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, 2011	000-20616

PEOPLES BANCORPORATION, INC.

(Exact name of registrant as specified in its charter)

South Carolina	57-09581843
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
1818 East Main Street, Easley, South Carolina	29640
(Address of principal executive offices)	(Zip Code)

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

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

Yes  ___X___                  No _______

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [ X ]     No [   ]

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

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

Indicate by check mark whether the registrant is a shell company

(as defined in Rule 12b-2 of the Exchange Act).

Yes  ______                  No ___X___

The number of outstanding shares of the issuer’s $1.11 par value common stock

as of November 2, 2011 was 7,021,563.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Peoples Bancorporation, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands except per share and share data)

	September 30, 2011			December 31, 2010			September 30, 2010
	Unaudited			Audited			Unaudited
ASSETS
CASH AND DUE FROM BANKS	$	8,178		$	6,612		$	8,883
INTEREST-BEARING DEPOSITS IN OTHER BANKS		1			1			17
FEDERAL FUNDS SOLD		9,624			10,631			2,169
Total cash and cash equivalents		17,803			17,244			11,069
SECURITIES
Trading assets		240			76			52
Available for sale		174,585			130,650			128,287
Held to maturity (market value of $4,804, $7,375 and $8,120)		4,526			7,249			7,815
Other investments, at cost		3,076			4,319			4,196
LOANS-less allowance for loan losses of $7,769, $7,919 and $8,317		296,801			332,794			343,580
PREMISES AND EQUIPMENT, net of accumulated depreciation and amortization		10,642			11,023			11,726
ACCRUED INTEREST RECEIVABLE		2,355			2,288			2,299
ASSETS ACQUIRED IN SETTLEMENT OF LOANS		15,723			13,344			14,714
CASH SURRENDER VALUE OF LIFE INSURANCE		13,147			12,791			12,668
OTHER ASSETS		6,958			9,292			8,884
TOTAL ASSETS	$	545,856		$	541,070		$	545,290
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
DEPOSITS
Noninterest-bearing	$	50,473		$	48,151		$	48,813
Interest-bearing		421,858			426,603			425,184
Total deposits		472,331			474,754			473,997
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS		10,664			10,362			12,856
ACCRUED INTEREST PAYABLE		1,247			1,639			1,718
OTHER LIABILITIES		3,307			2,017			2,502
Total Liabilities		487,549			488,772			491,073
SHAREHOLDERS’ EQUITY
Preferred stock – 15,000,000 shares authorized
Preferred stock Series T - $1,000 per share liquidation preference; issued and outstanding-12,660 shares at September 30, 2011, December 31, 2010 and September 30, 2010.		12,251			12,139			12,102
Preferred stock Series W - $1,000 per share liquidation preference; issued and outstanding – 633 shares at September 30, 2011, December 31, 2010 and September 30, 2010.		671			682			685
Common stock – 15,000,000 shares authorized, $1.11 par value per share, 7,021,563 shares issued at September 30, 2011 and 7,003,063 shares issued at December 31, 2011 and September 30, 2010.		7,794			7,774			7,774
Additional paid-in capital		41,729			41,701			41,689
Retained deficit		(9,020	)		(10,142	)		(10,258	)
Accumulated other comprehensive income		4,882			144			2,225
Total Shareholders’ Equity		58,307			52,298			54,217
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	545,856		$	541,070		$	545,290

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

1

Peoples Bancorporation, Inc. and Subsidiaries

Consolidated Statements of Income (Loss)

(Dollars in thousands except per share and share data)

Unaudited

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011		2010
INTEREST INCOME
Interest and fees on loans	$	4,577		$	5,228		$	14,150	$	16,128
Interest on securities
Taxable		1,041			889			3,182		2,569
Tax-exempt		671			357			1,497		1,083
Interest on federal funds		2			9			18		31
Total interest income		6,291			6,483			18,847		19,811
INTEREST EXPENSE
Interest on deposits		1,253			1,739			4,127		5,570
Interest on federal funds purchased and securities sold under repurchase agreements		19			25			61		69
Interest on advances from Federal Home Loan Bank		1			1			1		1
Total interest expense		1,273			1,765			4,189		5,640
Net interest income		5,018			4,718			14,658		14,171
PROVISION FOR LOAN LOSSES		938			1,515			2,743		6,110
Net interest income after provision for loan losses		4,080			3,203			11,915		8,061
NON-INTEREST INCOME
Service charges on deposit accounts		358			410			1,033		1,164
Customer service fees		20			18			85		82
Mortgage banking		113			183			324		332
Brokerage services		60			46			159		135
Bank owned life insurance		140			140			416		415
Gain on sale of  available-for-sale securities		328			150			330		964
Gain (loss) on trading assets		(114	)		11			164		(76	)
Other noninterest income		258			246			774		704
Total noninterest income		1,163			1,204			3,285		3,720
NON-INTEREST EXPENSES
Salaries and benefits		1,957			2,020			5,985		6,123
Occupancy and equipment		490			499			1,433		1,513
Marketing and advertising		44			35			155		115
Communications		52			60			155		181
Printing and supplies		35			35			96		106
Bank paid loan costs		39			95			126		206
Net operation cost of other real estate owned		936			455			2,183		1,001
Director fees		78			71			223		239
ATM/Debit card expenses		73			67			214		191
Legal and professional fees		139			119			370		350
Regulatory assessments		379			337			1,137		994
Other post employment benefits		51			74			208		239
Other operating expenses		365			355			1,071		1,086
Total noninterest expenses		4,638			4,222			13,356		12,344
Income (loss)  before income taxes		605			185			1,844		(563	)
PROVISION FOR INCOME TAXES (BENEFIT)		(13	)		(91	)		104		(623	)
Net income		618			276			1,740		60
Deductions for amounts not available to common shareholders:
Dividends declared or accumulated on preferred stock		172			172			517		517
Net accretion of discount on preferred stock		34			33			101		99
Net income (loss) available to common shareholders	$	412		$	71		$	1,122	$	(556	)
INCOME (LOSS) PER COMMON SHARE
BASIC	$	0.06		$	0.01		$	0.16	$	(0.08	)
DILUTED	$	0.06		$	0.01		$	0.16	$	(0.08	)
WEIGHTED AVERAGE COMMON SHARES
BASIC		7,015,396			7,003,063			7,007,174		7,003,063
DILUTED		7,051,689			7,003,063			7,046,675		7,003,063
CASH DIVIDENDS PAID PER COMMON SHARE	$	0.00		$	0.00		$	0.00	$	0.00

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

2

Peoples Bancorporation, Inc. and Subsidiaries

Consolidated Statements of

Shareholders’ Equity and Comprehensive Income

For the nine months ended September 30, 2011 and 2010

(Dollars in thousands)

(Unaudited)

																			Accumulated
	Preferred Stock				Preferred Stock									Additional		Retained			Other		Total
	Series T				Series W					Common Stock				Paid-in		Earnings			Comprehensive		Shareholders
	Shares		Amount		Shares		Amount			Shares		Amount		Capital		(Deficit)			Income		Equity
Balance, December 31, 2009		12,660	$	11,991		633	$	697			7,003,063	$	7,774	$	41,658	$	(9,702	)	$	2,025	$	54,443
Net income		-		-		-		-			-		-		-		60			-		60
Other comprehensive Income, net of tax:
Unrealized holding gains on securities available for sale, net of related tax		-		-		-		-			-		-		-		-			200		200
Comprehensive income																						260
Cash dividends on preferred stock		-		-		-		-			-		-		-		(517	)		-		(517	)
Accretion (amortization) of preferred stock		-		111		-		(12	)		-		-		-		(99	)		-		-
Stock-based compensation		-		-		-		-			-		-		31		-			-		31
Balance, September 30, 2010		12,660	$	12,102		633	$	685			7,003,063	$	7,774	$	41,689	$	(10,258	)	$	2,225	$	54,217
Balance, December 31, 2010		12,660	$	12,139		633	$	682			7,003,063	$	7,774	$	41,701	$	(10,142	)	$	144	$	52,298
Net income		-		-		-		-			-		-		-		1,740			-		1,740
Other comprehensive Income, net of tax:
Unrealized holding gains on securities available for sale, net of related tax		-		-		-		-			-		-		-		-			4,738		4,738
Comprehensive income																						6,478
Employee stock option award		-		-		-		-			18,500		20		7		-			-		27
Cash dividends on preferred stock		-		-		-		-			-		-		-		(517	)		-		(517	)
Accretion (amortization) of preferred stock		-		112		-		(11	)		-		-		-		(101	)		-		-
Stock-based compensation		-		-		-		-			-		-		21		-			-		21
Balance, September 30, 2011		12,660	$	12,251		633	$	671			7,021,563	$	7,794	$	41,729	$	(9,020	)	$	4,882	$	58,307

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

3

          Peoples Bancorporation, Inc. and Subsidiaries

               Consolidated Statements of Cash Flows

                             (Dollars in thousands)

	Nine months Ended
	September 30,
	2011			2010
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,740		$	60
Adjustments to reconcile net income to net cash  provided by operating activities:
(Gain) loss from trading assets		(164	)		76
Gain on sale of securities available for sale		(330	)		(964	)
(Gain) loss on sale of other real estate		(63	)		18
Provision for loan losses		2,743			6,110
Depreciation and amortization		606			648
Amortization and accretion (net) of premiums and discounts on securities		610			293
Stock-based compensation		21			31
Decrease (increase) in accrued interest receivable		(67	)		72
Increase in other assets		(44	)		(68	)
Decrease in accrued interest payable		(392	)		(331	)
Increase in other liabilities		1,290			573
Net cash provided by operating activities		5,950			6,518
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale		(64,850	)		(57,615	)
Proceeds from principal pay-downs on securities available for sale		16,816			14,812
Proceeds from the maturities and calls of securities available for sale		514			2,000
Proceeds from the maturities and calls of securities held to maturity		3,978			595
Proceeds from the sale of securities available for sale		10,472			16,968
Increase in cash surrender value of life insurance		(356	)		(364	)
Proceeds from the sale of other real estate owned		3,470			4,492
Net decrease in loans		26,014			8,613
Write down of assets acquired in settlement of loans		1,388			124
Purchase of premises and equipment		(226	)		(104	)
Net cash used in investing activities		(2,780	)		(10,479	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits		(2,423	)		(10,999	)
Net increase in securities sold under repurchase agreements		302			71
Net decrease in federal funds purchased		0			(399	)
Proceeds from restricted employee stock grant		27			0
Cash dividends paid on preferred stock		(517	)		(517	)
Net cash provided by financing activities		(2,611	)		(11,844	)
Net increase (decrease) in cash and cash equivalents		559			(15,805	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		17,244			26,874
CASH AND CASH EQUIVALENTS, END OF  PERIOD	$	17,803		$	11,069
CASH PAID FOR
Interest	$	4,581		$	5,971
Income taxes	$	605		$	322
NON-CASH TRANSACTIONS
Change in unrealized gain  on available for sale securities	$	7,182		$	200
Loans transferred to other real estate	$	7,237		$	7,840

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

4

PEOPLES BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements include the accounts of Peoples Bancorporation, Inc., (the “Company’) and its wholly owned subsidiaries, The Peoples National Bank, Bank of Anderson, N. A., and Seneca National Bank (collectively referred to as the “Banks”).  All significant intercompany balances and transactions have been eliminated.  The Banks operate under individual national bank charters and provide full banking services to customers.  The Banks are subject to regulation by the Office of the Comptroller of the Currency (“OCC”).  The Company is subject to regulation by the Federal Reserve Board (“FRB”).

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of these policies is included in the 2010 Annual Report on Form 10-K and incorporated herein by reference.

FORMAL AGREEMENTS WITH THE OFFICE OF THE COMPTROLLER OF THE CURRENCY

Bank of Anderson, N.A. and The Peoples National Bank have entered into Formal Agreements (“Agreements”) with their primary regulator, the OCC.  Bank of Anderson, N.A. entered into its agreement on October 15, 2008, and The Peoples National Bank entered into its agreement on August 16, 2010.  The agreements seek to enhance the Banks’ existing practices and procedures in the areas of credit risk management, credit underwriting, liquidity, and funds management.  The Boards of Directors of each bank and management have aggressively worked to address each article set forth in the agreements.  The Banks believe they have implemented the practices and procedures necessary to correct all noted deficiencies, and they appropriately responded to all of the requirements of the agreements.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more discussion on the Agreements.

STATEMENT OF CASH FLOWS

            Cash and cash equivalents 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.

NET INCOME (LOSS) PER COMMON SHARE

     Net income (loss) per common share is computed and presented in accordance with the related topic in the Financial Accounts Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The assumed conversion of stock options creates the difference between basic and diluted net income per share.  Income per common share is calculated by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for each period presented.  Stock options on 136,510 and 155,147 shares of the Company’s common stock are excluded from the computation of net income (loss) per diluted share at September 30, 2011 and September 30, 2010, respectively, because their inclusion would be anti-dilutive due to their exercise prices being greater that the market value of shares and the net loss in the 2010 period, respectively.

5

	Nine Months Ended September 30,
	2011		2010
Net income (loss) available to common shareholders (in thousands)	$	1,122	$	(556	)
Weighted average shares outstanding:
Basic		7,007,174		7,003,063
Effect of dilutive securities:
Stock options		39,501		-
Diluted		7,046,675		7,003,063
Income (loss) per common share:
Basic	$	0.16	$	(0.08	)
Diluted	$	0.16	$	(0.08	)

INVESTMENT SECURITIES

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

Securities are summarized as follows as of September 30, 2011 (tabular amounts in thousands):

TRADING ASSETS:	Amortized		Unrealized holding				Fair
	Cost		Gains		Losses		value
EQUITY SECURITIES	$	240	$	-	$	-	$	240
SECURITIES AVAILABLE FOR SALE:
GOVERNMENT SPONSORED ENTERPRISE SECURITIES
Maturing after one year but within five years	$	864	$	46	$	-	$	910
Maturing after five years but within ten years		1,596		131		-		1,727
		2,460		177		-		2,637
MORTGAGE BACKED SECURITIES
Maturing within one year		155		9		-		164
Maturing after one year but within five years		48,519		1,958		8		50,469
Maturing after five years but within ten years		18,664		659		34		19,289
Maturing after ten years		27,040		1,016		-		28,056
		94,378		3,642		42		97,978

6

	Amortized		Unrealized holding				Fair
	Cost		Gains		Losses		value
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS
Maturing after one year but within five years		1,297		111		-		1,408
Maturing after five years but within ten years		15,944		996		-		16,940
Maturing after ten years		53,019		2,522		8		55,533
		70,260		3,629		8		73,881
OTHER SECURITIES
Maturing after ten years		89		-		-		89
Total securities available for sale	$	167,187	$	7,448	$	50	$	174,585
SECURITIES HELD TO MATURITY:
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS
Maturing within one year	$	751	$	7	$	-	$	758
Maturing after one year but within five years		1,499		68		-		1,567
Maturing after five years but within ten years		1,741		105		-		1,846
Maturing after ten years		535		98		-		633
Total securities held to maturity	$	4,526	$	278	$	-	$	4,804

 Securities are summarized as follows as of December 31, 2010 (tabular amounts in thousands):

TRADING ASSETS

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

7

	Amortized		Unrealized holding				Fair
	Cost		Gains		Losses		value
SECURITIES HELD TO MATURITY:
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS
Maturing within one year	$	1,546	$	17	$	-	$	1,563
Maturing after one year but within five years		1,918		61		-		1,979
Maturing after five years but within ten years		3,271		55		-		3,326
Maturing after ten years		514		-		7		507
Total securities held to maturity	$	7,249	$	133	$	7	$	7,375

Securities are summarized as follows as of September 30, 2010 (tabular amounts in thousands):

TRADING ASSETS:	Amortized		Unrealized holding				Fair
	Cost		Gains		Losses		value
EQUITY SECURITIES	$	52	$	-	$	-	$	52
SECURITIES AVAILABLE FOR SALE:
GOVERNMENT SPONSORED ENTERPRISE SECURITIES
Maturing after five years but within ten years	$	7,186	$	293	$	-	$	7,479
MORTGAGE BACKED SECURITIES
Maturing within one year		528		35		-		563
Maturing after one year but within five years		47,281		1,295		139		48,437
Maturing after five years but within ten years		19,130		325		25		19,430
Maturing after ten years		19,598		339		58		19,879
		86,537		1,994		222		88,309
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS
Maturing after one year but within five years		895		70		-		965
Maturing after five years but within ten years		9,497		412		1		9,908
Maturing after ten years		20,200		873		43		21,030
		30,592		1,355		44		31,903
OTHER SECURITIES
Maturing after ten years		602		-		6		596
Total securities available for sale	$	124,917	$	3,642	$	272	$	128,287
SECURITIES HELD TO MATURITY:
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS
Maturing within one year	$	1,397	$	25	$	-	$	1,422
Maturing after one year but within five years		2,069		84		-		2,153
Maturing after five years but within ten years		3,205		94		-		3,299
Maturing after ten years		1,144		102		-		1,246
Total securities held to maturity	$	7,815	$	305	$	-	$	8,120

The following table shows gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2011:

8

Securities Available for Sale (tabular amounts in thousands):

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Mortgage backed securities	$	3,350	$	34	$	857	$	8	$	4,207	$	42
States and political subdivisions		602		8		-		-		602		8
Total	$	3,952	$	42	$	857	$	8	$	4,809	$	50

Two individual securities available for sale were in a continuous loss position for twelve months or more.

The following table shows gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2010.

Securities Available for Sale (tabular amounts in thousands):

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

Securities Held to Maturity (tabular amounts in thousands):

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

Three individual securities available for sale were in a continuous loss position for twelve months or more.

The following table shows gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2010:

Securities Available for Sale (tabular amounts in thousands):

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Mortgage backed securities	$	23,623	$	222	$	-	$	-	$	23,623	$	222
Other Securities		507		6		-		-		507		6
States and political subdivisions		2,586		44		-		-		2,586		44
Total	$	26,716	$	272	$	-	$	-	$	26,716	$	272

No individual security available for sale was in a continuous loss position for twelve months or more.

The Company has the ability and intent to hold these securities until such time as the value recovers or the securities mature.  Based on industry analyst reports and credit ratings, the Company believes that the deterioration in value is attributable to changes in market interest rates and not in the credit quality of the issuers, and therefore these losses are not considered to be other-than-temporary.

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OTHER INVESTMENTS, at cost

The Banks, as member institutions, are required to own certain stock investments in the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank.  These investments are carried at cost.  No ready market exists for these stocks and they have no quoted market values.

LOANS

Loans are summarized as follows (tabular amounts in thousands):

	September 30,			December 31,			September 30,
	2011			2010			2010
Commercial	$	24,857		$	28,362		$	28,006
Real Estate:
Residential real estate		100,375			106,759			109,025
Commercial real estate		170,170			192,351			201,770
Commercial construction		2,790			6,152			5,737
Consumer and other		6,378			7,089			7,359
		304,570			340,713			351,897
Less allowance for loan losses		(7,769	)		(7,919	)		(8,317	)
	$	296,801		$	332,794		$	343,580

The Company, through the Banks, makes loans to individuals and small- to medium-sized businesses for various personal and commercial purposes, primarily in South Carolina.  Credit concentrations can exist in relation to individual borrowers or groups of borrowers, types of collateral, types of industries, loan products, or geographic regions of the country.  Credit risk associated with these concentrations could arise when a significant amount of loans, with similar characteristics, are simultaneously impacted by changes in economic or other conditions that cause their probability of repayment to be adversely affected.  The Company regularly monitors its credit concentrations.  The Company does not have a significant concentration in any individual borrower.  No significant portion of its loans is concentrated within a single industry or group of related industries and the Company does not have any foreign loans.  The Company does, however, have a geographic concentration of customers and borrowers because most of its customers and borrowers are located in the Upstate area of South Carolina, and most of the real estate securing mortgage loans is located in this area.  There are no material seasonal factors that would have an adverse effect on the Company.

The composition of gross loans by rate type is as follows (tabular amounts in thousands):

	September 30,		December 31,		September 30,
	2011		2010		2010
Variable rate loans	$	90,809	$	107,250	$	111,470
Fixed rate loans		213,761		233,463		240,427
	$	304,570	$	340,713	$	351,897

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Changes in the allowance for loan losses were as follows (tabular amounts in thousands):

	September 30,			December 31,			September 30,
	2011			2010			2010
BALANCE, BEGINNING OF PERIOD	$	7,919		$	7,431		$	7,431
Provision for loan losses		2,743			6,625			6,110
Loans charged off		(3,007	)		(6,572	)		(5,588	)
Loans recovered		114			435			364
BALANCE, END OF PERIOD	$	7,769		$	7,919		$	8,317

The following table reflects charge-offs and recoveries per loan category (tabular amounts in thousands):

	September 30, 2011				December 31, 2010				September 30, 2010
	Charge-offs		Recoveries		Charge-offs		Recoveries		Charge-offs		Recoveries
Commercial	$	266	$	12	$	1,866	$	329	$	1,353	$	315
Residential real estate		1,333		1		1,160		77		856		26
Commercial real estate		420		8		938		6		937		3
Commercial Construction		925		89		2,589		5		2,426		4
Consumer and other		63		4		19		18		16		16
Total	$	3,007	$	114	$	6,572	$	435	$	5,588	$	364

The allocation of the allowance for loan losses by portfolio segment at September 30, 2011 was as follows (tabular amounts in thousands):

			Residential		Commercial		Commercial		Consumer
	Commercial		Real Estate		Real Estate		Construction		and Other		Total
Impaired Loans	$	-	$	81	$	93	$	-	$	22	$	196
General Reserve		1,167		967		4,713		381		345		7,573
Total	$	1,167	$	1,048	$	4,806	$	381	$	367	$	7,769
Loans individually evaluated for impairment	$	42	$	373	$	10,675	$	482	$	44	$	11,616
Loans collectively evaluated for impairment		24,784		100,002		159,495		2,308		6,365		292,954
Total	$	24,826	$	100,375	$	170,170	$	2,790	$	6,409	$	304,570

The allocation of the allowance for loan losses by portfolio segment at December 31, 2010 was as follows (tabular amounts in thousands):

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

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Impaired loans were as follows:

The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2011 (tabular amounts in thousands):

	Impaired Loans – With Allowance						Impaired Loans - With No Allowance
					Allowance for
	Unpaid		Recorded		Loan Losses		Unpaid		Recorded
	Principal		Investment		Allocated		Principal		Investment
Commercial	$	-	$	-	$	-	$	42	$	42
Real Estate:
Residential real estate		81		81		81		319		292
Commercial real estate		704		704		93		12,085		9,971
Commercial construction		-		-		-		-		482
Consumer and other		22		22		22		-		22
Total	$	807	$	807	$	196	$	12,446	$	10,809

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2010 (tabular amounts in thousands):

	Impaired Loans – With Allowance						Impaired Loans - With No Allowance
					Allowance for
	Unpaid		Recorded		Loan Losses		Unpaid		Recorded
	Principal		Investment		Allocated		Principal		Investment
Commercial	$	-	$	-	$	-	$	483	$	483
Real Estate:
Residential real estate		740		740		186		2,661		3,176
Commercial real estate		5,318		4,505		951		6,158		6,698
Commercial construction		-		-		-		1,047		-
Consumer and other		-		-		-		25		17
Total	$	6,058	$	5,245	$	1,137	$	10,374	$	10,374

The following is a summary of information pertaining to impaired loans and non-accrual loans at September 30, 2010 (tabular amounts in thousands):

	2010
Impaired loans without valuation allowance	$	10,138
Impaired loans with a valuation allowance		6,313
Total impaired loans	$	16,451
Valuation allowance related to impaired loans	$	1,539
Total non-accrual loans	$	18,189
Total loans past due ninety days or more and still accruing		-

Non-performing loans and impaired loans are defined differently.  As such, some loans may be included in both categories, whereas other loans may only be included in one category.

Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful, in which case payments received are recorded as reductions to principal.  Subsequent payments on non-accrual loans are recorded as reductions of principal, and interest income is recorded only after principal recovery is reasonably assured.  Non-accrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal.  The Company requires a period of satisfactory performance of not less than six months before returning a non-accrual loan to accrual status.  These policies apply to each of the Company’s loan classes.

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Delinquent Loans at September 30, 2011, were as follows (tabular amounts in thousands):

					Greater than
	30-59 Days		60-89 Days		90 Days		Total		Total		Total
	Past Due		Past Due		Past Due		Past Due		Current		Loans
Commercial	$	-	$	-	$	-	$	-	$	24,857	$	24,857
Real Estate:
Residential real estate		155		55		19		229		100,146		100,375
Commercial real estate		986		1 564		3,680		6,230		163,940		170,170
Commercial construction		-		-		1,246		1,246		1,544		2,790
Consumer and other		41		2		1		44		6,334		6,378
Total	$	1,182	$	1,621	$	4,946	$	7,749	$	296,821	$	304,570

Delinquent Loans at December 31, 2010, were as follows (tabular amounts in thousands):

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

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying loans as to credit risk.  Loans classified as substandard or special mention are reviewed monthly by the Company for further deterioration or improvement to determine if appropriately classified.  All commercial loans greater than $50,000 are reviewed when originated and a sample of smaller consumer relationships are reviewed after origination.  Larger relationships are reviewed on an annual basis or more frequently if needed. In addition, during the renewal process of any loans, as well as if a loan becomes past due, the Company will evaluate the loan grade.

Loans excluded from the scope of the review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the borrower contacts one of the Banks for a modification.  In these circumstances, the loan is specifically evaluated for potential classification to special mention or substandard, or may even be charged-off.  The following definitions are used for risk ratings:

Special Mention. Loans classified as special mention have potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or of the Bank’s credit position at some future date.

Substandard.  Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligors or of the collateral pledged, if any.  Loans so classified have well-defined weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

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Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, condition, and values, highly questionable and improbable.

The tables below set forth total loans and the amounts of loans by type in each of these risk categories (tabular amounts in thousands):

September 30, 2011
					Special
	Total		Pass Credits		Mention		Substandard		Doubtful
Commercial	$	24,857	$	21,348	$	309	$	3,200	$	-
Real Estate:
Residential real estate		100,375		97,477		2,004		894		-
Commercial real estate		170,170		131,224		14,672		24,274		-
Commercial construction		2,790		1,932		376		482		-
Consumer and other		6,378		6,310		4		64		-
Total	$	304,570	$	258,291	$	17,365	$	28,914	$	-

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

Troubled Debt Restructurings

     In the course of working with borrowers, the Banks may choose to restructure the contractual terms of certain loans.  In this scenario, the Banks attempt to work out an alternative payment schedule with the borrower in order to optimize collectibility of the loan.  Any loans that are modified are reviewed by the Banks to identify if a troubled debt restructuring (“TDR”) has occurred.  This occurs when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider.  Terms may be modified to fit the ability of the borrower to repay in line with the borrower’s current financial status, and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.  If such efforts by the Bank do not result in a satisfactory arrangement, the loan is referred to legal counsel, at which time collection and/or foreclosure proceedings are initiated.  At any time prior to a sale of property at foreclosure, the Bank may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan.

     As a result of adopting the amendments of Accounting Standards Update (“ASU”) 201-02, the Banks reassessed all restructurings occurring since January 1, 2011 to determine whether they are considered TDRs under the amended guidance.  The Banks identified as TDRs certain loans for which the allowance for loan losses had previously been measured under a general allowance methodology.  Upon identifying those loans as TDRs, the Banks identified them as impaired under the guidance in ASC 310-10-35.  The amendments in ASU 2011-02 require prospective application of the impairment measurement guidance in ASC 310-10-35 for those loans newly identified as impaired.  At the end of the first interim period of adoption (September 30, 2011), the recorded investment in loans for which the allowance was previously measured under general allowance methodology and are now impaired under ASC 310-10-35 was $1,143,000, and the allowance for loan losses associated with those loans, on the basis of a current evaluation of loss was $32,000.

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Troubled Debt Restructurings (dollar amounts in thousands):

	For the three months ended						For the nine months ended
	September 30, 2011						September 30, 2011
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
	Of		Recorded		Recorded		Of		Recorded		Recorded
	Contracts		Investment		Investment		Contracts		Investment		Investment
Commercial		1	$	78,350	$	78,350		2	$	122,545	$	122,545
Real Estate:
Residential real estate		2		453,626		453,626		2		453,626		453,626
Commercial real estate		4		351,526		349,526		7		747,091		446,832
Commercial construction		1		261,210		261,210		1		261,210		261,210
Consumer and other		-		-		-		1		21,953		21,953
Total		8	$	1,144,712	$	1,142,712		13	$	1,606,425	$	1,306,166

During the nine months ended September 30, 2011, the Banks modified thirteen loans that were considered to be TDRs.  The terms for ten of these loans were extended and the interest rate was lowered for three of these loans.

Troubled debt restructurings that occurred and subsequently defaulted during the period (dollar amounts in thousands):

	Three months ended				Nine months ended
	September 30, 2011				September 30, 2011
	Number				Number
	of Contracts		Recorded Investment		of Contracts		Recorded Investment
Commercial		-	$	-		-	$	-
Real Estate:
Residential real estate		-		-		-
Commercial real estate		3		781,582		3		781,582
Commercial construction		-		-		-		-
Consumer and other		-		-		-		-
Total		3	$	781,582		3	$	781,582

ASSETS ACQUIRED IN SETTLEMENT OF LOANS

The following table summarizes the composition of assets acquired in settlement of loans as of the dates noted (dollar amounts in thousands):

	Nine Months Ended			Year Ended			Nine Months Ended
	September 30,			December 31,			September 30,
	2011			2010			2010
	Amount		#	Amount		#	Amount		#
Construction and land development	$	10,393	38	$	9,964	38	$	11,919	50
Residential real estate		4,112	13		2,870	13		2,067	5
Commercial real estate		1,218	6		510	3		728	9
Total assets acquired in settlement of loans	$	15,723	57	$	13,344	54	$	14,714	64

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The following summarizes activity with respect to assets acquired in settlement of loans (tabular amounts in thousands):

	Nine Months Ended			Year Ended			Nine Months Ended
	September 30,			December 31,			September 30,
	2011			2010			2010
BALANCE, BEGINNING OF PERIOD	$	13,344		$	11,490		$	11,490
Additions - foreclosures		7,237			9,943			7,840
Sales		(3,470	)		(7,017	)		(4,492	)
Write downs		(1,388	)		(522	)		(124	)
Valuation reserve		-			(550	)		-
BALANCE, END OF PERIOD	$	15,723		$	13,344		$	14,714

STOCK-BASED COMPENSATION

The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model.  During the first nine months of 2011, 6,000 options to purchase shares were granted.

At September 30, 2011 an aggregate of 345,650 shares were reserved for issuance upon exercise of options. The following is a summary of the status of the Company’s plans as of September 30, 2011 and changes during the nine months ended September 30, 2011.

	Shares			Weighted Average Exercise Price		Weighted Average Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding, December 31, 2010		143,424		$	9.36
Granted		6,000			1.36
Exercised		-			-
Forfeited		(12,914	)		7.71
Outstanding, September 30, 2011		136,510		$	9.16		5.53	$	1,735
Options exercisable, September 30, 2011		126,095		$	9.51		5.53	$	1,570

For the first nine months of 2011, we recognized compensation cost of approximately $21,000 related to unvested stock options.

Restricted Stock Awards

On July 20, 2011 the Board of Directors of the Company approved a Restricted Stock Plan (“Plan”) for its executive officers and employees and set aside 103,000 shares of its common stock to be issued in connection with the Plan.  Restricted stock awards granted vest over a period of five years and are recognized as compensation to the recipient over the vesting period.  The awards are recorded at fair market value and included in salary expense on a straight line basis over the vesting period.  As of September 30, 2011, 92,500 shares were granted and 18,500 shares were vested at a fair market value of $1.50 per share.

FAIR VALUE

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

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

Level 1	Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury Securities and other securities that are highly liquid and are actively traded in over-the-counter markets.
Level 2	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U. S. Government and agency mortgage-backed debt securities and impaired loans that are carried at the appraisal value of the underlying collateral.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly-structured or long-term derivative contracts.

Assets measured at fair value are as follows as of September 30, 2011 (tabular amounts in thousands):

	Quoted market price in active markets for identical assets/liabilities		Significant other observable inputs		Significant unobservable inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Recurring Basis:
Available for sale investment securities:
Government Sponsored Securities	$	-	$	2,637	$	-	$	2,637
Mortgage Backed Securities		-		97,978		-		97,978
Obligations of States and Political Subdivisions		-		73,881		-		73,881
Other Securities		-		89		-		89
Trading Assets		240		-		-		240
Total	$	240	$	174,585	$	-	$	174,825
Nonrecurring Basis:
Impaired loans	$	-	$	11,616	$	-	$	11,616
Other real estate owned		-		15,723		-		15,723
Total	$	-	$	27,339	$	-	$	27,339

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Assets measured at fair value are as follows as of December 31, 2010 (tabular amounts in thousands):

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

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

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

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

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

Disclosure about Fair Value of Financial Instruments

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

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

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

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

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

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

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

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

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

	September 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	amount		value		amount		value
Financial assets
Cash and due from banks	$	8,178	$	8,178	$	6,612	$	6,612
Interest-bearing deposits in other banks		1		1		1		1
Federal funds sold		9,624		9,624		10,631		10,631
Trading assets		240		240		76		76
Securities available for sale		174,585		174,585		130,650		130,650
Securities held to maturity		4,526		4,804		7,249		7,375
Other investments		3,076		3,076		4,319		4,319
Loans (gross)		304,570		304,529		340,713		338,445
Cash surrender value of life insurance		13,147		13,147		12,791		12,791

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	September 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	amount		value		amount		value
Financial liabilities:
Deposits	$	472,331	$	471,323	$	474,754	$	471,323
Securities sold under repurchase agreements		10,664		10,664		10,362		10,362

OTHER COMPREHENSIVE INCOME

Other comprehensive income components and related taxes for the nine month periods ended September 30, 2011 and 2010 were as follows (tabular amounts in thousands):

	September 30,			September 30,
	2011			2010
Net unrealized gain on securities	$	7,179		$	303
Tax expense		(2,441	)		(103	)
Other comprehensive income	$	4,738		$	200

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2010, the Receivables topic of the ASC was amended by ASU 2010-20 to require expanded disclosures related to a company’s allowance for credit losses and the credit quality of its financing receivables. The amendments require the allowance disclosures to be provided on a disaggregated basis.  The Company is required to include these disclosures in its interim and annual financial statements.  See the Loan note.

Disclosures about TDRs required by ASU 2010-20 were deferred by the FASB in ASU 2011-01 issued in January 2011. In April 2011 the FASB issued ASU 2011-02 to assist creditors with their determination of when a restructuring is a TDR.   The determination is based on whether the restructuring constitutes a concession and whether the debtor is experiencing financial difficulties as both events must be present.

Disclosures related to TDRs under ASU 2010-20 have been presented in the Loan note.

In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the ASC was amended by ASU 2011-03.  The requirement for the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and the collateral maintenance implementation guidance related to that criterion were removed from the assessment of effective control.  The other criteria to assess effective control were not changed.  The amendments are effective for the Company beginning January 1, 2012 but are not expected to have a material effect on the financial statements.

ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements.  The amendments will be effective for the Company beginning January 1, 2012 but are not expected to have a material effect on the financial statements.

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The Comprehensive Income topic of the ASC was amended in June 2011.  The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in stockholders’ equity.  The amendment requires consecutive presentation of the statement of net income and other comprehensive income and requires an entity to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements.  The amendment will be applicable to the Company on January 1, 2012 and will be applied retrospectively.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

SUBSEQUENT EVENTS

In accordance with accounting guidance regarding subsequent events, Management performed an evaluation to determine whether there have been any subsequent events since the balance sheet date that would be required to be disclosed in these financial statements, and concluded that there were none.

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 SEC.  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.

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

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and with the statistical information and financial data appearing in this report as well as the Company’s 2010 Annual Report on Form  10-K.  Results of operations for the three-month and nine-month periods ended September 30, 2011 are not necessarily indicative of the results to be attained for any other period.

Overview

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

Currently the Company engages in no significant operations other than the ownership of its three subsidiaries and the support thereof.  The Company conducts its business from nine full-service banking offices located in the upstate area of South Carolina.

Cautionary Notice with Respect to Forward Looking Statements

This report contains "forward-looking statements" within the meaning of the securities laws.  The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements.  In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forwarding-looking statements.

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

These forward-looking statements are based on current expectations, estimates and projections about the banking industry, management's beliefs, and assumptions made by management.  Such information includes, without limitation, discussions as to estimates, expectations, beliefs, plans, strategies, and objectives concerning future financial and operating performance.  These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict.  Therefore, actual results may differ materially from those expressed or forecasted in such forward-looking statements.  The risks and uncertainties include, but are not limited to:

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● future economic and business conditions;

● lack of sustained growth in the economies of the Company's market areas, including, but not limited to, declining real estate values and increasing levels of unemployment;

● government monetary and fiscal policies;

● the effects of changes in interest rates on the levels, composition and costs of deposits, loan demand, and the values of loan collateral, securities, and interest sensitive assets and liabilities;

● the effect of credit rating downgrades on the value of investment securities issued or guaranteed by various governments and government agencies, including the United States of America;

● the effects of competition from a wide variety of local, regional, national and other providers of financial, investment, and insurance services, as well as competitors that offer banking products and services by mail, telephone, computer and/or the Internet;

● credit risks;

● higher than anticipated levels of defaults on loans;

● perceptions by depositors about the safety of their deposits;

● ability to weather the current economic downturn;

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

● the risks of opening new offices, including, without limitation, the  related costs and time of building customer relationships and  integrating operations as part of these endeavors and the failure to  achieve expected gains, revenue growth and/or expense savings from  such endeavors;

● changes in laws and regulations, including tax, banking and securities laws and regulations;

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

● changes in requirements of regulatory authorities;

● changes in accounting policies, rules and practices;

● cost and difficulty of implementing changes in technology or products;

● loss of consumer or investor confidence;

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

● other factors and information described in this report and in any of the other reports that we file with the Securities and Exchange Commission under the Securities Exchange Act of 1934.

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

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Critical Accounting Policies

Peoples Bancorporation, Inc. (the “Company”) has adopted various accounting policies that govern the application of accounting principles generally accepted in the United States of America in the preparation of the Company’s financial statements.  The significant accounting policies of the Company are described in Note 1 to the Consolidated Financial Statements included in Item 8 “Financial Statements and Supplementary Data” of the Company’s 2010 Annual Report on Form 10-K.

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

Of these significant accounting policies, the Company considers its policies regarding the allowance for loan losses (the “Allowance”) to be its most critical accounting policy due to the significant degree of management judgment involved in determining the amount of the Allowance.  The Company has developed policies and procedures for assessing the adequacy of the Allowance, recognizing that this process requires a number of assumptions and estimates with respect to its loan portfolio.  Many of the Company’s estimates also rely heavily on real estate appraisals by third parties which are themselves estimates. The Company’s assessments may be impacted in future periods by changes in economic conditions, the impact of regulatory examinations, and the discovery of information with respect to borrowers, which is not known to management at the time of the issuance of the consolidated financial statements.   Refer to the discussion under the “Provision and Allowance for Loan Losses, Loan Loss Experience” section in Item 7--“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s 2010 Annual Report on Form 10-K and the “Balance Sheet Review--Allowance for Loan Losses” and “Earnings Performance--Provision for Loan Losses” sections of this report on Form 10-Q for a detailed description of the Company’s estimation process and methodology related to the Allowance.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EARNINGS PERFORMANCE

Overview

The Company’s consolidated operations for the third quarter of 2011 resulted in net income of $618,000 compared to net income of $276,000 for the third quarter of 2010.  The Company’s consolidated operations for the nine months ended September 30, 2011 resulted in net income of $1,740,000 compared to a net income of $60,000 for the nine months ended September 30, 2010.  After deducting for dividends on preferred stock and net accretion of the discount on preferred stock, the third quarter of 2011 resulted in net income available to common shareholders of $412,000 or $0.06 per diluted share compared to net income of $71,000 or $0.01 per diluted share for the third quarter of 2010.  Net income available to common shareholders for the nine months ended September 30, 2011 was $1,122,000 or $0.16 per diluted share compared to a net loss available to common shareholders of $556,000 or $0.08 per diluted share for the nine months ended September 30, 2010.  The return on average common equity, which is annualized net income (or loss) available to common shareholders as a percentage of average total common equity, for the nine months and three months ended September 30, 2011 was 5.65% and 5.70% respectively, compared to (1.79)% and 0.68% respectively for the nine months and three months ended September 30, 2010.  Return on average assets, which is annualized net income (or loss) divided by average assets, for the nine months and three months ended September 30, 2011 was 0.43% and 0.45% respectively, compared to 0.01% and 0.20%, respectively for the nine months and three months ended September 30, 2010.

Interest Income, Interest Expense and Net Interest Income

The largest component of the Company’s revenue is interest income.  Net interest income, which is the difference between the interest earned on assets and the interest paid for the liabilities used to fund those assets, essentially 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 $300,000 or 6.4% to $5,018,000 for the quarter ended September 30, 2011 compared to $4,718,000 for the quarter ended September 30, 2010.  For the nine months ended September 30, 2011 net interest income before provision for loan losses increased $487,000 or 3.4% to $14,658,000 compared to $14,171,000 for the nine months ended September 30, 2010.  The Company’s net interest margin for the three and nine months ended September 30, 2011 was 4.00% and 3.94% respectively, compared to 3.78% and 3.80% respectively for the three months and nine months ended September 30, 2010.

The Company’s total interest income for the third quarter of 2011 was $6,291,000 compared to $6,483,000 for the third quarter of 2010, a decrease of $192,000 or 3.0%.  Total interest income for the nine months ended September 30, 2011 was $18,847,000 compared to $19,811,000 for the nine months ended September 30, 2010, a decrease of $964,000 or 4.9%.  Interest and fees on loans, the largest component of total interest income, decreased by $651,000 in the third quarter of 2011 to $4,577,000 compared to $5,228,000 for the third quarter of 2010, a decrease of 12.5%.  Interest and fees on loans decreased by $1,978,000 in the nine months ended September 30, 2011 to $14,150,000 compared to $16,128,000 for the nine months ended September 30, 2010, a decrease of 12.3%.  The decrease in interest and fees on loans for the three-month and nine-month periods is primarily attributable to lower average loan balances.  Interest on taxable securities, the second largest component of total interest income, increased by $152,000 in the third quarter of 2011 to $1,041,000 compared to $889,000 for the third quarter of 2010, an increase of 17.1%.  Interest on taxable securities increased by $613,000 for the nine months ended September 30, 2011 to $3,182,000 compared to $2,569,000 for the nine months ended September 30, 2010, an increase of 23.9%.  Interest on tax-exempt securities increased by $314,000 or 88.0% to $671,000 in the third quarter of 2011 compared to $357,000 for the third quarter of 2010.  Interest on tax-exempt securities increased $414,000 for the nine months ended September 30, 2011 to $1,497,000 compared to $1,083,000 for the nine months ended September 30, 2010, an increase of 38.2%.   The increase in interest on taxable and tax-exempt securities for the three-month and nine-month periods is primarily attributable to higher average balances.  Interest on federal funds sold was $2,000 in the third quarter of 2011 compared to $9,000 for the third quarter of 2010.  Interest on federal funds sold was $18,000 for the first nine months of 2011 compared to $31,000 for the same period of 2010.

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The Company’s total interest expense for the third quarter of 2011 was $1,273,000 compared to $1,765,000 for the third quarter of 2010, a decrease of $492,000 or 27.9%.  Total interest expense for the nine months ended September 30, 2011 was $4,189,000 compared to $5,640,000 for the nine months ended September 30, 2010, a decrease of $1,451,000 or 25.7%.  Interest expense on deposits, the largest component of total interest expense, decreased by $486,000 in the third quarter of 2011 to $1,253,000 compared to $1,739,000 for the third quarter of 2010, a decrease of 27.9%.  Interest expense on deposits decreased by $1,443,000 for the nine months ended September 30, 2011 to $4,127,000 compared to $5,570,000 for the nine months ended September 30, 2010, a decrease of 25.9%.  The decrease in interest expense on deposits for the three-month and nine-month periods is primarily attributable to lower market interest rates.  Interest on federal funds purchased and securities sold under repurchase agreements, the second largest component of total interest expense, decreased $6,000 or 24.0% to $19,000 in the third quarter of 2011 compared to $25,000 for the third quarter of 2010.  Interest on federal funds purchased and securities sold under repurchase agreements decreased $8,000 or 11.6% to $61,000 for the first nine months of 2011 compared to $69,000 in the first nine months of 2010.

Provision for Loan Losses

The provision for loan losses charged to operations during the three months ended September 30, 2011 was $938,000, compared to $1,515,000 for the three months ended September 30, 2010, a decrease of $577,000 or 38.1%.  The provision for loan losses charged to operations for the nine months ended September 30, 2011 decreased $3,367,000 or 55.1% to $2,743,000, compared to $6,110,000 for the nine months ended September 30, 2010.  The changes in the Company’s provision for loan losses for the third quarter and first nine months of 2011 are based on management’s evaluation of the Company’s overall credit quality and its estimate of loan losses inherent in the loan portfolio.  See “BALANCE SHEET REVIEW – Allowance for Loan Losses.”

Non-interest Income

Non-interest income decreased $41,000 or 3.4% to $1,163,000 for the third quarter of 2011 compared to $1,204,000 for the third quarter of 2010.  Non-interest income decreased $435,000 or 11.7% to $3,285,000 for the first nine months of 2011 compared to $3,720,000 for the first nine months of 2010.  During the third quarter of 2011, the Company realized a $328,000 gain on the sale of available-for-sale securities, compared to a net $150,000 gain on the sale of available-for-sale securities during the third quarter of 2010.  The net gain on the sale of available-for-sale securities totaled $330,000 for the first nine months of 2011, compared to $964,000 for the same period of 2010, a decrease of $634,000, or 65.8%.  Service fees on deposits, typically the largest component of non-interest income, decreased $52,000 or 12.7% to $358,000 for the third quarter of 2011 compared to $410,000 for the third quarter of 2010, and decreased $131,000 or 11.3% to $1,033,000 for the first nine months of 2011 compared to $1,164,000 for the same period of 2010, possibly as a result of customers managing their deposit accounts more carefully.

Mortgage banking fees decreased from $183,000 in the third quarter of 2010 to $113,000 in the third quarter of 2011, a decrease of $70,000 or 38.3%.  Mortgage banking fees decreased $8,000 or 2.4% to $324,000 for the first nine months of 2011 from $332,000 for the same period of 2010.  The decrease in mortgage banking income is due to decreased levels of residential mortgage loan originations at the Banks.  Brokerage service income increased from $46,000 in the third quarter of 2010 to $60,000 in the third quarter of 2011, an increase of $14,000 or 30.4%, and it increased $24,000 or 17.8% from $135,000 for the nine months of 2010 to $159,000 for the first nine months of 2011, due to higher commissions.  Income on bank-owned life insurance was unchanged at $140,000 in the third quarter of 2011 and 2010, and increased $1,000 or 0.2% to $416,000 for the first nine months of 2011 from $415,000 for the first nine months of 2010.

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There was a loss of $114,000 on trading assets during the third quarter of 2011 compared to a gain of $11,000 during the third quarter of 2010.  There was a gain of $164,000 on trading assets during the first nine months of 2011 compared to a loss of $77,000 during the first nine months of 2010.

Other non-interest income increased $12,000 or 4.9% from $246,000 during the third quarter of 2010 to $258,000 for the third quarter of 2011, and increased $69,000 or 9.8% from $705,000 for the first nine months of 2010 to $774,000 for the same period of 2011.  This change is largely attributable to an increase in interchange income on check cards.

Non-interest Expense

Total non-interest expense increased $416,000 or 9.9% to $4,638,000 for the third quarter of 2011 from $4,222,000 for the third quarter of 2010.  Total non-interest expense increased $1,012,000 or 8.2% to $13,356,000 for the first nine months of 2011 from $12,344,000 for the first nine months of 2010.  Salaries and benefits, the largest component of non-interest expense, decreased $63,000 or 3.1% to $1,957,000 for the third quarter of 2011 from $2,020,000 for the third quarter of 2010.  Salaries and benefits decreased $138,000 or 2.3% to $5,985,000 for the first nine months of 2011 from $6,123,000 for the first nine months of 2010.

Occupancy and furniture and equipment expenses decreased $9,000 or 1.8% to $490,000 in the third quarter of 2011 compared to $499,000 in the third quarter of 2010. Occupancy and furniture and equipment expenses decreased $80,000 or 5.3% to $1,433,000 in the first nine months of 2011 compared to $1,513,000 in the first nine months of 2010. Communication expense decreased $8,000 or 13.3% from $60,000 in the third quarter of 2010 to $52,000 during the third quarter of 2011.  Communication expense decreased $26,000 or 14.4% to $155,000 in the first nine months of 2011 compared to $181,000 in the first nine months of 2010. Printing and supplies was unchanged at $35,000 in the third quarter of 2011 and 2010, and decreased $10,000 or 9.4% to $96,000 for the first nine months of 2011 compared to $106,000 for the first nine months of 2010. These expense levels are the result of ongoing efforts by management to limit and reduce expenses in response to weakened economic conditions.

The net cost of operation of other real estate owned increased $481,000 or 105.7% to $936,000 in the third quarter of 2011 compared to $455,000 in the third quarter of 2010.  Net cost of operation of other real estate owned increased $1,182,000 or 118.1% to $2,183,000 in the first nine months of 2011 compared to $1,001,000 in the first nine months of 2010.  The substantial increase in the net cost of operation of other real estate resulted primarily from write-downs of other real estate, which increased $1,264,000 or 1,019.4% from $124,000 for the first nine months of 2010 to $1,388,000 for the first nine months of 2011.

There was a net gain after write-downs of $63,000 in the first nine months of 2011 on the sale of other real estate owned compared to a net loss after write-downs of $18,000 for the same period in 2010, an increase of $81,000 or 448.0%.  Rental income on other real estate owned during the first nine months of 2011 amounted to $95,000 compared to $57,000 during the same period of 2010, an increase of $38,000 or 67.2%.  The net cost of operation of other real estate owned includes taxes, legal fees, utilities, maintenance, and various write-downs of other real estate owned, etc.  These expenses increased $1,300,000 or 125% to $2,340,000 in the first nine months of 2011 compared to $1,040,000 for the first nine months of 2010.  Included in the $2,340,000 expense incurred in the first nine months of 2011 are $1,388,000 in write-downs of other real estate to current market values, $179,000 in legal fees and $773,000 in taxes, insurance, utilities, and maintenance, etc.  Bank paid loan costs decreased $56,000 or 58.9% to $39,000 in the third quarter of 2011 compared to $95,000 in the third quarter 2010, and decreased $80,000 or 38.8% to $126,000 in the first nine months of 2011 compared to $206,000 in the first nine months of 2010.

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Marketing and advertising expense increased $9,000 or 25.7% to $44,000 in the third quarter of 2011 compared to $35,000 in the third quarter of 2010.  Marketing and advertising expense increased $40,000 or 34.8% from $115,000 in the first nine months of 2010 to $155,000 during the first nine months of 2011.  This increase is attributable to a higher level of marketing activity at the Banks, although marketing activity was still somewhat restricted due to austerity measures.  Legal and professional expenses increased $20,000 or 16.8% to $139,000 for the third quarter of 2011 compared to $119,000 for the third quarter of 2010.  Legal and professional expenses increased $20,000 or 5.7% to $370,000 in the first nine months of 2011 compared to $350,000 in the first nine months of 2010.  ATM/Debit card expense increased $6,000 or 9.0% to $73,000 for the third quarter of 2011, compared to $67,000 for the same period of 2010.  ATM/Debit card expense increased $23,000 or 12.0% from $191,000 in the first nine months of 2010 to $214,000 during the first nine months of 2011.

Regulatory assessments increased $42,000 or 12.5% from $337,000 for the third quarter of 2010 to $379,000 for the third quarter of 2011 and increased $143,000 or 14.4% from $994,000 for the first nine months of 2010 to $1,137,000 for the first nine months of 2011. Regulatory assessments include fees paid to the Federal Deposit Insurance Corporation (“FDIC”) and the OCC by the Company’s three Banks.  FDIC assessments increased $42,000 or 15.4% from $273,000 for the third quarter of 2010 to $315,000 for the third quarter of 2011, and increased $136,000 or 16.8% from $810,000 for the first nine months of 2010 to $946,000 for the first nine months of 2011.  The Banks’ OCC assessment remained unchanged at $64,000 for the third quarters of 2010 and 2011, and increased $7,000 or 3.8% from $184,000 for the first nine months of 2010 to $191,000 for the first nine months of 2011.

All other operating expenses were $365,000 in the third quarter of 2011 compared to $355,000 for the third quarter of 2010, an increase of $10,000 or 2.8%.  All other operating expenses were $1,071,000 in the first nine months of 2011 compared to $1,086,000 for the first nine months of 2010, a decrease of $15,000 or 1.4%.

Income Taxes

For the third quarter ended September 30, 2011, the Company recorded an income tax benefit of $13,000, compared to a tax benefit of $91,000 for the same period a year ago.  For the nine months ended September 30, 2011, the Company recorded an income tax expense of $104,000, compared to a tax benefit of $623,000 for the same period a year ago.  The provision for income taxes is an estimate, and management considers several factors in making this estimate, including current pre-tax income levels, the amount of tax-exempt income, and a comparison of prior period estimates to income taxes ultimately determined.

BALANCE SHEET REVIEW

Loans

Outstanding loans represent the largest component of earning assets at 61.1% of total earning assets.  As of September 30, 2011 the Company held total gross loans outstanding of $304,570,000, a decrease of $36,143,000 or 10.6% from $340,713,000 in total gross loans outstanding at December 31, 2010, and a decrease of $47,327,000 or 13.4% from $351,897,000 in total gross loans outstanding at September 30, 2010.  The decrease in outstanding loans comes primarily as the result of lower loan demand from creditworthy borrowers at the Company’s three bank subsidiaries and payoffs, with additional decreases resulting from a number of loans that were charged off or converted into other real estate owned through foreclosures or deeds in lieu of foreclosure.

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Loan Portfolio Composition	September 30,		December 31,		September 30,
(Dollars in thousands)	2011		2010		2010
	(Unaudited)		(Audited)		(Unaudited)
Commercial	$	24,857	$	28,362	$	28,006
Real Estate:
Residential real estate		100,375		106,759		109,025
Commercial real estate		170,170		192,351		201,770
Commercial construction		2,790		6,152		5,737
Consumer and other		6,378		7,089		7,359
Gross loans	$	304,570	$	340,713	$	351,897

The interest rates charged on loans vary with the degree of risk, maturity, and amount of the loan. Competitive pressures, money market rates, availability of funds, and government regulation also influence interest rates.  The average yield on the Company’s loans for the three and nine months ended September 30, 2011 was 5.90% and 5.84% respectively, compared to 5.86% and 5.92% respectively for the three and nine months ended September 30, 2010.  The Federal Reserve continues to keep the federal funds target rate near zero for an “extended period” of time.A large portion of the Company’s adjustable-rate loans, which constitute approximately 29.8% of the loan portfolio, reprice following an interest-rate change by the Federal Reserve.

The Company’s loan portfolio consists principally of residential mortgage loans, commercial loans, and consumer loans. The vast majority of these loans is made to borrowers located in South Carolina and is concentrated in the Company’s market areas.

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

The Company’s commercial lending activity is directed principally towards businesses whose demand for funds falls within each Bank’s legal lending limits and which are potential deposit customers of the Banks.  This category of loans includes loans made to individuals, partnerships, and corporate borrowers, 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 concentration 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.

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

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

PROVISION AND ALLOWANCE FOR LOAN LOSSES, LOAN LOSS EXPERIENCE

The purpose of the Company’s allowance for loan losses is to absorb loan losses that occur in the loan portfolios of its bank subsidiaries.  The Company complies with the FASB ASC when determining the adequacy of the allowance for loan losses.  Management determines the adequacy of the allowance quarterly and considers a variety of factors in establishing a level of the allowance for loan losses and the related provision, which is charged to expense.  Factors considered in determining the adequacy of the allowance for loan losses include: historical loan losses experienced by the Company, current economic conditions affecting a borrower’s ability to repay, the volume of outstanding loans, the trends in delinquent, non-accruing and potential problem loans, and the quality of collateral securing non-performing and problem loans.  By considering the above factors, management attempts to determine the amount of reserves necessary to provide for inherent losses in the loan portfolios of its subsidiaries.  However, the amount of reserves may change in response to changes in the financial condition of larger borrowers, changes in the Company’s local economies, industry trends, and regulatory requirements.

The allowance for loan losses for each portfolio segment is set at an amount that reflects management’s best judgment of the extent to which historical loss levels are more or less accurate indicators of current losses in the loan portfolios of its bank subsidiaries.  While it is the Company’s policy to charge off in the current period loans in which a loss is considered probable, there are inherent losses that cannot be quantified precisely or attributed to particular loans or classes of loans.  Because the state of the economy, industry trends, and conditions affecting individual borrowers may affect the amount of such losses, management’s estimate of the appropriate amount of the allowance is necessarily approximate and imprecise. The Company and its bank subsidiaries are also subject to regulatory examinations and determinations as to adequacy of the allowance for loan losses, which may take into account such factors as the methodology used to calculate the allowance for loan losses and the size of the allowance for loan losses in comparison to a group of peer companies identified by the regulatory agencies.

In assessing the adequacy of the allowance, management relies predominantly on its ongoing review of the loan portfolio, including historical charge-offs, which is undertaken both to ascertain whether there are probable losses that must be charged off and to assess the risk characteristics of the portfolio in the aggregate.  The Company utilizes its credit administration department, as well as the services of an outside consultant from time to time, to perform quality reviews of its loan portfolio.  The reviews consider the judgments and estimates of management and also those of bank regulatory agencies that review the loan portfolio as part of their regular examination process.  The OCC, as part of its routine examination process of national banks, including the Company’s Banks, may require additions to the allowance for loan losses based upon the regulator’s credit evaluations differing from those of management.  The Company’s management believes it has in place the controls and personnel needed to adequately monitor its loan portfolios and the adequacy of the allowance for loan losses.

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At September 30, 2011, the allowance for loan losses was $7,769,000 or 2.55% of gross outstanding loans, compared to $7,919,000 or 2.32% of gross outstanding loans at December 31, 2010 and $8,317,000 or 2.36% of gross outstanding loans at September 30, 2010.  During the first nine months of 2011, the Company experienced net charge-offs of $2,893,000 or 0.89% of average loans, compared to net charge-offs of $5,224,000, or 1.43% of average loans during the first nine months of 2010.  The Company’s provision for loan losses was $2,743,000 for the first nine months of 2011 compared to $6,110,000 in the first nine months of 2010.

Management continues to closely monitor the levels of non-performing and potential problem loans and will address the weaknesses in these credits to enhance the amount of ultimate collection or recovery on these assets.  When increases in the overall level of non-performing and potential problem loans accelerates from the historical trend, management may adjust the methodology for determining the allowance for loan losses, which results in increases to the provision and the allowance for loan losses.  This typically decreases net income.

The following table sets forth ratios of net charge-offs and the allowance for loan losses to the items stated:

Asset Quality Ratios:

	September 30,	December 31,	September 30,
	2011	2010	2010
Net charge-offs to average loans outstanding during the period	0.89%	1.71%	1.43%
Net charge-offs to total loans outstanding at end of period	0.95%	1.80%	1.48%
Allowance for loan losses to average loans	2.40%	2.20%	2.28%
Allowance for loan losses to total loans at end of  period	2.55%	2.32%	2.36%
Net charge-offs to allowance for loan losses at end of period	37.24%	77.50%	62.81%
Net charge-offs to provision for loan losses	105.47%	92.63%	85.50%

The allowance for loan losses is increased by direct charges to operating expense through the provision for loan losses.  Losses on loans are charged against the allowance in the period in which management determines it is more likely than not that the full amounts of such loans have become uncollectible.  Recoveries of previously charged-off loans are credited back to the allowance.

Management considers the allowance for loan losses adequate to cover inherent losses on the loans outstanding at September 30, 2011.  In the opinion of management, there are no material risks or significant loan concentrations, other than loans secured by real estate, in the present portfolio.  The allowance for loan losses uses the Company’s procedures and methods which include the following risk factors, though not intended to be an all inclusive list:

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

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

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

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

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

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

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

No assurance can be given that the Company will not sustain loan losses in any particular period which are sizable in relation to the amount reserved or that subsequent evaluation of the loan portfolio, in light of conditions and factors then prevailing, will not require significant changes in the allowance for loan losses or future charges to earnings.  As noted above, the allowance for loan losses is also subject to review and approval by various regulatory agencies through their periodic examinations of the Company’s subsidiaries.  Such examinations could result in required changes to the allowance for loan losses.

The local and national economy continues to struggle.  The housing market, including construction and development projects, has demonstrated stress given reduced cash flows of individual borrowers, limited bank financing and credit availability, and slow property sales.  The Company continues to diligently assess its risk, particularly in the real estate market.  The Company’s special assets department remains proactive in foreclosure actions and sales.  Management believes these actions will decrease the Company’s non-performing assets levels.

Securities

The primary objective of the Company’s securities portfolio is to provide for the liquidity needs of the Company and to contribute to profitability by providing a stable flow of dependable earnings.  The Company invests primarily in obligations guaranteed as to principal and interest by the United States or its agencies, other taxable securities, and certain obligations of states and municipalities.  The Company had $240,000 in trading assets at September 30, 2011, compared to $76,000 at December 31, 2010 and $52,000 in trading assets at September 30, 2010.  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, 2011 securities totaled $182,427,000, which represented 36.6% of total earning assets.  Total securities increased $40,133,000 or 28.2% from $142,294,000 invested as of December 31, 2010 and increased $42,077,000 or 30.0% from $140,350,000 invested as of September 30, 2010.  The size of the Company’s investment portfolio is managed and fluctuates from time to time based on the amount of public deposits held, loan demand, liquidity needs, investment strategy, and other pertinent factors.

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At September 30, 2011 the Company’s total investments classified as available for sale had an amortized cost of $167,187,000 and a market value of $174,585,000 for a net unrealized gain of $7,398,000.  This compares to an amortized cost of $130,434,000 and a market value of $130,650,000 for an unrealized gain of $216,000 on the Company’s investments classified as available for sale at December 31, 2010.  At September 30, 2010 the Company’s total investments classified as available for sale had an amortized cost of $124,917,000 and a market value of $128,287,000 for an unrealized gain of $3,370,000.  Management believes that maintaining most of its securities in the available-for-sale category provides greater flexibility in the management of the overall investment portfolio.  In cases where the market value is less than the amortized cost, the Company has the ability and intent to hold securities that are in an unrealized loss position until a market price recovery or maturity, and therefore these securities are not considered impaired on an other-than-temporary basis.

Securities with carrying amounts of $32,887,000 at September 30, 2011 were pledged to secure public deposits and for other purposes required or permitted by law.

Assets Acquired in Settlement of Loans

The Company’s assets acquired in settlement of loans, all of which are real estate and are also referred to as other real estate owned were $15,723,000 at September 30, 2011, an increase of $2,379,000 or 17.8% from $13,344,000 at December 31, 2010 and an increase of $1,009,000, or 6.9% from $14,714,000 at September 30, 2010.  During the first nine months of 2011, the Company acquired $7,237,000 in other real estate, sold $3,470,000 in properties and wrote-down $1,388,000 of other real estate owned.  During the first nine months of 2010, the Company acquired $9,943,000 in other real estate, sold $7,017,000 in properties and wrote-down $522,000.

The following table summarizes the composition of assets acquired in settlement of loans as of the dates noted (tabular amounts in thousands):

	September 30,			December 31,			September 30,
	2011			2010			2010
	Amount		#	Amount		#	Amount		#
Construction and land development	$	10,393	38	$	9,964	38	$	11,919	50
Residential real estate		4,112	13		2,870	13		2,067	5
Commercial real estate		1,218	6		510	3		728	9
Total assets acquired in settlement of loans	$	15,723	57	$	13,344	54	$	14,714	64

Cash Surrender Value of Life Insurance

The Company’s cash surrender value of life insurance was $13,147,000 at September 30, 2011, an increase of $356,000 or 2.8%, from the $12,791,000 held at December 31, 2010 and an increase of $479,000 or 3.8%, from the $12,668,000 held at September 30, 2010.  The increase in cash surrender value of life insurance is from normal appreciation associated with the ownership of these assets.  Earnings from the ownership of these policies are informally used to partially offset the cost of certain employee-related benefits.

Cash and Cash Equivalents

The Company’s cash and cash equivalents increased $559,000 or 3.2% to $17,803,000 at September 30, 2011 from $17,244,000 at December 31, 2010, and increased $6,734,000 or 60.8% from $11,069,000 at September 30, 2010.  From time to time there are swings in the level of cash and cash equivalents, which are due to normal fluctuations in the Banks’ needs and sources for immediate and short-term liquidity.

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Deposits

The Banks’ primary source of funds for loans and investments is their deposits.  Total deposits decreased $2,423,000 or 0.5% to $472,331,000 at September 30, 2011 from $474,754,000 at December 31, 2010 and decreased $1,666,000 or 0.4% from $473,997,000 at September 30, 2010.  Competition for deposit accounts is primarily based on the interest rates paid, location convenience and services offered.

For the nine months ended September 30, 2011 interest-bearing deposits averaged $425,335,000 compared to $427,270,000 for the same period of 2010.  From time to time the Banks solicit certificates of deposit from various sources through brokers.  This is done to reduce the need for funding from other short-term sources such as federal funds purchased and short-term borrowings from the Federal Home Loan Bank of Atlanta (“FHLB”), as well as to manage the interest-rate risk at the Banks.  At September 30, 2011 brokered deposits totaled $36,261,000 compared to $43,194,000 and $42,971,000 in brokered deposits at December 31, 2010 and September 30, 2010, respectively.  At September 30, 2011, of the total brokered deposits, $11,140,000 was acquired through the Certificate of Deposit Account Registry Service (“CDARS”), compared with $18,073,000 at December 31, 2010 and $17,850,000 at September 30, 2010.  The Company considers brokered funds to be an attractive alternative funding source available to use while continuing efforts to maintain and grow its local deposit base.

The average interest rate paid on interest-bearing deposits was 1.29% during the nine months ended September 30, 2011 compared to 1.74% for the same period of 2010 and 1.68% for the twelve months ended December 31, 2010.  In pricing deposits, the Company considers its liquidity needs, the direction and levels of interest rates, and local market conditions.  At September 30, 2011 interest-bearing deposits comprised 89.3% of total deposits compared to 89.9% at December 31, 2010 and 89.7% at September 30, 2010.

The Company's core deposit base consists largely of consumer time deposits less than $100,000, savings accounts, NOW accounts, money market accounts, and checking accounts. Although such core deposits are becoming increasingly interest-sensitive for both the Company and the industry as a whole, these core deposits still continue to provide the Company with a large source of relatively stable funds.  Core deposits as a percentage of total deposits averaged approximately 77% at September 30, 2011, 71% at December 31, 2010 and 75% at September 30, 2010.  Time deposits of $100,000 or more represented 22.7% of total deposits at September 30, 2011, 25.4% at December 31, 2010 and 25.1% at September 30, 2010.  The Company’s larger-denomination time deposits are generally garnered from customers within the local market areas of its Banks, and therefore may have a greater degree of stability than is typically associated with this source of funds at other financial institutions.  The permanent increase of the maximum FDIC insurance amount from $100,000 to $250,000 may also provide stability to time deposits that exceed $100,000 but are less than $250,000.

Borrowings

The Company’s borrowings are typically comprised of federal funds purchased, securities sold under repurchase agreements, and short-term advances from the FHLB.  At September 30, 2011 borrowings totaled $10,664,000, compared to $10,362,000 at December 31, 2010 and $12,856,000 at September 30, 2010, all of which were comprised of securities sold under repurchase agreements.  Federal funds purchased and short-term FHLB advances are used primarily for the immediate cash needs of the Company.

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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, 2011, The Peoples National Bank had total borrowing capacity from the FHLB equal to $64,590,000, all of which was unused.  Bank of Anderson, N.A. had total borrowing capacity from the FHLB equal to $29,280,000, all of which was unused at September 30, 2011.  Seneca National Bank had established secured lines of credit with the FHLB at September 30, 2011 of $11,600,000, all of which was unused.  At September 30, 2011, the Banks also had unused federal funds lines of credit with various correspondent banks totaling $22,000,000.

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

During the first nine months of 2011, the Company made capital expenditures of approximately $225,000 related to equipment and software upgrades.  The Company makes capital expenditures in the normal course of business.

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

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OFF-BALANCE SHEET RISK AND DERIVATIVE FINANCIAL INSTRUMENTS

The Company, through the operations of the Banks, makes contractualcommitments toextend credit in the ordinary course of its business activities.  These commitments are legally binding agreements to lend money to customers of the Banks at predetermined interest rates for a specified period of time.  At September 30, 2011, the Banks had issued commitments to extend credit of $70,301,000 through various types of arrangements.  The commitments generally expire within one year.  Past experience indicates that many of these commitments to extend credit will expire not fully used.  As described under “Liquidity,” the Company believes that it has adequate sources of liquidity to fund commitments that are drawn upon by the borrowers.

In addition to commitments to extend credit, the Banks also issue standby letters of credit, which are assurances to a third party that it will not suffer a loss if the Bank’s customer fails to meet its contractual obligation to the third party.  Standby letters of credit totaled $1,807,000 at September 30, 2011.  Past experience indicates that many of these standby letters of credit will expire unused.  However, through its various sources of liquidity, the Company believes that it will have the necessary resources to meet these obligations should the need arise.  Various types of collateral secure most of the standby letters of credit.  The Company believes that the risk of loss associated with standby letters of credit is comparable to the risk of loss associated with its loan portfolio.

Neither the Company nor the Banks are involved in any other off-balance sheet contractual relationships or transactions that could result in liquidity needs or other commitments or significantly impact earnings.

RECENT REGULATORY DEVELOPMENTS

On October 15, 2008, Bank of Anderson, N.A. entered into a Formal Agreement with its primary regulator, the OCC.  The Agreement was based on the findings of the OCC during their on-site examination of the Bank that commenced on April 28, 2008.  On August 16, 2010, The Peoples National Bank entered into a Formal Agreement with the OCC based on the findings of its on-site examination of the Bank that commenced on March 15, 2010.  The Agreements require the establishment of certain plans and programs within various time periods and seek to enhance the Banks’ existing practices and procedures in the areas of credit risk management, credit underwriting, liquidity, funds management and strategic and profitability planning.  Specifically, under the terms of the Agreements the Banks are required to (i) appoint Compliance Committees that are responsible for monitoring and coordinating the Banks’ adherence to the provisions of the Agreements, (ii) develop, implement, and thereafter ensure the Banks’ adherence to a written program to improve the Banks’ loan portfolio management, (iii) adopt, implement, and thereafter ensure adherence to written policies and procedures for maintaining an adequate Allowance for Loan and Lease Loss in accordance with generally accepted accounting principles, (iv) take immediate and continuing action to protect the Banks’ interests in assets criticized by the OCC or by internal or external loan review professionals, (v) develop, implement, and thereafter adhere to written programs to improve construction loan underwriting standards, (vi) adopt, implement, and thereafter ensure adherence to written asset diversification programs consistent with OCC Banking Circular 255, (vii) adopt, implement, and thereafter ensure adherence to written strategic plans covering a period of at least three years, (viii) develop, implement, and thereafter ensure adherence to a three-year capital plan, (ix) develop, implement, and thereafter ensure adherence to written profit plans to improve and sustain the earnings of the Banks, (x) ensure levels of liquidity are sufficient to sustain the Banks’ current operations and to withstand any anticipated or extraordinary demand against their funding bases, and (xi) obtain prior written determination of no supervisory objection from the OCC before accepting, renewing, or rolling over brokered deposits.  The Banks are required to submit reports quarterly on the progress made to comply with each article within the Agreements.

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The Banks believe they have responded appropriately to substantially all of the requirements of the Agreements, including completing plans and programs within the time frames required by the Agreements.  The current results of those actions are reflected in the financial data and Management’s Discussion and Analysis in this report.  If the Banks do not satisfy and maintain adherence with each of the requirements set forth in the Agreements, the Banks will be deemed to be in non-compliance.  Failure to comply with the Agreements could result in the OCC’s taking additional enforcement actions against the Banks.  The Banks’ ability to meet some of the goals set forth in the Agreements depends in part upon their financial performance, the stabilization of local real estate markets, and improvement in economic conditions in general.

Peoples Bancorporation, Inc. is a registered bank holding company that owns and controls The Peoples National Bank, Bank of Anderson, N.A., and Seneca National Bank.   Accordingly, the Company is expected to fully utilize its financial and managerial resources to serve as a source of strength to the Banks and to take steps necessary to ensure the Banks comply with any supervisory actions taken by the Banks’ primary federal regulator, the OCC.

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CAPITAL ADEQUACY AND RESOURCES

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

The Company and the Banks are required to maintain certain capital ratios by federal banking regulators.  The following table sets forth the capital ratios for the Company and the Banks as of September 30, 2011:

CAPITAL RATIOS

(Dollars in thousands)

						Well					Adequately
						Capitalized					Capitalized
	Actual					Requirement					Requirement
Company:	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Risk-based Capital	$	53,168		15.43	%		N/A		N/A		$	27,566		8.00	%
Tier 1 Risk-based Capital		48,830		14.17			N/A		N/A			13,784		4.00
Leverage Ratio		48,830		9.01			N/A		N/A			21,678		4.00
The Peoples National Bank (1):
Total Risk-based Capital	$	32,199		14.98	%	$	21,523		10.00	%	$	17,219		8.00	%
Tier 1 Risk-based Capital		29,473		13.69			12,917		6.00			8,612		4.00
Leverage Ratio		29,473		9.23			15,966		5.00			12,773		4.00
Bank of Anderson, N. A. (1):
Total Risk-based Capital	$	13,043		16.41	%	$	7,948		10.00	%	$	6,359		8.00	%
Tier 1 Risk-based Capital		12,045		15.16			4,767		6.00			3,178		4.00
Leverage Ratio		12,045		8.40			7,170		5.00			5,736		4.00
Seneca National Bank (1):
Total Risk-based Capital	$	7,222		14.75	%	$	4,896		10.00	%	$	3,917		8.00	%
Tier 1 Risk-based Capital		6,608		13.50			2,937		6.00			1,958		4.00
Leverage Ratio		6,608		8.72			3,789		5.00			3,031		4.00

(1)  The OCC has established individual minimum capital ratios for the three Banks pursuant to 12 C.F.R. Section 3.10.  These minimum requirements exceed the normal regulatory requirements to be well capitalized.   Currently each of the Banks is required to maintain 12% total risk-based capital, 10% tier 1 risk-based capital, and 8% leverage ratio.  Each of the Banks exceeded these required capital levels at September 30, 2011.

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Item 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to a change in interest rates, exchange rates and equity prices.  The Company’s primary type of market risk is interest-rate risk.

The primary objective of Asset/Liability Management at the Company is to manage interest-rate risk and achieve reasonable stability in net interest income throughout interest-rate cycles in order to maintain adequate liquidity.  The Company seeks to achieve this objective by maintaining the proper balance of rate-sensitive earning assets and rate-sensitive liabilities.  The relationship of rate-sensitive earning assets to rate-sensitive liabilities is the principal factor in projecting the effect that fluctuating interest rates will have on future net interest income.  Rate-sensitive assets and rate-sensitive liabilities are those that can be repriced to current market rates within a relatively short time period.  Management monitors the rate sensitivity of earning assets and interest-bearing liabilities over the entire life of these instruments, but places particular emphasis on the first year.

Each of the Banks has established an Asset/Liability Management Committee.  These committees use a variety of tools to analyze interest-rate sensitivity, including a static gap presentation and a simulation model.  A static gap presentation reflects the difference between total interest-sensitive assets and liabilities within certain time periods.  While the static gap is a widely used measure of interest-rate sensitivity, it is not, in management’s opinion, the best indicator of a company’s true sensitivity position.  Accordingly, the Banks also use an earnings simulation model that estimates the variations in interest income under different interest-rate environments to measure and manage the Bank’s short-term interest-rate risk.  According to the model, as of September 30, 2011 the Company was positioned so that net interest income would increase $414,000 over the next twelve months if market interest rates were to suddenly rise by 100 basis points at the beginning of the same period.  Conversely, net interest income would decline by $230,000 over the next twelve months if interest rates were to suddenly decline by 100 basis points at the beginning of the same period.  Computation of prospective effects of hypothetical interest-rate changes are based on numerous assumptions, including relative levels of market interest rates and loan prepayment, and should not be relied upon as indicative of actual results.  Further, the computations do not contemplate all actions that the Company and its customers could undertake in response to changes in interest rates.

Additionally, each of the Banks measures anticipated changes in its theoretical economic value of equity in order to ascertain its long-term interest-rate risk.  This is done by calculating the difference between the theoretical market value of the Bank’s assets and liabilities and subjecting the balance sheet to different interest-rate environments to measure and manage long-term interest rate risk.

It is the responsibility of the Asset/Liability Committee of each bank to establish parameters for various interest risk measures, to set strategies to control interest-rate risk within those parameters, to maintain adequate and stable net interest income, and to direct the implementation of tactics to facilitate achieving these objectives.

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Item 4.           CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

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

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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

101 Interactive Data File

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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 09, 2011	By:	/s/ L. Andrew Westbrook, III
		L. Andrew Westbrook, III
		President & Chief Executive Officer
Dated:  November 09, 2011	By:	/s/ Robert E. Dye, Jr.
		Robert E. Dye, Jr.
		Senior Vice President & Chief Financial Officer
		(principal financial officer)

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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
101	Interactive Data File

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