,307
                                                                       ==========       ==========       ==========       ==========

CASH DIVIDENDS PAID PER COMMON SHARE ...........................       $     0.07       $     0.07       $     0.21       $     0.21
                                                                       ==========       ==========       ==========       ==========
</TABLE>

* Share data has been  restated to reflect the 3-for-2  stock split  effected in
October 2004 and the 5% common stock dividend issued in November 2003.



                                       2
<PAGE>




                  Peoples Bancorporation, Inc. and Subsidiaries
           Consolidated Statements of Changes in Shareholders' Equity
              for the nine months ended September 30, 2004 and 2003

                    (Dollars in thousands except share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                                          Common stock          Additional                    other        Total
                                                         ------------           paid-in       Retained   comprehensive shareholders'
                                                     Shares        Amount       capital       earnings   Income (loss)    equity
                                                     ------        ------       -------       --------   -------------    ------
<S>                                                  <C>          <C>           <C>          <C>          <C>            <C>
Balance, December 31, 2002 * ......................  5,261,866    $    5,841    $   25,775   $      446   $      685     $   32,747
Net Income ........................................                                               4,773                       4,773
Other comprehensive income, net of tax:
   Unrealized holding gains on
   securities available for sale ..................                                                             (661)          (661)
   Less reclassification
   adjustments for gains
   included in net income, net of
   Income taxes of $2 .............................                                                               (8)            (8)
                                                                                                                         ----------
Comprehensive income ..............................                                                                           4,104
Cash Dividends ....................................                                                (736)                       (736)

                                                     ---------    ----------    ----------   ----------   ----------     ----------
Balance, September 30, 2003 * .....................  5,261,866    $    5,841    $   25,775   $    4,483   $       16     $   36,115
                                                    ==========    ==========    ==========   ==========   ==========     ==========

Balance, December 31, 2003 * ......................  5,523,842    $    6,132    $   29,523   $      444   $       62     $   36,161
Net Income ........................................                                               2,560                       2,560
Other comprehensive income, net of tax:
   Unrealized holding losses on
   securities available for sale ..................                                                             (197)          (197)
   Less reclassification
   adjustments for gains
   included in net income, net of
   income taxes of $43 ............................                                                              (84)           (84)
                                                                                                                         ----------
Comprehensive income ..............................                                                                           2,279
Cash in lieu of fractional shares .................                                                  (7)                         (7)
  On 3-for-2 stock split
Cash dividends ....................................                                                (774)                       (774)
Proceeds from stock options exercised .............     10,045            11            54                                       65
                                                    ----------    ----------    ----------   ----------   ----------     ----------
Balance, September 30, 2004 * .....................  5,533,887    $    6,143    $   29,577   $    2,223   $     (219)    $   37,724
                                                    ==========    ==========    ==========   ==========   ==========     ==========
</TABLE>


* Share data has been  restated to reflect the 3-for-2  stock split  effected in
October 2004 and the 5% common stock dividend issued in November 2003.





                                       3
<PAGE>



              Peoples Bancorporation, Inc. and Subsidiaries
                  Consolidated Statements of Cash Flows
                          (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                                                (Unaudited)
                                                                                                              Nine months Ended
                                                                                                               September 30,
                                                                                                         2004                 2003
                                                                                                         ----                 ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                                   <C>                 <C>
   Net Income ..............................................................................          $   2,560           $   4,773
   Adjustments to reconcile net income to net cash provided
     by (used in) operating activities
   Gain on sale of premises and equipment ..................................................                (14)                 (6)
   Gain on sale of securities available for sale ...........................................               (128)                (13)
   Gain on sale of mortgage loans held for sale ............................................             (1,463)             (7,350)
   Provision for loan losses ...............................................................                436               1,007
   Depreciation and amortization ...........................................................                776                 641
   Amortization and accretion (net of premiums and
     discounts on securities) ..............................................................                199                 298
   Origination of mortgage loans held for sale .............................................           (138,537)           (421,939)
   Sale of mortgage loans held for sale ....................................................            135,459             470,898
   Decrease in accrued interest receivable .................................................                119                 192
   Increase in other assets ................................................................               (352)               (753)
   Decrease in accrued interest payable ....................................................               (390)                (23)
   Increase in other liabilities ...........................................................                476                 733
                                                                                                      ---------           ---------
     Net cash provided (used in) by operating activities ...................................               (859)             48,458
                                                                                                      ---------           ---------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of securities held for investment .............................................             (2,139)               (635)
   Purchases of securities available for sale ..............................................            (23,486)            (73,629)
   Purchase of other investments ...........................................................               (139)               (195)
   Proceeds from the principal pay downs on securities available for sale ..................              4,143              13,241
   Proceeds from the maturity of securities held to maturity ...............................                320                 275
   Proceeds from the maturity of securities available for sale .............................                472               3,700
   Proceeds from the sale of securities available for sale .................................              9,834               6,999
   Proceeds from the call of securities available for sale .................................             25,445              48,515
   Purchase of cash surrender value life insurance .........................................             (6,669)                  -
   Net increase in loans ...................................................................            (25,159)            (33,214)
   Proceeds from the sale of premises and equipment ........................................                 33                  44
   Purchase of premises and equipment ......................................................             (1,786)             (1,257)
                                                                                                      ---------           ---------
     Net cash used in investing activities .................................................            (19,131)            (36,156)
                                                                                                      ---------           ---------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase (decrease) in deposits .....................................................             (3,546)             28,191
   Net increase (decrease) in securities sold under repurchase
     agreements ............................................................................              7,518             (10,428)
   Net increase in federal funds purchased .................................................                378                   -
   Net increase (decrease) in notes payable to Federal Home Loan Bank ......................              6,500             (12,000)
   Proceeds from the sale of stock and exercise of stock options ...........................                 65                   -
   Cash dividend ...........................................................................               (781)               (736)
                                                                                                      ---------           ---------
     Net cash provided by financing activities .............................................             10,134               5,027
                                                                                                      ---------           ---------
     Net increase (decrease) in cash and cash equivalents ..................................             (9,856)             17,329
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...............................................             21,243              12,142
                                                                                                      ---------           ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................................................          $  11,387           $  29,471
                                                                                                      =========           =========

CASH PAID FOR
     Interest ..............................................................................          $   5,207           $   5,745
                                                                                                      =========           =========
     Income Taxes ..........................................................................          $   1,051           $   2,617
                                                                                                      =========           =========
</TABLE>

                                       4
<PAGE>

                  PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      A summary of these  policies is included in the 2003 Annual Report on Form
10-K and incorporated herein by reference.

STATEMENT OF CASH FLOWS

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

COMMON STOCK

     The Board of Directors declared cash dividends of $0.07 per common share to
shareholders  of record March 19, 2004,  June 18, 2004,  and  September 20, 2004
payable April 2, 2004, July 9, 2004 and October 1, 2004.

     Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share,"  requires  that the  Company  present  basic and  diluted net income per
common share.  The assumed  conversion of stock options  creates the  difference
between  basic and  diluted  net income per  share.  Income per common  share is
calculated  by  dividing  net income by the  weighted  average  number of common
shares  outstanding for each period  presented.  The weighted  average number of
common  shares  outstanding  for basic net income per common  share for the nine
months  ended   September   30,  2004  and  2003  was  5,527,383  and  5,524,960
respectively.  The weighted  average  number of common  shares  outstanding  for
diluted net income per common share was  5,732,573  and  5,731,307  for the nine
months ended September 30, 2004 and 2003.

      The following table  illustrates the effect on net income and earnings per
share if the  Company  had  applied  the fair value  recognition  provisions  of
Financial  Accounting  Standards  Board  ("FASB") SFAS No. 123,  Accounting  for
Stock-Based Compensation, to stock-based employee compensation.

<TABLE>
<CAPTION>
                                                                       Three Months Ended                     Nine Months Ended
                                                                         September 30,                         September 30,
                                                                     2004              2003             2004                  2003
                                                                     ----              ----             ----                  ----

<S>                                                               <C>               <C>                <C>               <C>
Net income, as reported ...................................       $     1,022       $      1,305       $      2,560      $    4,773
Deduct:  total stock-based employee compensation
  expense determined under fair value based method
  for all awards, Net of related tax effects ..............               (27)               (17)               (82)            (39)
                                                                  -----------       ------------       ------------       ---------
Pro forma net income ......................................       $       995       $      1,228       $      2,478      $    4,734
                                                                  ===========       ============       ============       =========

Net income per common share
  Basic - as reported .....................................       $      0.18       $       0.24       $       0.46       $    0.86
                                                                  ===========       ============       ============       =========
  Basic - pro forma .......................................       $      0.18       $       0.23       $       0.45       $    0.86
                                                                  ===========       ============       ============       =========
  Diluted - as reported ...................................       $      0.18       $       0.23       $       0.45       $    0.86
                                                                  ===========       ============       ============       =========
  Diluted - pro forma .....................................       $      0.17       $       0.22       $       0.43       $    0.83
                                                                  ===========       ============       ============       =========
</TABLE>


                                       5
<PAGE>

      The Company issued a  five-percent  common stock dividend in November 2003
and effected a 3-for-2 stock split in October 2004. Share data has been restated
to reflect these  transactions.  Upon  issuance of the 3-for-2 stock split,  the
Company filed articles of amendment to its Articles of Incorporation  increasing
its authorized shares from 10,000,000 to 15,000,000 and decreasing its par value
from $1.67 per share to $1.11 per share.

MANAGEMENT'S OPINION

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





                                       6
<PAGE>


Forward-Looking Statements

         From time to time,  including in this  report,  the Company may publish
forward-looking  statements  relating to such matters as  anticipated  financial
performance,  business prospects,  technological developments,  new products and
similar   matters.   All   statements   that  are  not   historical   facts  are
"forward-looking  statements."  Words such as "estimate,"  "project,"  "intend,"
"expect,"  "believe,"  "anticipate,"  "plan," and similar  expressions  identify
forward-looking statements. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking  statements.  In order to comply with
terms of the safe  harbor,  the  Company  notes that a variety of factors  could
cause the Company's actual results and experience to differ  materially from the
anticipated   results  or  other   expectations   expressed  in  the   Company's
forward-looking  statements.  The risks and  uncertainties  that may  affect the
operations,  performances,  development  and results of the  Company's  business
include,  but are not limited to, the following:  risks from changes in economic
and industry  conditions;  changes in interest  rates;  risks inherent in making
loans  including  repayment  risks  and  value of  collateral;  adequacy  of the
allowance for loan losses; dependence on senior management; and recently-enacted
or proposed  legislation.  Statements  contained  in this report  regarding  the
demand for Peoples  Bancorporation's  products and services,  changing  economic
conditions,  interest rates, consumer spending and numerous other factors may be
forward-looking statements and are subject to uncertainties and risks.

Item 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                     CONDITION AND RESULTS OF OPERATIONS

     The following  discussion and analysis  should be read in conjunction  with
the consolidated financial statements and related notes and with the statistical
information  and  financial  data  appearing  in this report as well as the 2003
Annual  Report  of  Peoples  Bancorporation,  Inc.  on  Form  10-K.  Results  of
operations for the three-month and nine-month  periods ending September 30, 2004
are not  necessarily  indicative  of the  results to be  attained  for any other
period.

Critical Accounting Policies

         Peoples  Bancorporation,  Inc.  (the  "Company")  has  adopted  various
accounting  policies  that  govern  the  application  of  accounting  principles
generally  accepted in the United  States in the  preparation  of the  Company's
financial  statements.  The significant  accounting  policies of the Company are
described in Item 8, Note 1 to the Consolidated Financial Statements in the 2003
Annual Report on Form 10-K of Peoples Bancorporation, Inc.

         Certain   accounting   policies  involve   significant   judgments  and
assumptions by management  that have a material  impact on the carrying value of
certain assets and liabilities; management considers such accounting policies to
be  critical  accounting  policies.   The  judgments  and  assumptions  used  by
management  are based on  historical  experience  and other  factors,  which are
believed to be reasonable under the circumstances.  Because of the nature of the
judgments and assumptions  made by management,  actual results could differ from
these judgments and estimates and such differences  could have a material impact
on the carrying  values of assets and  liabilities and the results of operations
of the Company.

         Of these  significant  accounting  policies,  the Company considers its
policies  regarding the allowance  for loan losses (the  "Allowance")  to be its
most  critical  accounting  policy due to the  significant  degree of management
judgment  involved in determining  the amount of the Allowance.  The Company has
developed  policies and  procedures for assessing the adequacy of the Allowance,
recognizing  that this process  requires a number of  assumptions  and estimates
with respect to its loan portfolio. The Company's assessments may be impacted in
future  periods by  changes in  economic  conditions,  the impact of  regulatory
examinations,  and the discovery of information with respect to borrowers, which
is not  known to  management  at the time of the  issuance  of the  consolidated
financial statements.  Refer to the discussion under Provision and Allowance for
Loan Losses, Loan Loss Experience section of the Company's 2003 Annual Report on


                                       7
<PAGE>

Form 10-K and the  Allowance  for Loan  Losses  and  Provision  for Loan  Losses
sections of this report on Form 10-Q for a detailed description of the Company's
estimation process and methodology related to the Allowance.

Overview

       The  Company  is  a  bank  holding   company   with  three   wholly-owned
subsidiaries: The Peoples National Bank, Easley, South Carolina, a national bank
which commenced business  operations in August 1986; Bank of Anderson,  National
Association,  Anderson, South Carolina, a national bank which commenced business
operations in September 1998; and, Seneca National Bank, Seneca, South Carolina,
a national bank which commenced business  operations in February 1999 (sometimes
referred to herein as the "Banks").

     Currently,  the Company engages in no significant operations other than the
ownership  of its  three  subsidiaries  and the  support  thereof.  The  Company
conducts its business from seven banking  offices located in the Upstate Area of
South Carolina.





                                       8
<PAGE>


                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EARNINGS PERFORMANCE

Overview

     The  Company's  consolidated  net income for the third  quarter of 2004 was
$1,022,000  or $0.18 per  diluted  share  compared  to  $1,305,000  or $0.23 per
diluted  share for the third  quarter of 2003,  a decrease of $283,000 or 21.7%.
Net income for the nine months ended  September 30, 2004 was $2,560,000 or $0.45
per diluted share compared to $4,773,000 or $0.83 per diluted share for the nine
months ended  September 30, 2003, a decrease of  $2,213,000 or 46.4%.  Return on
average equity for the nine months and three months ended September 30, 2004 was
9.22% and 10.86%  respectively,  compared to 20.38% and 14.59%  respectively for
the nine months and three months  ended  September  30, 2003.  Return on average
assets for the nine months and three months ended  September  30, 2004 was 0.79%
and 0.95%  respectively,  compared to 1.64% and 1.20%  respectively for the nine
months and three months ended September 30, 2003. The decreases in the Company's
net income,  diluted earnings per share, return on average equity, and return on
average assets in 2004 are largely  attributable  to a substantial  reduction in
non-interest  income  as a  consequence  of  reduced  mortgage  originations  as
refinancing  activity declined at the Company's bank  subsidiaries.  The Peoples
National  Bank  recorded  net earnings of  $1,511,000  for the nine months ended
September 30, 2004  compared to net earnings of  $3,640,000  for the nine months
ended September 30, 2003, a decrease of 58.5%. Bank of Anderson,  N. A. recorded
net earnings of $803,000 for the nine months ended  September  30, 2004 compared
to net  earnings of $838,000  for the nine months  ended  September  30, 2003, a
decrease of 4.2%. Seneca National Bank recorded net earnings of $248,000 for the
nine months ended  September  30, 2004  compared to net earnings of $326,000 for
the nine months ended September 30, 2003, a decrease of 23.9%.

     Throughout  the first  nine  months of 2004 The  Company  made  significant
changes  to the  wholesale  mortgage  division  of The  Peoples  National  Bank,
including a steady and gradual  reduction in the number of employees  working in
this department.  During the third quarter of 2004, management made the decision
to completely  exit the wholesale  mortgage  business by the end of the year. On
October  15,  2004  nine of the  remaining  wholesale  mortgage  loan  employees
formally ended their employment with The Peoples National Bank and were employed
by an unaffiliated  company  performing  similar services  relating to wholesale
mortgage  lending.  The Company  intends to retain its retail  mortgage  lending
operations  and will  continue  to  originate  mortgage  loans for sale to third
parties.  The Company will utilize the services of the  unaffiliated  company to
perform some of the services  previously  performed  internally by its wholesale
mortgage lending division.


                                       9
<PAGE>


Interest Income, Interest Expense and Net Interest Income

     The largest  component of the Company's income is net interest income.  Net
interest income,  which is the difference  between the interest earned on assets
and the interest paid for the  liabilities  used to fund those assets,  measures
the gross  profit  from  lending  and  investing  activities  and is the primary
contributor to the Company's earnings.  Net interest income before provision for
loan losses  increased  $376,000  or 11.2% to  $3,740,000  in the quarter  ended
September 30, 2004  compared to  $3,364,000  in the quarter ended  September 30,
2003.  For the nine months ended  September 30, 2004 net interest  income before
provision for loan losses increased $669,000 or 6.7% to $10,703,000  compared to
$10,034,000  for the nine months ended  September  30, 2003.  The  Company's net
interest  margin for the three months and nine months ending  September 30, 2004
was 3.71% and 3.57%  respectively,  compared to 3.26% and 3.33% respectively for
the three months and nine months ended September 30, 2003.

     The  Company's  total  interest  income  for the third  quarter of 2004 was
$5,324,000  compared to $5,236,000 for the third quarter of 2003, an increase of
$88,000 or 1.7%.  Total interest  income for the nine months ended September 30,
2004 was $15,520,000 compared to $15,757,000 for the nine months ended September
30,  2003,  a decrease  of  $237,000 or 1.5%.  Interest  and fees on loans,  the
largest  component of total  interest  income,  increased  $171,000 in the third
quarter of 2004 to $4,791,000  compared to  $4,620,000  for the third quarter of
2003, an increase of 3.7%. Interest and fees on loans increased $156,000 for the
nine months ended September 30, 2004 to $13,844,000  compared to $13,688,000 for
the nine months  ended  September  30,  2003,  an increase of 1.1%.  Interest on
taxable  securities,  the second  largest  component  of total  interest  income
decreased  $50,000 in the third quarter of 2004 to $456,000 compared to $506,000
for the  third  quarter  of 2003,  a  decrease  of  9.9%.  Interest  on  taxable
securities  decreased  $373,000 for the nine months ended  September 30, 2004 to
$1,434,000  compared to $1,807,000 for the nine months ended September 30, 2003,
a decrease of 20.6%.  The  decreases in interest on taxable  securities  for the
three- and  nine-month  periods are primarily  due to lower average  balances in
these types of earning assets, and also due to lower yields on these securities.

     The  Company's  total  interest  expense for the third  quarter of 2004 was
$1,584,000  compared to $1,872,000  for the third quarter of 2003, a decrease of
$288,000 or 15.4%.  Total interest  expense for the nine months ended  September
30,  2004 was  $4,817,000  compared  to  $5,723,000  for the nine  months  ended
September  30,  2003,  a decrease  of  $906,000  or 15.8%.  Interest  expense on
deposits, the largest component of total interest expense, decreased $304,000 in
the third  quarter of 2004 to $1,423,000  compared to  $1,727,000  for the third
quarter of 2003,  a decrease of 17.6%.  Interest  expense on deposits  decreased
$784,000 for the nine months ended September 30, 2004 to $4,400,000  compared to
$5,184,000  for the nine months ended  September  30, 2003, a decrease of 15.1%.
Interest  on federal  funds  purchased  and  securities  sold  under  repurchase


                                       10
<PAGE>

agreements,  the second largest component of total interest  expense,  increased
$6,000 or 7.2% to $89,000 in the third  quarter of 2004  compared to $83,000 for
the third quarter of 2003.  Interest on federal funds  purchased and  securities
sold under repurchase  agreements decreased $104,000 or 32.2% to $219,000 in the
first nine  months of 2004  compared  to  $323,000  for the first nine months of
2003. Interest on notes payable to the Federal Home Loan Bank, the third largest
component of total interest  expense,  increased  $10,000 or 16.1% to $72,000 in
the third  quarter of 2004  compared to $62,000  for the third  quarter of 2003.
Interest on notes  payable to the Federal  Home Loan Bank  decreased  $18,000 or
8.3% to $198,000 in the first nine months of 2004  compared to $216,000  for the
first nine months of 2003.  The overall  decrease in interest  expense among the
various  types  of  interest-bearing  liabilities  is  largely  attributable  to
generally  lower  market  interest  rates  experienced  at  the  Company's  bank
subsidiaries  during the first  nine  months of 2004 when  compared  to the same
period of 2003, as well as lower average balances in some of these accounts.

Provision for Loan Losses

     The provision for loan losses charged to operations during the three months
and nine months ended September 30, 2004 was $153,000 and $436,000 respectively,
compared to $549,000 and $1,007,000  respectively  for the three months and nine
months ended September 30, 2003. The changes in the Company's provision for loan
losses  for the  third  quarter  and  first  nine  months  of 2004 are  based on
management's evaluation of the Company's overall credit quality and its estimate
of loan losses inherent in the loan  portfolio.  During the first nine months of
2004,  The  Peoples  National  Bank made a  provision  of  $200,000  compared to
$775,000  for the  first  nine  months  of 2003.  Bank of  Anderson,  N.A.  made
provision  of $180,000  for the first nine months of 2004,  compared to $140,000
for the same period of 2003.  Seneca  National  Bank made  provision  of $56,000
during  the first nine  months of 2004  compared  to $92,000  for the first nine
months of 2003.

Non-interest Income

     Non-interest  income  decreased  $1,919,000 or 61.7% to $1,193,000  for the
third  quarter of 2004  compared to  $3,112,000  for the third  quarter of 2003.
Non-interest  income  decreased  $5,252,000 or 56.6% to $4,026,000 for the first
nine months of 2004  compared to  $9,278,000  for the first nine months of 2003.
Service fees and other income,  the largest component of non-interest  income in
2004,  increased  $188,000  or 29.9% to $816,000  for the third  quarter of 2004
compared  to  $628,000  for the third  quarter of 2003.  Service  fees and other
income  increased  $520,000 or 27.2% to $2,435,000  for the first nine months of
2004 compared to $1,915,000  for the first nine months of 2003. The increases in
service fees and other income are largely  attributable to non-recurring  income
from life  insurance  death  benefits  resulting from the death of the Company's
former  Chairman,  President  and CEO,  increased  earnings on  bank-owned  life
insurance  policies at each of the  subsidiary  banks from  additional  policies
purchased in the first  quarter of 2004,  and increased  income from  customers'
deposit accounts.

Gains  on  mortgage  loans  held for  sale,  the  second  largest  component  of
non-interest income in 2004,  decreased  $2,102,000 or 84.8% to $376,000 for the


                                       11
<PAGE>

third quarter of 2004 compared to $2,478,000 for the third quarter of 2003. Gain
on mortgage loans held for sale decreased  $5,887,000 or 80.1% to $1,463,000 for
the first nine  months of 2004  compared  to  $7,350,000  for the same period of
2003.  The  decrease   resulted  as  a  consequence  of  reduced  mortgage  loan
originations  as  refinancing  activity  declined.  Gains on  available-for-sale
securities  were $1,000 for the third quarter of 2004 compared to $6,000 for the
third  quarter  of 2003,  a  decrease  of  $5,000.  Gains on  available-for-sale
securities  were  $128,000 for the first nine months of 2004 compared to $13,000
for the first nine months of 2003, an increase of $115,000.

Non-interest Expense

     Total  non-interest  expense decreased  $575,000 or 14.9% to $3,298,000 for
the third quarter of 2004 from  $3,873,000 for the third quarter of 2003.  Total
non-interest  expense  decreased  $251,000 or 2.3% to $10,546,000  for the first
nine months of 2004 from $10,797,000 for the first nine months of 2003. Salaries
and benefits, the largest component of non-interest expense,  decreased $362,000
or 15.4%,  to $1,985,000  for the third quarter of 2004 from  $2,347,000 for the
third  quarter of 2003.  Salaries  and  benefits  decreased  $253,000 or 3.9% to
$6,239,000 for the first nine months of 2004 from  $6,492,000 for the first nine
months of 2003.  The  decreases in salaries and benefits are  primarily due to a
reduction in commissions  paid and changes in personnel due to decreased  volume
of mortgage loans  originated,  and partially  offset by normal salary increases
and other changes in personnel throughout the company.

     Occupancy and furniture and equipment expenses increased $13,000 or 2.7% to
$492,000 in the third  quarter of 2004 compared to $479,000 in the third quarter
of 2003.  Occupancy and furniture and equipment  expenses  increased $182,000 or
14.5%,  to $1,435,000 for the first nine months of 2004 from  $1,253,000 for the
first nine months of 2003. The increase is primarily attributable to the opening
of a new branch office of Bank of Anderson, N.A. in August 2003, the purchase of
additional  office space by The Peoples National Bank in Easley,  South Carolina
in January 2004,  and the  completion of an expansion and renovation to the main
office of Bank of Anderson, N.A. in the third quarter of 2004.

     Executive  retirement benefit expense decreased $24,000 or 45.3% to $29,000
in the third  quarter of 2004  compared to $53,000 in the third quarter of 2003.
This decrease is attributable to a reduction of the number of executives covered
from two to one, due to the death of the Company's  former  Chairman,  President
and CEO. Executive retirement benefit expense increased $345,000 to $477,000 for
the first nine months of 2004 from  $132,000  for the first nine months of 2003.
This increase is  attributable to a one-time,  non-recurring  charge incurred in
the first  quarter of 2004 in the amount of $376,000 to increase  the  liability
for death benefits  payable to the beneficiary of the Company's former Chairman,
President and CEO, who died shortly after the end of the period.  This charge is
required  by SFAS No.  112 in  accordance  with  generally  accepted  accounting
principles.

     Other non-interest expenses decreased $202,000 or 20.3% to $792,000 for the
third  quarter  of 2004 from  $994,000  for the  third  quarter  of 2003.  Other


                                       12
<PAGE>

non-interest  expenses  decreased  $525,000 or 18.0% to $2,395,000 for the first
nine  months of 2004 from  $2,920,000  for the first  nine  months of 2003.  The
decrease  in  other  non-interest  expenses  was  principally   attributable  to
decreases in expenses associated with the significant  decrease in the volume of
mortgage loans  originated in the first nine months of 2004 when compared to the
first nine months of 2003.


BALANCE SHEET REVIEW

Loans

     Outstanding  loans (which excludes  mortgage loans held for sale) represent
the largest  component of earning assets at 79.5% of total earning assets. As of
September  30,  2004,  the  Company  held  total  gross  loans   outstanding  of
$321,164,000.  Gross loans  increased  $24,912,000 or 8.4% from  $296,252,000 in
total gross outstanding loans at December 31, 2003 and increased  $37,575,000 or
13.3% from  $283,589,000 in total gross loans outstanding at September 30, 2003.
The increase  resulted from new loans  generated by the Company's  three banking
subsidiaries.  The following table summarizes  outstanding  loans by purpose and
collateral type:


<TABLE>
<CAPTION>
Loan Portfolio Composition                                                               September 30,               December 31,
                                                                                         -------------               ------------
(Dollars in Thousands)                                                              2004               2003                2003
                                                                                    ----               ----                ----

<S>                                                                              <C>                <C>                <C>
Commercial and Industrial - not secured by real estate ....................      $ 37,237           $ 38,886           $ 44,306
Commercial and Industrial - secured by real estate ........................        92,670             84,232             84,805
Residential real estate - mortgage ........................................       102,594             84,518             90,299
Residential real estate - construction ....................................        67,139             52,833             55,139
Consumer loans ............................................................        21,524             23,120             21,703
                                                                                 --------           --------           --------
     Gross Loans ..........................................................      $321,164           $283,589           $296,252
                                                                                 ========           ========           ========
</TABLE>

     The interest rates charged on loans vary with the degree of risk,  maturity
and amount of the loan. Competitive pressures,  money market rates, availability
of funds, and government  regulation also influence  interest rates. The average
yield on the  Company's  loans  for the  nine  months  and  three  months  ended
September 30, 2004 was 5.75% and 5.81% respectively, compared to 5.81% and 5.80%
respectively  for the nine months and three months ended  September  30, 2003. A
large portion of the Company's adjustable rate loans, which constitutes 51.2% of
the loan portfolio, reprice almost immediately following an interest rate change
by the Federal Reserve.

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

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


                                       13
<PAGE>

to third parties.  The Company formerly also purchased  mortgage loans through a
wholesale  mortgage loan division of The Peoples National Bank, which loans were
pre-sold at origination  to third  parties.  These loans are classified as loans
held for sale for  reporting  purposes.  In the first nine  months of 2004,  the
Company originated $138,537,000 and sold $135,459,000 in mortgage loans held for
sale. As of September  30, 2004 the Company had mortgage  loans held for sale of
$9,642,000,  an increase of $4,541,000 or 89.0% from the  $5,101,000 in mortgage
loans held for sale at December 31, 2003,  and a decrease of $3,775,000 or 28.1%
from the  $13,417,000 in mortgage loans held for sale at September 30, 2003. The
changes in the levels of mortgage loans held for sale resulted from fluctuations
in the volume of mortgage loan originations. Due to the fact that management has
made the decision to completely exit the wholesale  mortgage business by the end
of the year,  it is  expected  that  mortgage  loans held for sale will  decline
further and eventually be eliminated.

     The Company's  commercial lending activity is directed  principally towards
businesses  whose demands for funds fall within each Banks' legal lending limits
and which are potential  deposit  customers of the Banks. This category of loans
includes loans made to individuals,  partnerships,  and corporations,  which are
obtained for a variety of business  purposes.  Particular  emphasis is placed on
loans to small and medium-sized  businesses.  The Company's commercial loans are
spread throughout a variety of industries,  with no industry or group of related
industries   accounting  for  a  significant  portion  of  the  commercial  loan
portfolio.  Commercial loans are made on either a secured or an unsecured basis.
When taken,  security  usually  consists of liens on  inventories,  receivables,
equipment,  furniture and  fixtures.  Unsecured  commercial  loans are generally
short-term with emphasis on repayment strengths and low debt-to-worth ratios. At
September 30, 2004  approximately  $8,312,000 or 22.3% of commercial  loans were
unsecured.

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

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

Allowance for Loan Losses

     The allowance for loan losses at September 30, 2004 was $3,627,000 or 1.13%
of loans  outstanding  (which excludes mortgage loans held for sale) compared to
$3,438,000  or 1.16% of loans  outstanding  at December 31, 2003 and compared to
$3,745,000 or 1.32% of loans  outstanding  at September 30, 2003.  The allowance
for  loan  losses  is  based  upon  management's  continuing  evaluation  of the
collectibility  of loans based on the  historical  loan loss  experience  of the
Company,  current  economic  conditions  affecting  the ability of  borrowers to
repay,   the  volume  of  loans,   the  quality  of  the   collateral   securing
non-performing and problem loans, and other factors deserving recognition.



                                       14
<PAGE>

     At September 30, 2004 the Company had $560,000 in  non-accruing  loans,  no
restructured  loans,  no loans more than ninety days past due and still accruing
interest,  and $768,000 in other real estate owned. This compares to $829,000 in
non-accruing  loans, no restructured  loans,  $122,000 in loans more than ninety
days past due on which interest was still being  accrued,  and $517,000 in other
real estate owned at December 31, 2003. At September  30, 2003,  the Company had
$1,008,000 in non-accruing  loans, no restructured  loans, and $318,000 in loans
more than  ninety days past due and still  accruing  interest,  and  $193,000 in
other real estate owned. Non-performing loans at September 30, 2004 consisted of
$23,000 in commercial loans, $461,000 in mortgage loans, and $76,000 in consumer
loans.  Non-performing  assets as a  percentage  of loans and other real  estate
owned was 0.39%,  0.49%, and 0.51% at September 30, 2004, December 31, 2003, and
September 30, 2003, respectively.

     Net charge-offs during the first nine months of 2004 were $247,000 compared
to net  charge-offs  of  $112,000  for the  first  nine  months  of 2003 and net
charge-offs  of $518,000 for the year ended December 31, 2003. The allowance for
loan losses as a percentage of non-performing  loans was 648%, 362%, and 282% as
of September 30, 2004, December 31, 2003, and September 30, 2003, respectively.

         The  Company  accounts  for  impaired  loans  in  accordance  with  the
provisions of SFAS No.114,  Accounting  by Creditors  for  Impairment of a Loan.
SFAS No.  114,  as amended by SFAS No.  118,  requires  that  impaired  loans be
measured  based  on the  present  value of  expected  future  cash  flows or the
underlying collateral values as defined in the pronouncement.  When the ultimate
collectibility of an impaired loan's principal is in doubt, wholly or partially,
all cash  receipts  are then applied to  principal.  The Company had $340,000 in
impaired  loans at September 30, 2004,  no impaired  loans at December 31, 2003,
and $362,000 in impaired loans at September 30, 2003.

Securities

         The Company  invests  primarily in  obligations of the United States or
obligations  guaranteed as to principal and interest by the United States, other
taxable securities, and in certain obligations of states and municipalities. The
Company  does not  invest  in  corporate  bonds,  nor  does it hold any  trading
securities.  The Company uses its investment  portfolio to provide liquidity for
unexpected  deposit  liquidation  or  loan  generation,  to meet  the  Company's
interest rate  sensitivity  goals,  to secure public  deposits,  and to generate
income. At September 30, 2004 securities totaled  $71,540,000,  which represents
17.7% of total earning  assets.  Securities held at September 30, 2004 decreased
$14,953,000  or 17.3% from  $86,493,000  invested  as of  December  31, 2003 and
decreased  $15,137,000  or 17.5% from  $86,677,000  invested as of September 30,
2003. The majority of the decrease since December 31, 2003 was  attributable  to
the increased calls of U.S.  agency  securities in the amount of $25,325,000 and
the sale of  available-for-sale,  mortgage-backed  securities  in the  amount of
$9,834,000 at the Company's bank subsidiaries.

         At September 30, 2004 the  Company's  total  investments  classified as
available for sale had an amortized  cost of  $62,634,000  and a market value of


                                       15
<PAGE>

$62,302,000  for an unrealized  loss of $332,000.  This compares to an amortized
cost of $79,437,000  and a market value of $79,462,000 for an unrealized gain of
$25,000  on the  Company's  investments  classified  as  available  for  sale at
September  30,  2003.  At December  31,  2003 the  Company's  total  investments
classified  as available  for sale had an amortized  cost of  $78,620,000  and a
market value of $78,714,000 for an unrealized gain of $94,000.

Cash Surrender Value of Life Insurance

     The Company's  cash  surrender  value of life  insurance was  $8,963,000 at
September 30, 2004, an increase of $6,669,000 or 290.7% from the $2,294,000 held
at December 31, 2003 and an increase of $6,684,000 or 293.3% from the $2,279,000
held  at  September   30,  2003.   The  increase  is  due  to  the  purchase  of
single-premium  life  insurance  policies  during  the first  quarter of 2004 on
certain  officers of the Company and its bank  subsidiaries.  Earnings  from the
ownership of these  policies  are used to  partially  offset the cost of certain
employee-related benefits.

Cash and Cash Equivalents

         The Company's cash and cash equivalents  decreased  $9,856,000 or 46.4%
to $11,387,000  at September 30, 2004 from  $21,243,000 at December 31, 2003 and
decreased  $18,084,000  or 61.4% from  $29,471,000  at September  30, 2003.  The
swings in the level of cash and cash  equivalents are due to fluctuations in the
Banks' need for immediate liquidity.

Deposits

         The Banks' primary source of funds for loans and  investments are their
deposits.  Total  deposits  decreased  $3,546,000  or  1.0% to  $349,783,000  at
September  30,  2004  from  $353,329,000  at  December  31,  2003 and  decreased
$6,581,000  or 1.9% from  $356,364,000  at September 30, 2003.  Competition  for
deposit  accounts  is  primarily  based on the  interest  rates  paid,  location
convenience, and services offered.

         During  the  first  nine  months  of  2004,  interest-bearing  deposits
averaged  $306,652,000  compared  to  $299,907,000  for the first nine months of
2003. From time to time Peoples  National Bank solicits  certificates of deposit
from various sources  through  brokers and through a program  designed to gather
deposits  via the  Internet.  This is done to reduce the need for  funding  from
other  short-term  sources  such  as  federal  funds  purchased  and  short-term
borrowings  from the Federal  Home Loan Bank of Atlanta.  These  non-traditional
deposits have primarily  been used to fund Peoples  National  Bank's  short-term
mortgage  lending  activities.  On September 30, 2004 there were no  outstanding
certificates  garnered  through the  Internet,  and  brokered  deposits  totaled
$6,558,000. At December 31, 2003 there were no outstanding certificates garnered
through the Internet, and no brokered deposits. On September 30, 2003 there were
no outstanding certificates garnered through the Internet, and brokered deposits
totaled $688,000.  These deposits are an attractive  alternative  funding source
available to use while continuing  efforts to maintain and grow the banks' local
deposit base.



                                       16
<PAGE>

         The average interest rate paid on  interest-bearing  deposits was 1.92%
for the first nine months of 2004 compared to 2.31% for the first nine months of
2003.  In pricing  deposits,  the Company  considers its  liquidity  needs,  the
direction  and  levels of  interest  rates,  and  local  market  conditions.  At
September 30, 2004  interest-bearing  deposits comprised 85.7% of total deposits
compared to 86.5% at September 30, 2003.

         The  Company's  core deposit  base  consists  largely of consumer  time
deposits,  savings,  NOW accounts,  money market accounts and checking accounts.
Although such core  deposits are becoming  increasingly  interest-sensitive  for
both the Company and the industry as a whole,  these core  deposits  continue to
provide  the  Company  with a large  source of  relatively  stable  funds.  Core
deposits as a percentage  of total  deposits  averaged  approximately  77.2% and
76.9% for the nine months  ended  September  30, 2004 and  September  30,  2003,
respectively.  The Company closely monitors its reliance on certificates greater
than $100,000, which are generally considered less stable and less reliable than
core deposits.

Borrowings

         The Company's  borrowings  are  comprised of federal  funds  purchased,
securities sold under repurchase  agreements,  and both short-term and long-term
advances  from the Federal  Home Loan Bank of  Atlanta.  At  September  30, 2004
short-term  borrowings totaled  $38,786,000 and were comprised of $31,908,000 in
securities sold under repurchase agreements, $378,000 in federal funds purchased
and  $6,500,000  in  short-term  advances  from the  Federal  Home  Loan bank of
Atlanta.  At December  31, 2003 and  September  30, 2003  short-term  borrowings
totaled $24,390,000 and $24,903,000  respectively and were comprised entirely of
securities  sold under  repurchase  agreements.  Short-term  borrowings are used
primarily  for the  immediate  cash needs of the  Company.  The Company also had
$5,000,000  of long-term  advances from the Federal Home Loan Bank of Atlanta at
each of September 30, 2004, December 31, 2003, and September 30, 2003.


LIQUIDITY

         Liquidity management involves meeting the cash flow requirements of the
Company.  The Company's  liquidity position is primarily dependent upon its need
to respond to  short-term  demand for funds caused by increased  loan demand and
withdrawals  from deposit  accounts.  The Company's  primary  liquidity  sources
include cash and due from banks,  federal funds sold, and  securities  available
for sale. In addition, the Company (through the Banks) has the ability to borrow
funds on a  short-term  basis from the  Federal  Reserve  System and to purchase
federal funds from other financial  institutions.  The Banks are also members of
the Federal Home Loan Bank System and have the ability to borrow both short-term
and  long-term  funds on a secured  basis.  At  September  30,  2004 The Peoples
National  Bank had total  borrowing  capacity from the Federal Home Loan Bank of
Atlanta equal to $37,741,000,  and the unused portion of this line of credit was
$29,241,000.  The Bank of Anderson had total borrowing capacity from the Federal


                                       17
<PAGE>

Home Loan Bank of Atlanta equal to  $20,634,000,  and the unused portion of this
line of credit was  $17,634,000 at September 30, 2004.  Seneca National Bank had
secured  lines of credit with the Federal Home Loan Bank of Atlanta at September
30, 2004 of $2,913,000, all of which was unused. At September 30, 2004 the Banks
had unused federal funds lines of credit totaling $30,372,000.

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

         During  the  first  nine  months  of  2004,  the  Company  had  capital
expenditures  of  approximately   $630,000   associated  with  the  purchase  of
additional office space for the mortgage department of The Peoples National Bank
and approximately  $793,000  associated with the expansion of the main office of
Bank of  Anderson.  The  Company  may  additionally  make other  lesser  capital
expenditures through the normal course of business during the remainder of 2004.

         Company management  believes its liquidity sources are adequate to meet
its  operating  needs  and does not know of any  trends  that may  result in the
Company's liquidity materially increasing or decreasing.


OFF-BALANCE SHEET RISK AND DERIVATIVE FINANCIAL INSTRUMENTS

     The  Company,  through  the  operations  of the  Banks,  makes  contractual
commitments to extend credit in the ordinary course of its business  activities.
These  commitments are legally binding  agreements to lend money to customers of
the Banks at  predetermined  interest  rates for  specified  periods of time. At
September 30, 2004, the Banks had issued commitments to extend credit (excluding
commitments for residential  mortgage loans  designated for sale) of $94,969,000
through various types of arrangements. These commitments generally expire in one
year. Past experience  indicates that many of these commitments to extend credit
will expire not fully used. As described under "Liquidity," the Company believes
that it has adequate  sources of liquidity  to fund  commitments  that are drawn
upon by the borrowers.

     In  addition  to  commitments  to extend  credit,  the Banks may also issue
standby letters of credit. A standby letter of credit is an assurance to a third
party that it will not suffer a loss if the  Bank's  customer  fails to meet its
contractual  obligation to the third party.  Standby  letters of credit  totaled
$5,674,000 at September 30, 2004. Past  experience  indicates that many of these
standby  letters of credit will expire  unused.  Through its various  sources of
liquidity,  the Company  believes that it will have the  necessary  resources to
meet these obligations should the need arise. Various types of collateral secure
most of the standby  letters of credit.  The Company  believes  that the risk of
loss associated with standby letters of credit is comparable to the risk of loss
associated with its loan portfolio. Moreover, the fair value associated with any
standby letters of credit issued by the Company is immaterial to the Company.



                                       18
<PAGE>

     According  to SFAS No.  133,  Accounting  for  Derivative  Instruments  and
Hedging Activities,  loan commitments that relate to the origination or purchase
of mortgage loans that will be held for sale must be accounted for as derivative
instruments.   Therefore,  such  commitments  are  recorded  at  fair  value  in
derivative assets or liabilities, with changes in fair value recorded in the net
gain or loss on sale of mortgage  loans.  The Company engages in the origination
and sale of  residential  mortgage  loans and  enters  into  commitments,  on an
individual  loan basis, to both originate and sell  residential  mortgage loans,
whereby the interest  rate on the loan to the borrower and to the  end-purchaser
of the loan is determined prior to funding (rate lock commitments). At September
30,  2004 the Company  had  commitments  outstanding  to  originate  residential
mortgage loans under rate lock commitments from borrowers totaling  $27,424,000.
Simultaneously, the Company had commitments to sell these loans to third parties
under rate lock commitments.  The Company does not collect any upfront fees when
issuing a mortgage loan  commitment to a potential  borrower,  and mortgages are
sold to third parties at par value. The cumulative effect under SFAS No. 133 for
rate lock commitments as of September 30, 2004 for the Company was $131,000.

     Neither  the  Company  nor  the  subsidiaries  are  involved  in any  other
off-balance sheet contractual relationships or transactions that could result in
liquidity  needs or other  commitments or  significantly  impact  earnings.  The
Company  did not have  any  obligations  under  non-cancelable  operating  lease
agreements at September 30, 2004.



                                       19
<PAGE>



CAPITAL ADEQUACY AND RESOURCES

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

         The Company and the Banks are  required  to  maintain  certain  capital
ratios by federal banking regulators. The following table sets forth the capital
ratios for the Company and the Banks as of September 30, 2004:


                                 CAPITAL RATIOS
                             (Amounts in Thousands)
<TABLE>
<CAPTION>
                                                                                               Well                 Adequately
                                                                                           Capitalized             Capitalized
                                                                       Actual              Requirement             Requirement
                                                                       ------              -----------             -----------
                                                                Amount       Ratio      Amount        Ratio     Amount         Ratio
                                                                ------       -----      ------        -----     ------         -----
Company:
<S>                                                            <C>            <C>       <C>           <C>       <C>            <C>
Total Risk-based Capital ...................................   $41,542        12.34%    $33,665       10.00%    $26,932        8.00%
Tier 1 Risk-based Capital ..................................    37,943        11.27      20,200        6.00      13,467        4.00
Leverage Ratio .............................................    37,943         8.77      21,632        5.00      17,306        4.00

Peoples National Bank:
Total Risk-based Capital ...................................   $24,265        12.20%    $19,889       10.00%    $15,911        8.00%
Tier 1 Risk-based Capital ..................................    22,220        11.17      11,936        6.00       7,957        4.00
Leverage Ratio .............................................    22,220         8.93      12,441        5.00       9,953        4.00

Bank of Anderson, N. A:
Total Risk-based Capital ...................................   $10,962        10.67%    $10,274       10.00%    $ 8,219        8.00%
Tier 1 Risk-based Capital ..................................     9,848         9.58       6,168        6.00       4,112        4.00
Leverage Ratio .............................................     9,848         7.19       6,848        5.00       5,479        4.00

Seneca National Bank:
Total Risk-based Capital ...................................   $ 4,668        13.30%    $ 3,510       10.00%    $ 2,808        8.00%
Tier 1 Risk-based Capital ..................................     4,229        12.05       2,106        6.00       1,404        4.00
Leverage Ratio .............................................     4,229         8.78       2,408        5.00       1,927        4.00
</TABLE>




                                       20
<PAGE>


RECENTLY ISSUED ACCOUNTING STANDARDS

         No  recent   authoritative   pronouncements   that  affect  accounting,
reporting,  and disclosure of financial  information by us have occurred  during
the quarter ending September 30, 2004, other than the items described below.

         In November  2003, the Emerging  Issues Task Force  ("EITF")  reached a
consensus  that  certain  quantitative  and  qualitative  disclosures  should be
required for debt and marketable equity  securities  classified as available for
sale or held to maturity  under SFAS No. 115 and SFAS No. 124 that are  impaired
at the balance sheet date but for which other-than-temporary  impairment has not
been  recognized.  Accordingly  EITF  issued  EITF No.  03-1,  "The  Meaning  of
Other-Than-Temporary  Impairment and Its  Application  to Certain  Investments."
This issue  addresses  the meaning of  other-than-temporary  impairment  and its
application  to investments  classified as either  available for sale or held to
maturity  under SFAS No. 115 and  provides  guidance  determining  the amount of
impairment and additional quantitative and qualitative disclosures. The guidance
for  determining  the amount of  impairment  was  scheduled to be effective  for
periods  ending after June 15, 2004, but has been delayed  indefinitely  pending
implementation  guidance by the FASB. The disclosure provisions of EITF No. 03-1
were  effective  for fiscal years ending after  December 15, 2003.  Adopting the
disclosure  provisions of EITF No. 03-1 did not have any impact on the Company's
financial position or results of operations.

         In March  2004,  the FASB  issued  an  exposure  draft on  "Share-Based
Payment".  The proposed  Statement  addresses the accounting for transactions in
which an  enterprise  receives  employee  services  in  exchange  for (a) equity
instruments  of the  enterprise  or (b)  liabilities  that are based on the fair
value of the  enterprise's  equity  instruments  or that may be  settled  by the
issuance of such equity instruments. This proposed Statement would eliminate the
ability to account for share-based  compensation  transactions using APB Opinion
No. 25, "Accounting for Stock Issued to Employees",  and generally would require
instead that such transactions be accounted for using a fair-value-based method.
This Statement,  if approved,  was scheduled to be effective for awards that are
granted,  modified,  or settled in fiscal years  beginning after a) December 15,
2004 for public entities and nonpublic  entities that used the  fair-value-based
method  of  accounting  under  the  original  provisions  of  Statement  123 for
recognition  or pro forma  disclosure  purposes and b) December 15, 2005 for all
other  nonpublic  entities.  On October 16, 2004, the FASB delayed the effective
date of this proposal by six months and  anticipates it will be effective for by
the third quarter of 2005.  Retrospective  application  of this Statement is not
permitted.  The adoption of this Statement, if approved, could have an impact on
the Company's financial position or results of operations.

     Other accounting standards that have been issued or proposed by the FASB or
other standards-setting  bodies that do not require adoption until a future date
are not  expected  to  have a  material  impact  on the  consolidated  financial
statements upon adoption.


                                       21
<PAGE>

Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk is the risk of loss from adverse  changes in market  prices and
interest rates. The Company's market risk arises  principally from interest rate
risk  inherent in its lending,  deposit,  and borrowing  activities.  Management
actively  monitors and manages its  interest  rate risk  exposure.  Although the
Company manages certain other risks,  such as credit quality and liquidity risk,
in the normal course of business,  management considers interest rate risk to be
its most significant market risk and the market risk that could potentially have
the largest material effect on the Company's  financial condition and results of
operations.  Other  types of market  risks,  such as foreign  currency  risk and
commodity  price  risk,  do not  arise in the  normal  course  of the  Company's
business activities, although they may affect a few of the Company's customers.

     The primary  objective of Asset and Liability  Management at the Company is
to manage  interest rate risk and achieve  reasonable  stability in net interest
income  throughout  interest rate cycles.  This is achieved by  maintaining  the
proper   balance   of   rate-sensitive   earning   assets   and   rate-sensitive
interest-bearing  liabilities. The relationship of rate-sensitive earning assets
to  rate-sensitive  interest-bearing  liabilities  is the  principal  factor  in
projecting  the effect that  fluctuating  interest rates will have on future net
interest  income.  Rate-sensitive  assets and  liabilities are those that can be
repriced  to  current  market  rates  within a  relatively  short  time  period.
Management monitors the rate sensitivity of earning assets and  interest-bearing
liabilities  over the entire life of these  instruments,  but places  particular
emphasis  on the next twelve  months.  At  September  30,  2004,  rate-sensitive
liabilities exceeded rate-sensitive assets by $38,197,000 through 12 months on a
cumulative basis. This  liability-sensitive  position is largely attributable to
the Company's short-term  Certificates of Deposit, Money Market accounts and NOW
accounts, which totaled $116,210,000, $51,795,000 and $42,546,000, respectively,
at September 30, 2004. Companies in a liability-sensitive  position would expect
rising  interest  rates to have a  negative  impact on net  interest  income and
falling interest rates to have a positive impact.


                                       22
<PAGE>


Item 4.   CONTROLS AND PROCEDURES

Based  on  the  evaluation  required  by  17  C.F.R.  Section  240.13a-15(b)  or
240.15d-15(b) of the Company's disclosure controls and procedures (as defined in
17  C.F.R.  Sections  240.13a-15(e)  and  240.15d-15(e)),  the  Company's  chief
executive  officer and chief financial  officer concluded that such controls and
procedures,  as of the end of the period covered by this quarterly report,  were
effective.

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




                                       23
<PAGE>


PART II.  OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

          During the period ended  September 30, 2004 the Company  issued shares
          of common stock to the following  classes of persons upon the exercise
          of options  issued  pursuant to the Company's  1993 Stock Option Plan.
          The securities were issued pursuant to the exemption from registration
          provided by Section  4(2) of the  Securities  Act of 1933  because the
          issuance did not involve a public offering.

                                                                     Aggregate
                              Class of             # of Shares       Exercise
          Date Issued        Purchasers              Issued            Price
          -----------        ----------              ------            -----
          9/23/2004           Employees                6,697          $65,000


Item 6.   Exhibits

            Exhibits.

             3      Articles of Incorporation as amended

             10     Non-competition,  Severance and Employment Agreement entered
                    into between Registrant and C. Kyle Thomas  (incorporated by
                    reference to exhibits to Form 8-K filed September 20, 2004).

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

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

             32     Section 1350 Certifications



                                       24
<PAGE>


SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                          PEOPLES BANCORPORATION, INC.


Dated:  November 10, 2004                   By:    /s/ R. Riggie Ridgeway
                                                 ------------------------
                                                   R. Riggie Ridgeway
                                                   President and CEO


Dated:  November 10, 2004                   By:   /s/ Robert E. Dye, Jr.
                                                ------------------------
                                                   Robert E. Dye, Jr.
                                                   Sr. Vice President & CFO
                                                   (principal financial officer)



                                       25
<PAGE>



                                  Exhibit Index

Exhibit No.                Description of Exhibit

3                 Articles of Incorporation as amended
10                Non-competition, Severance and Employment Agreement entered
                  into between Registrant and C. Kyle Thomas (incorporated by
                    reference to exhibits to Form 8-K filed September 20, 2004).
31.1              Rule 13a-14(a) / 15d-14(a) Certifications
31.2              Rule 13a-14(a) / 15d-14(a) Certifications
32                Section 1350 Certifications




                                       26