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, 2005 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___

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

                              Yes ______ No ___X___

                     The number of outstanding shares of the
                      issuer's $1.11 par value common stock
                      as of November 8, 2005 was 6,243,980.




<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,
                                                                                        2005               2004              2004
                                                                                      Unaudited          Unaudited         Audited
                                                                                      ---------          ---------         -------
ASSETS
<S>                                                                                   <C>               <C>               <C>
CASH AND DUE FROM BANKS ......................................................        $  15,811         $   9,693         $   8,630
INTEREST-BEARING DEPOSITS IN OTHER BANKS .....................................              891               891             1,028
FEDERAL FUNDS SOLD ...........................................................            3,863               803             2,631
                                                                                      ---------         ---------         ---------
     Total cash and cash equivalents .........................................           20,565            11,387            12,289
SECURITIES
     Available for sale ......................................................           65,253            62,302            62,052
     Held to maturity (market value of $9,569, $7,493 and $7,451) ............            9,611             7,424             7,386
     Other investments, at cost ..............................................            1,972             1,814             1,809
LOANS-less allowance for loan losses of $3,979, $3,627 and $3,691 ............          360,518           317,537           322,212
MORTGAGE LOANS HELD FOR SALE .................................................                -             9,642                 -
PREMISES AND EQUIPMENT, net of accumulated
     depreciation and amortization ...........................................           10,757            11,222            11,075
ACCRUED INTEREST RECEIVABLE ..................................................            2,095             1,702             1,830
CASH SURRENDER VALUE OF LIFE INSURANCE .......................................            9,322             8,963             9,049
OTHER ASSETS .................................................................            2,535             2,262             2,094
                                                                                      ---------         ---------         ---------
         TOTAL ASSETS ........................................................        $ 482,628         $ 434,255         $ 429,796
                                                                                      =========         =========         =========

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
DEPOSITS
     Non-interest-bearing ....................................................        $  54,734         $  50,020         $  51,507
     Interest-bearing ........................................................          343,375           299,763           294,638
                                                                                      ---------         ---------         ---------
         Total deposits ......................................................          398,109           349,783           346,145
SECURITIES SOLD UNDER REPURCHASE
     AGREEMENTS ..............................................................           29,941            31,908            33,953
FEDERAL FUNDS PURCHASED ......................................................                -               378               572
NOTES PAYABLE TO FEDERAL HOME LOAN BANK ......................................           11,000            11,500             8,500
ACCRUED INTEREST PAYABLE .....................................................            1,926             1,214             1,154
OTHER LIABILITIES ............................................................            1,183             1,748             1,232
                                                                                      ---------         ---------         ---------
         Total Liabilities ...................................................          442,159           396,531           391,556
                                                                                      ---------         ---------         ---------
SHAREHOLDERS' EQUITY*
Common Stock - 15,000,000 shares authorized, $1.11
     par value per share, 6,241,019 shares, 5,810,581 shares
     and 6,113,738 shares outstanding, respectively ..........................            6,928             6,450             6,786
Additional paid-in capital ...................................................           32,121            29,270            31,914
Retained Earnings ............................................................            2,096             2,223                 -
Accumulated other comprehensive loss .........................................             (676)             (219)             (460)
                                                                                      ---------         ---------         ---------
         Total Shareholders' Equity ..........................................           40,469            37,724            38,240
                                                                                      ---------         ---------         ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...................................        $ 482,628         $ 434,255         $ 429,796
                                                                                      =========         =========         =========
</TABLE>

* Share data has been  restated  to reflect  the 5% stock  dividend  effected in
December 2004 and the 5% stock dividend to be effected in December 2005.


                                       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,
                                                                          2005              2004             2005              2004
                                                                          ----              ----             ----              ----
INTEREST INCOME
<S>                                                                    <C>              <C>              <C>              <C>
   Interest and fees on loans ..................................       $    6,244       $    4,791       $   17,279       $   13,844
   Interest on securities
       Taxable .................................................              493              456            1,413            1,434
       Tax-exempt ..............................................               64               62              183              172
   Interest on federal funds ...................................               42               15              173               70
                                                                       ----------       ----------       ----------       ----------
Total interest income ..........................................            6,843            5,324           19,048           15,520
                                                                       ----------       ----------       ----------       ----------
INTEREST EXPENSE
   Interest on deposits ........................................            2,150            1,423            5,695            4,400
   Interest on federal funds purchased and securities
       sold under repurchase agreements ........................              168               89              470              219
    Interest on notes payable to Federal Home Loan Bank ........               75               72              239              198
                                                                       ----------       ----------       ----------       ----------
Total interest expense .........................................            2,393            1,584            6,404            4,817
                                                                       ----------       ----------       ----------       ----------
Net interest income ............................................            4,450            3,740           12,644           10,703
PROVISION FOR LOAN LOSSES ......................................              165              153              521              436
                                                                       ----------       ----------       ----------       ----------
Net interest income after provision for loan losses ............            4,285            3,587           12,123           10,267

NON-INTEREST INCOME
   Service charges on deposit accounts .........................              519              492            1,499            1,516
   Customer service fee income .................................               39               36              132              128
   Mortgage banking income .....................................              146                -              367                -
   Brokerage income ............................................               65               16              153              138
   Bank owned life insurance income ............................              104              194              314              331
   Other non-interest income ...................................               26               78              206              322
   Gain on sale of mortgage loans held for sale ................                -              376                -            1,463
   Gain on sale of available for sale securities ...............                -                1                7              128
                                                                       ----------       ----------       ----------       ----------
                                                                              899            1,193            2,678            4,026
NON-INTEREST EXPENSES
   Salaries and benefits .......................................            2,119            1,985            6,123            6,239
   Occupancy ...................................................              187              172              541              498
   Equipment ...................................................              327              320            1,013              937
   Marketing and advertising ...................................               91               70              297              219
   Communications ..............................................               53               39              164              156
   Printing and supplies .......................................               34               54              106              150
   Bank paid loan costs ........................................              119               80              228              224
   Director fees ...............................................               88               69              261              210
   Executive retirement benefit expense ........................               20               17               55              446
   Legal and professional fees .................................               99               59              263              165
   Other operating expenses ....................................              446              433            1,316            1,302
                                                                       ----------       ----------       ----------       ----------
             Total non-interest expenses .......................            3,583            3,298           10,367           10,546
                                                                       ----------       ----------       ----------       ----------
   Income before income taxes ..................................            1,601            1,482            4,434            3,747
PROVISION FOR INCOME TAXES .....................................              528              460            1,449            1,187
                                                                       ----------       ----------       ----------       ----------
   Net income ..................................................       $    1,073       $    1,022       $    2,985       $    2,560
                                                                       ==========       ==========       ==========       ==========
INCOME PER COMMON SHARE *
   BASIC .......................................................       $     0.17       $     0.17       $     0.48       $     0.42
                                                                       ==========       ==========       ==========       ==========
   DILUTED .....................................................       $     0.17       $     0.16       $     0.47       $     0.41
                                                                       ==========       ==========       ==========       ==========
WEIGHTED AVERAGE COMMON SHARES *
   BASIC .......................................................        6,240,508        6,101,110        6,214,888        6,093,940
                                                                       ==========       ==========       ==========       ==========
   DILUTED .....................................................        6,358,623        6,359,979        6,350,370        6,320,162
                                                                       ==========       ==========       ==========       ==========
CASH DIVIDENDS PAID PER COMMON SHARE ...........................       $     0.05       $     0.07       $     0.15       $     0.21
                                                                       ==========       ==========       ==========       ==========
</TABLE>

* Share data has been  restated  to reflect  the 5% stock  dividend  effected in
December 2004 and the 5% stock dividend to be effected in December 2005.

                                       2
<PAGE>

                  Peoples Bancorporation, Inc. and Subsidiaries
           Consolidated Statements of Changes in Shareholders' Equity
              For the nine months ended September 30, 2005 and 2004

                    (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, 2003* .......................    5,800,034    $    6,438    $   29,217   $      444   $      62    $   36,161
Net income ........................................                                                 2,560                     2,560
Other comprehensive income, net of tax:
   Unrealized holding losses on
   securities available for sale
   net of income taxes $113 .......................                                                              (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 .............       10,547            12            53                                     65
                                                      ----------    ----------    ----------   ----------   ----------   ----------
Balance, September 30, 2004* ......................    5,810,581    $    6,450    $   29,270   $    2,223   $     (219)  $   37,724
                                                      ==========    ==========    ==========   ==========   ==========   ==========

Balance, December 31, 2004* .......................    6,113,738    $    6,786    $   31,914   $        -   $     (460)  $   38,240
Net income ........................................                                                 2,985                     2,985
Other comprehensive income, net of tax:
   Unrealized holding losses on
   securities available for sale
   net of income taxes $334 .......................                                                               (211)        (211)
   Less reclassification
   adjustments for gains
   included in net income, net of
   income taxes of $2 .............................                                                                 (5)          (5)
                                                                                                                         ----------
Comprehensive income ..............................                                                                           2,769
Cash dividends ....................................                                                  (889)                     (889)
Proceeds from stock options exercised .............      127,281           142           207                                    349
                                                      ----------    ----------    ----------   ----------   ----------   ----------
Balance, September 30, 2005* ......................    6,241,019    $    6,928    $   32,121   $    2,096   $     (676)  $   40,469
                                                      ==========    ==========    ==========   ==========   ==========   ==========
</TABLE>

* Share data has been  restated  to reflect  the 5% stock  dividend  effected in
December 2004 and the 5% stock dividend to be effected in December 2005.


                                       3
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                                                 (Unaudited)
                                                                                                              Nine Months Ended
                                                                                                                September 30,
                                                                                                                -------------
                                                                                                           2005               2004
                                                                                                           ----               ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                                   <C>                 <C>
   Net income ..............................................................................          $   2,985           $   2,560
   Adjustments to reconcile net income to net cash provided
     by (used in) operating activities
   (Gain) loss on sale of premises and equipment ...........................................                 20                 (14)
   Gain on sale of securities available for sale ...........................................                 (7)               (128)
   Gain on sale of mortgage loans held for sale ............................................                  -              (1,463)
   Provision for loan losses ...............................................................                521                 436
   Depreciation and amortization ...........................................................                843                 776
   Amortization and accretion (net of premiums and
     discounts on securities) ..............................................................                 95                 199
   Origination of mortgage loans held for sale .............................................                  -            (138,537)
   Sale of mortgage loans held for sale ....................................................                  -             135,459
   (Increase) decrease in accrued interest receivable ......................................               (265)                119
   (Increase) decrease in other assets .....................................................                 95                (352)
   Increase (decrease) in accrued interest payable .........................................                772                (390)
   Increase (decrease) in other liabilities ................................................                (49)                476
                                                                                                      ---------           ---------
     Net cash provided (used in) by operating activities ...................................              5,010                (859)
                                                                                                      ---------           ---------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of securities held for investment .............................................             (3,479)             (2,139)
   Purchases of securities available for sale ..............................................             (6,493)            (23,486)
   Purchase of other investments ...........................................................               (163)               (139)
   Proceeds from the principal pay downs on securities available for sale ..................              2,547               4,143
   Proceeds from the maturity of securities held to maturity ...............................              1,218                 320
   Proceeds from the maturity of securities available for sale .............................                  -                 472
   Proceeds from the sale of securities available for sale .................................                358               9,834
   Proceeds from the call of securities available for sale .................................                  -              25,445
   Purchase of cash surrender value life insurance .........................................               (273)             (6,669)
   Net increase in loans ...................................................................            (39,244)            (25,159)
   Proceeds from the sale of premises and equipment ........................................                 71                  33
   Purchase of premises and equipment ......................................................               (616)             (1,786)
                                                                                                      ---------           ---------
     Net cash used in investing activities .................................................            (46,074)            (19,131)
                                                                                                      ---------           ---------
CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase (decrease) in deposits .....................................................             51,964              (3,546)
   Net increase (decrease) in securities sold under repurchase
     agreements ............................................................................             (4,012)              7,518
   Net increase (decrease) in federal funds purchased ......................................               (572)                378
   Net increase in notes payable to Federal Home Loan Bank .................................              2,500               6,500
   Proceeds from the sale of stock and exercise of stock options ...........................                349                  65
   Cash dividend ...........................................................................               (889)               (781)
                                                                                                      ---------           ---------
     Net cash provided by financing activities .............................................             49,340              10,134
                                                                                                      ---------           ---------
     Net increase (decrease) in cash and cash equivalents ..................................              8,276              (9,856)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...............................................             12,289              21,243
                                                                                                      ---------           ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................................................          $  20,565           $  11,387
                                                                                                      =========           =========
CASH PAID FOR
     Interest ..............................................................................          $   5,632           $   5,207
                                                                                                      =========           =========
     Income taxes ..........................................................................          $   1,660           $   1,051
                                                                                                      =========           =========
</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 2004 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 $0.05 per common share to
shareholders  of record March 18, 2005,  June 17, 2005,  and  September 16, 2005
payable April 4, 2005, July 5, 2005 and September 30, 2005, respectively.

     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,  2005  and  2004  was  6,214,888  and  6,093,940
respectively.  The weighted  average  number of common  shares  outstanding  for
diluted net income per common share was  6,350,370  and  6,320,162  for the nine
months ended September 30, 2005 and 2004, respectively.

      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,
                                                                                     2005          2004          2005          2004
                                                                                     ----          ----          ----          ----

<S>                                                                                <C>          <C>          <C>          <C>
Net income, as reported ........................................................   $   1,073    $   1,022    $   2,985    $   2,560
Deduct:  total stock-based employee compensation
  expense determined under fair value based method
  for all awards, Net of related tax effects ...................................         (40)         (27)         (98)         (82)
                                                                                   ---------    ---------    ---------    ---------
Pro forma net income ...........................................................   $   1,033    $     995    $   2,887    $   2,478
                                                                                   =========    =========    =========    =========
Net income per common share
  Basic - as reported ..........................................................   $    0.17    $    0.17    $    0.48    $    0.42
                                                                                   =========    =========    =========    =========
  Basic - pro forma ............................................................   $    0.17    $    0.16    $    0.47    $    0.41
                                                                                   =========    =========    =========    =========
  Diluted - as reported ........................................................   $    0.17    $    0.16    $    0.47    $    0.41
                                                                                   =========    =========    =========    =========
  Diluted - pro forma ..........................................................   $    0.16    $    0.16    $    0.46    $    0.39
                                                                                   =========    =========    =========    =========
</TABLE>

     Per share data in 2004 has been  restated to reflect the 5% stock  dividend
effected in December 2004 and 5% stock dividend to be effected in December 2005.

                                       5
<PAGE>

MANAGEMENT'S OPINION

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

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.




                                       6
<PAGE>


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

     The following  discussion and analysis  should be read in conjunction  with
the consolidated financial statements and related notes and with the statistical
information  and  financial  data  appearing  in this report as well as the 2004
Annual  Report  of  Peoples  Bancorporation,  Inc.  on  Form  10-K.  Results  of
operations for the three-month and nine-month  periods ending September 30, 2005
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 2004 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 2004 Annual Report on
Form 10-K and the  Allowance  for Loan  Losses  and  Provision  for Loan  Losses
sections of this report on Form 10-Q for a detailed description of the Company's
estimation process and methodology related to the Allowance.




                                       7
<PAGE>

Overview

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

     Currently,  the Company engages in no significant operations other than the
ownership  of its  three  subsidiaries  and the  support  thereof.  The  Company
conducts its business from seven 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 2005 was
$1,073,000  or $0.17 per  diluted  share  compared  to  $1,022,000  or $0.16 per
diluted share for the third quarter of 2004, an increase of $51,000 or 5.0%. Net
income for the nine months ended  September 30, 2005 was $2,985,000 or $0.47 per
diluted  share  compared to  $2,560,000  or $0.41 per diluted share for the nine
months ended  September  30, 2004,  an increase of $425,000 or 16.6%.  Return on
average equity for the nine months and three months ended September 30, 2005 was
9.98% and 10.42% respectively, compared to 9.22% and 10.86% respectively for the
nine months and three months ended September 30, 2004.  Return on average assets
for the nine  months and three  months  ended  September  30, 2005 was 0.87% and
0.89% respectively, compared to 0.79% and 0.95% respectively for the nine months
and three months ended  September  30, 2004.  The increases in the Company's net
income,  and  diluted  earnings  per share in the first nine  months of 2005 are
largely attributable to growth in average balances and yields of earning assets.
The decreases in return on average  equity and return on average  assets for the
third  quarter  are due to the fact that  growth in equity and  assets  slightly
outpaced the growth in earnings.

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  $710,000  or 19.0% to  $4,450,000  in the quarter  ended
September 30, 2005  compared to  $3,740,000  in the quarter ended  September 30,
2004.  For the nine months ended  September 30, 2005 net interest  income before
provision for loan losses increased  $1,941,000 or 18.1% to $12,644,000 compared
to $10,703,000  for the nine months ended  September 30, 2004. The Company's net
interest  margin for the three months and nine months ending  September 30, 2005
was 4.00% and 3.95%,  respectively,  compared to 3.71% and 3.57%,  respectively,
for the three months and nine months ended September 30, 2004.

     The  Company's  total  interest  income  for the third  quarter of 2005 was
$6,843,000  compared to $5,324,000 for the third quarter of 2004, an increase of
$1,519,000 or 28.5%.  Total interest  income for the nine months ended September
30, 2005 was  $19,048,000  compared  to  $15,520,000  for the nine months  ended
September 30, 2004,  an increase of  $3,528,000  or 22.7%.  Interest and fees on
loans, the largest component of total interest income,  increased  $1,453,000 in
the third  quarter of 2005 to $6,244,000  compared to  $4,791,000  for the third
quarter of 2004,  an increase  of 30.3%.  Interest  and fees on loans  increased
$3,435,000 for the nine months ended September 30, 2005 to $17,279,000  compared
to  $13,844,000  for the nine months ended  September  30, 2004,  an increase of


                                       9
<PAGE>

24.8%. The increases in total interest income and interest and fees on loans are
primarily due to higher average  balances in these types of earning assets,  and
also due to higher yields on these assets  resulting from higher market interest
rates.

     Interest  on taxable  securities,  the second  largest  component  of total
interest  income  increased  $37,000 in the third  quarter  of 2005 to  $493,000
compared to $456,000  for the third  quarter of 2004,  an increase of 8.1%.  The
increase  in  interest on taxable  securities  for the third  quarter is largely
attributable to higher average  balances in these accounts.  Interest on taxable
securities  decreased  $21,000 for the nine months ended  September  30, 2005 to
$1,413,000  compared to $1,434,000 for the nine months ended September 30, 2004,
a decrease of 1.5%.

     The  Company's  total  interest  expense for the third  quarter of 2005 was
$2,393,000  compared to $1,584,000 for the third quarter of 2004, an increase of
$809,000 or 51.1%.  Total interest  expense for the nine months ended  September
30,  2005 was  $6,404,000  compared  to  $4,817,000  for the nine  months  ended
September  30, 2004, an increase of  $1,587,000  or 33.0%.  Interest  expense on
deposits, the largest component of total interest expense, increased $727,000 in
the third  quarter of 2005 to $2,150,000  compared to  $1,423,000  for the third
quarter of 2004, an increase of 51.1%.  Interest  expense on deposits  increased
$1,295,000 for the nine months ended  September 30, 2005 to $5,695,000  compared
to  $4,400,000  for the nine months ended  September  30,  2004,  an increase of
29.4%.  Interest on federal funds purchased and securities sold under repurchase
agreements,  the second largest component of total interest  expense,  increased
$79,000 or 88.8% to  $168,000 in the third  quarter of 2005  compared to $89,000
for the  third  quarter  of  2004.  Interest  on  federal  funds  purchased  and
securities  sold under  repurchase  agreements  increased  $251,000 or 114.6% to
$470,000  in the first nine months of 2005  compared  to $219,000  for the first
nine months of 2004.  Interest on notes payable to the Federal Home Loan Bank of
Atlanta  ("FHLB"),  the  third  largest  component  of total  interest  expense,
increased  $3,000 or 4.2% to $75,000 in the third  quarter of 2005  compared  to
$72,000 for the third  quarter of 2004.  Interest  on notes  payable to the FHLB
increased $41,000 or 20.7% to $239,000 in the first nine months of 2005 compared
to $198,000 for the first nine months of 2004. The increase in interest  expense
among the various types of interest-bearing  liabilities is largely attributable
to significantly  higher market interest rates experienced at the Company's bank
subsidiaries  during the first nine  months of 2005 when  compared  to the first
nine  months  of  2004,  as well as  higher  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, 2005 was $165,000 and $521,000 respectively,
compared to $153,000  and  $436,000  respectively  for the three months and nine
months ended September 30, 2004. The changes in the Company's provision for loan
losses  for the  third  quarter  and  first  nine  months  of 2005 are  based on
management's evaluation of the Company's overall credit quality and its estimate
of loan losses inherent in the loan portfolio.

                                       10
<PAGE>

Non-interest Income

     Non-interest  income decreased  $294,000 or 24.6% to $899,000 for the third
quarter  of  2004  compared  to  $1,193,000  for  the  third  quarter  of  2004.
Non-interest  income  decreased  $1,348,000 or 33.5% to $2,678,000 for the first
nine months of 2005  compared to  $4,026,000  for the first nine months of 2004.
This  is  primarily  due to the  Company's  exit  from  the  wholesale  mortgage
business.

     Service charges on deposit accounts,  the largest component of non-interest
income,  increased $27,000 or 5.5% from $492,000 in the third quarter of 2004 to
$519,000  in the third  quarter  of 2005,  and  decreased  $17,000  or 1.1% from
$1,516,000  in the first  nine  months of 2004 to  $1,499,000  in the first nine
months of 2005. Mortgage banking income, the second largest component of service
fees and other  income,  increased  from zero in the  third  quarter  of 2004 to
$146,000 in the third quarter of 2005, and increased from zero in the first nine
months of 2004 to $367,000 in the first nine months of 2005.  This is due to the
fact that all mortgage banking income was formerly reported as gains on mortgage
loans held for sale because these  pre-sold  loans were closed and funded by The
Peoples  National Bank prior to their actual sale.  Gains on mortgage loans held
for sale, the second largest component of non-interest income in 2004, decreased
100% from  $376,000  during the third  quarter of 2004 to zero  during the third
quarter of 2005, and decreased 100% from $1,463,000 during the first nine months
of 2004 to zero  during the first nine months of 2005.  During  2004  management
made the decision to completely exit the wholesale  mortgage business due to the
significant  decrease in demand for residential  mortgage loans and refinancing,
and  therefore  at December  31, 2004 the Company no longer  owned any  mortgage
loans held for sale.  Currently,  the Company's mortgage banking income consists
entirely of fees collected for the origination of residential  mortgages  funded
by unrelated investors.

     Other  non-interest  income decreased  $52,000 or 66.7% from $78,000 in the
third  quarter of 2004 to $26,000 in the third  quarter of 2005,  and  decreased
$116,000 or 36.0% from  $322,000 in the first nine months of 2004 to $206,000 in
the first nine months of 2005. These decreases are largely  attributable to life
insurance  proceeds totaling $174,000 that were received in the second and third
quarter of 2004 in conjunction  with the death of the Company's former Chairman,
President and CEO.

     Gains on  available-for-sale  securities were zero for the third quarter of
2005  compared  to $1,000 for the third  quarter of 2004,  a decrease of $1,000.
Gains on available-for-sale  securities were $7,000 for the first nine months of
2005  compared  to  $128,000  for the first nine  months of 2004,  a decrease of
$121,000 or 94.5%.

Non-interest Expense

     Total non-interest expense increased $285,000 or 8.6% to $3,583,000 for the
third  quarter of 2005 from  $3,298,000  for the third  quarter  of 2004.  Total
non-interest  expense  decreased  $179,000 or 1.7% to $10,367,000  for the first


                                       11
<PAGE>

nine months of 2005 from $10,546,000 for the first nine months of 2004. Salaries
and benefits, the largest component of non-interest expense,  increased $134,000
or 6.8%, to $2,119,000  for the third  quarter of 2005 from  $1,985,000  for the
third  quarter of 2004.  Salaries  and  benefits  decreased  $116,000 or 1.9% to
$6,123,000 for the first nine months of 2005 from  $6,239,000 for the first nine
months of 2004. The decrease in salaries and benefits for the nine-month  period
is primarily due to a reduction in commissions paid and changes in personnel due
to the exit  from the  wholesale  mortgage  loan  business.  The  decreases  are
partially  offset  by the  addition  of four  persons  hired in the  residential
construction  lending area, as well as normal salary increases and other changes
in personnel throughout the Company.

     Occupancy and furniture and equipment expenses increased $22,000 or 4.5% to
$514,000 in the third  quarter of 2005 compared to $492,000 in the third quarter
of 2004.  Occupancy and furniture and equipment  expenses  increased $119,000 or
8.3%, to $1,554,000  for the first nine months of 2005 from  $1,435,000  for the
first  nine  months  of  2004.  The  increase  is  primarily  attributable  to a
renovation of the Company's  headquarters  beginning in late 2004 and continuing
through the third quarter of 2005, the completion of an expansion and renovation
to the main office of Bank of Anderson,  N.A. in the third quarter of 2004,  and
the  purchase  of an ATM  facility  at Seneca  National  Bank  during the second
quarter of 2005.

     Executive  retirement  benefit expense increased $3,000 or 17.6% to $20,000
in the third  quarter of 2005  compared to $17,000 in the third quarter of 2004.
Executive  retirement benefit expense decreased $391,000 or 87.7% to $55,000 for
the first nine months of 2005 from  $446,000  for the first nine months of 2004.
This decrease 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 was
required  by SFAS No.  112 in  accordance  with  generally  accepted  accounting
principles.

     Miscellaneous  other  non-interest  expenses  increased  $13,000 or 3.0% to
$446,000 for the third  quarter of 2005 from  $433,000 for the third  quarter of
2004. Other  non-interest  expenses  increased $14,000 or 1.1% to $1,316,000 for
the first nine months of 2005 from $1,302,000 for the first nine months of 2004.


                                       12
<PAGE>

BALANCE SHEET REVIEW

Loans

     Outstanding  loans (which excludes  mortgage loans held for sale) represent
the largest  component of earning assets at 81.8% of total earning assets. As of
September  30,  2005,  the  Company  held  total  gross  loans   outstanding  of
$364,497,000.  Gross loans increased  $38,594,000 or 11.8% from  $325,903,000 in
total gross outstanding loans at December 31, 2004 and increased  $43,333,000 or
13.5% from  $321,164,000 in total gross loans outstanding at September 30, 2004.
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:

Loan Portfolio Composition
<TABLE>
<CAPTION>
                                                                                              September 30,             December 31,
                                                                                              -------------             ------------
(Dollars in Thousands                                                                    2005               2004              2004
                                                                                         ----               ----              ----
<S>                                                                                   <C>                <C>                <C>
Commercial  and  industrial  - not  secured  by  real estate ..............           $ 40,549           $ 37,237           $ 39,723
Commercial and industrial - secured by real estate ........................             92,584             92,670             95,965
Residential real estate - mortgage ........................................            107,456            102,594            105,580
Residential real estate - construction ....................................            104,890             67,139             63,380
Consumer loans ............................................................             19,018             21,524             21,255
                                                                                      --------           --------           --------
     Gross Loans ..........................................................           $364,497           $321,164           $325,903
                                                                                      ========           ========           ========
</TABLE>

     The interest rates charged on loans vary with the degree of risk,  maturity
and amount of the loan.  Competitive  pressures,  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, 2005 was 6.66% and 6.90% respectively, compared to 5.75% and 5.81%
respectively  for the nine months and three months ended  September  30, 2004. A
large portion of the Company's adjustable rate loans, which constitutes 42.6% 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  market  areas.  The Company does not actively  pursue  long-term,
fixed-rate  residential mortgage loans for retention in its loan portfolio.  The
Banks employ  mortgage loan  originators  who originate loans that are funded at
origination by third parties. The Company also formerly purchased mortgage loans
through a wholesale mortgage loan division of The Peoples National Bank and then
resold the loans to third parties. Those loans were 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.
Due to the  fact  that  management  made the  decision  to  completely  exit the
wholesale  mortgage  business by the end of 2004,  there were no mortgage  loans


                                       13
<PAGE>

held for sale at September  30, 2005 or at December 31, 2004, a decrease of 100%
from the $9,642,000 in mortgage loans held for sale at September 30, 2004.

     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 one  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  the  borrower's   repayment  strengths  and  low
debt-to-worth ratios. At September 30, 2005 approximately $12,025,000 or 4.4% of
commercial loans were unsecured.

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

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

Allowance for Loan Losses

     The allowance for loan losses at September 30, 2005 was $3,979,000 or 1.09%
of loans  outstanding  (which excludes mortgage loans held for sale) compared to
$3,691,000  or 1.13% of loans  outstanding  at December 31, 2004 and compared to
$3,627,000 or 1.13% of loans  outstanding  at September 30, 2004.  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.

     At September  30, 2005 the Company had  $2,394,000 in  non-accruing  loans,
$1,414,000 in  restructured  loans,  no loans more than ninety days past due and
still accruing interest,  and $920,000 in other real estate owned. This compares
to $670,000 in non-accruing loans,  $512,000 in restructured loans,  $838,000 in
loans more than ninety days past due on which  interest was still being accrued,
and $756,000 in other real estate owned at December 31, 2004.  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. Non-performing loans at September 30, 2005 consisted
of $2,361,000 in mortgage loans,  and $33,000 in consumer loans.  Non-performing
assets as a percentage  of loans and other real estate  owned was 1.29%,  0.85%,


                                       14
<PAGE>

and 0.39% at September  30, 2005,  December 31, 2004,  and  September  30, 2004,
respectively.  The  increase  in the  amount of  non-accruing  loans is  largely
attributable  to one  loan  relationship  secured  by  real  estate  at  Bank of
Anderson.   The  increase  in  the  amount  of  restructured  loans  is  largely
attributable to one loan secured by church assets at The Peoples  National Bank.
The  increase in the amount of other real  estate  owned is  attributable  to an
increase in foreclosed residential properties at The Peoples National Bank.

     Net charge-offs during the first nine months of 2005 were $233,000 compared
to net  charge-offs  of  $247,000  for the  first  nine  months  of 2004 and net
charge-offs  of $336,000 for the year ended December 31, 2004. The allowance for
loan losses as a percentage of non-performing  loans was 104.5%,  183%, and 648%
as  of  September  30,  2005,   December  31,  2004,  and  September  30,  2004,
respectively.  During the early part of the fourth quarter, the Company recorded
charge-offs of $260,000,  of which approximately  $219,000 was attributable to a
single borrower at Bank of Anderson.  Additional  charge-offs may be made during
the fourth quarter in the normal course of business.


     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  $253,000 in impaired  loans at
September  30, 2005,  no impaired  loans at December  31, 2004,  and $340,000 in
impaired loans at September 30, 2004.

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, 2005 securities totaled  $76,836,000,  which represents
17.2% of total earning  assets.  Securities held at September 30, 2005 increased
$5,586,000  or 7.8%  from  $71,247,000  invested  as of  December  31,  2004 and
increased $5,296,000 or 7.4% from $71,540,000 invested as of September 30, 2004.

     At  September  30,  2005 the  Company's  total  investments  classified  as
available for sale had an amortized  cost of  $66,277,000  and a market value of
$65,253,000 for an unrealized loss of $1,024,000.  This compares to an amortized
cost of $62,634,000  and a market value of $62,302,000 for an unrealized loss of
$332,000  on the  Company's  investments  classified  as  available  for sale at
September  30,  2004.  At December  31,  2004 the  Company's  total  investments
classified  as available  for sale had an amortized  cost of  $62,749,000  and a


                                       15
<PAGE>

market value of $62,052,000 for an unrealized loss of $697,000.  Such unrealized
losses are not considered to be other than temporary because the Company has the
ability to hold, and generally does not sell,  such  investments  prior to their
maturity.  These unrealized losses have resulted from changes in market interest
rates as opposed to any deterioration in credit quality of the investments.

Cash Surrender Value of Life Insurance

     The Company's  cash  surrender  value of life  insurance was  $9,322,000 at
September 30, 2005, an increase of $273,000 or 3.0% from the $9,049,000  held at
December 31, 2004 and an increase of $359,000 or 4.0% from the  $8,963,000  held
at September 30, 2004.

Cash and Cash Equivalents

     The Company's cash and cash  equivalents  increased  $8,276,000 or 67.3% to
$20,565,000  at  September  30, 2005 from  $12,289,000  at December 31, 2004 and
increased  $9,178,000  or 80.6% from  $11,387,000  at September  30,  2004.  The
changes 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  increased  $51,964,000 or 15.0% to  $398,109,000  at
September  30,  2005  from  $346,145,000  at  December  31,  2004 and  increased
$48,326,000 or 13.8% from  $349,783,000  at September 30, 2004.  Competition for
deposit  accounts  is  primarily  based on the  interest  rates  paid,  location
convenience, and services offered.

     During the first nine months of 2005,  interest-bearing  deposits  averaged
$328,022,000  compared to  $306,652,000  for the first nine months of 2004. From
time to time the banks  solicit  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  were
originally used to fund Peoples  National  Bank's  short-term  mortgage  lending
activities,  and more  recently  they have  been  used to fund a portion  of the
banks' core lending and investing  activities.  These deposits are an attractive
alternative funding source available to use while continuing efforts to maintain
and grow the banks' local deposit base. On each of September 30, 2005,  December
31, 2004 and September 30, 2004 there were no outstanding  certificates garnered
through the Internet.  On September 30, 2005,  December 31, 2004,  and September
30, 2004 there were brokered deposits of $2,386,000,  $2,391,000, and $8,940,000
respectively.

     The average interest rate paid on  interest-bearing  deposits was 2.31% for
the first nine  months of 2005  compared  to 1.92% for the first nine  months of
2004.  In pricing  deposits,  the Company  considers its  liquidity  needs,  the


                                       16
<PAGE>

direction  and  levels of  interest  rates,  and  local  market  conditions.  At
September 30, 2005  interest-bearing  deposits comprised 86.3% of total deposits
compared to 85.7% at September 30, 2004.

     The Company's core deposit base consists  largely of consumer time deposits
less than $100,000,  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%  both for the nine  months  ended  September  30,  2005 and
September 30, 2004,  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 FHLB.  At September 30, 2005  short-term  borrowings  totaled
$35,941,000   and  were  comprised  of  $29,941,000  in  securities  sold  under
repurchase  agreements,  and $6,000,000 in short-term advances from the FHLB. At
December 31, 2004 short-term  borrowings totaled  $38,025,000 and were comprised
of  $33,953,000  in securities  sold under  repurchase  agreements,  $572,000 in
federal funds purchased, and $3,500,000 in short-term advances from the FHLB. 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 FHLB.
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 FHLB at
each of September 30, 2005, December 31, 2004, and September 30, 2004.


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,  2005 The Peoples
National Bank had total  borrowing  capacity from the FHLB equal to $34,930,711,
and the unused portion of this line of credit was $23,930,711.  Bank of Anderson
had total borrowing  capacity from the FHLB equal to  $25,479,960,  all of which
was unused at September  30, 2005.  Seneca  National  Bank had secured  lines of


                                       17
<PAGE>

credit  with the FHLB at  September  30,  2005 of  $6,250,739,  all of which was
unused at September 30, 2005. The Banks had unused federal funds lines of credit
totaling $30,750,000 at September 30, 2005.

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

     During  the  latter  part of 2004 and the first  nine  months of 2005,  the
Company made capital expenditures of approximately  $300,000 associated with the
renovation of portions of the corporation headquarters building in Easley, South
Carolina.  In 2005 the Company also  purchased  and installed a new ATM unit for
approximately $76,000 in Seneca, South Carolina.  The Company additionally makes
other lesser capital expenditures through the normal course of business.

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


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,  2005,  the  Banks had  issued  commitments  to extend  credit of
$111,801,000 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,  which are  assurances to a third party that it will
not  suffer  a loss  if the  Bank's  customer  fails  to  meet  its  contractual
obligation to the third party.  Standby letters of credit totaled  $6,566,000 at
September 30, 2005. Past experience indicates that many of these standby letters
of credit will expire unused. However, through its various sources of liquidity,
the Company  believes  that it will have the  necessary  resources to meet these
obligations  should the need arise.  Various types of collateral  secure most of
the  standby  letters  of credit.  The  Company  believes  that the risk of loss
associated  with  standby  letters of credit is  comparable  to the risk of loss
associated with its loan portfolio. Moreover, the fair value associated with any
standby letters of credit issued by the Company is immaterial to the Company.

     According  to SFAS No.  133,  Accounting  for  Derivative  Instruments  and
Hedging Activities,  loan commitments that relate to the origination or purchase
of mortgage loans that will be held for sale must be accounted for as derivative
instruments.   Therefore,  such  commitments  are  recorded  at  fair  value  in
derivative assets or liabilities, with changes in fair value recorded in the net


                                       18
<PAGE>

gain or loss on sale of  mortgage  loans.  In 2004 the  Company  engaged  in the
origination and sale of residential  mortgage loans and entered 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 did not collect
any  upfront  fees when  issuing  a  mortgage  loan  commitment  to a  potential
borrower,  and mortgages were 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 banks are  involved in any other  off-balance
sheet  contractual  relationships or transactions that could result in liquidity
needs or other commitments or significantly impact earnings. The Company did not
have  any  obligations  under  non-cancelable   operating  lease  agreements  at
September 30, 2005.



                                       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, 2005:


                                 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 ...............    $45,110            12.17%          N/A              N/A       $29,653           8.00%
Tier 1 Risk-based Capital ..............     41,145            11.10           N/A              N/A        14,927           4.00
Leverage Ratio .........................     41,145             8.61           N/A              N/A        19,115           4.00

Peoples National Bank:
Total Risk-based Capital ...............    $25,766            12.04%      $21,400            10.00%      $17,120           8.00%
Tier 1 Risk-based Capital ..............     23,694            11.07        12,842             6.00         8,562           4.00
Leverage Ratio .........................     23,694             8.84        13,402             5.00        10,721           4.00

Bank of Anderson, N. A:
Total Risk-based Capital ...............    $12,275            10.51%      $11,679            10.00%      $ 9,343           8.00%
Tier 1 Risk-based Capital ..............     10,875             9.31         7,009             6.00         4,672           4.00
Leverage Ratio .........................     10,875             7.00         7,768             5.00         6,214           4.00

Seneca National Bank:
Total Risk-based Capital ...............    $ 5,050            12.80%      $ 3,945            10.00%      $ 3,156           8.00%
Tier 1 Risk-based Capital ..............      4,557            11.55         2,367             6.00         1,578           4.00
Leverage Ratio .........................      4,557             8.51         2,677             5.00         2,142           4.00
</TABLE>





                                       20
<PAGE>


RECENTLY ISSUED ACCOUNTING STANDARDS

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

     In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" ("SFAS No. 123(R)").  SFAS No.123(R) covers a wide range of share-based
compensation  arrangements  including  share  options,  restricted  share plans,
performance-based awards, share appreciation rights, and employee share purchase
plans.   SFAS  No.  123(R)  will  require  companies  to  measure  all  employee
stock-based  compensation  awards  using a fair value  method  and  record  such
expense in its  financial  statements.  In  addition,  the  adoption of SFAS No.
123(R) requires  additional  accounting and disclosure related to the income tax
and cash flow effects resulting from share-based payment arrangements.  SFAS No.
123 (R) is  effective  for  registrants  that  are not  small  business  issuers
beginning with the first interim or annual reporting period of a company's first
fiscal year beginning on or after June 15, 2005.

     In April 2005, the Securities and Exchange Commission's Office of the Chief
Accountant and its Division of  Corporation  Finance  released Staff  Accounting
Bulletin ("SAB") No. 107. SAB No. 107 provides  interpretive guidance related to
the interaction  between SFAS No. 123(R) and certain SEC rules and  regulations,
as well as the staff's  views  regarding the  valuation of  share-based  payment
arrangements for public companies.  SAB No. 107 also reminds public companies of
the  importance  of  including  disclosures  within  filings  made  with the SEC
relating to the accounting for share-based  payment  transactions,  particularly
during the transition to SFAS No.123(R). The Company is currently evaluating the
impact that the adoption of SFAS No. 123(R) will have on its financial position,
results of operations and cash flows. The cumulative effect of adoption, if any,
will be  measured  and  recognized  in the  statement  of  income on the date of
adoption.

     In May 2005,  the FASB issued SFAS No. 154,  "Accounting  Changes and Error
Corrections  - a  replacement  of APB Opinion No. 20 and FASB  Statement  No. 3"
("SFAS No. 154").  SFAS No. 154  establishes  retrospective  application  as the
required  method for  reporting a change in accounting  principle,  unless it is
impracticable,  in which  case the  changes  should  be  applied  to the  latest
practicable  date presented.  SFAS No. 154 also requires that a correction of an
error be  reported  as a prior  period  adjustment  by  restating  prior  period
financial  statements.  SFAS no. 154 is  effective  for  accounting  changes and
corrections of errors made in fiscal years beginning after December 15, 2005.

     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. In general an asset sensitive position would
indicate  that net  interest  income  would  benefit  from  increases  in market
interest  rates.  Conversely,  a liability  sensitive  position  generally would
indicate  that net  interest  income  would  benefit  from  decreases  in market
interest rates. The static gap position is limited because it does not take into
account  changes in interest rates or changes in  management's  expectations  or
intentions.  At September  30, 2005,  on a cumulative  basis  through 12 months,
rate-sensitive  liabilities exceeded  rate-sensitive assets by $5,306,000.  This
liability-sensitive position is largely attributable to the Company's short-term
Certificates of Deposit,  Money Market accounts and NOW accounts,  which totaled
$127,114,000, $48,329,000 and $55,071,000, respectively, at September 30, 2005.







                                       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 6.       Exhibits

              Exhibits.

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



                                       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 9, 2005               By:    /s/ R. Riggie Ridgeway
                                            ------------------------
                                              R. Riggie Ridgeway
                                              President and CEO


Dated:  November 9, 2005               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

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