10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2012
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934
	For the transition period from ____ to____

COMMISSION FILE NUMBER 1-5735

PROVIDENT COMMUNITY BANCSHARES, INC.

(Exact name of registrant as specified in its Charter)

Delaware	57-1001177
(State or other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

2700 Celanese Road, Rock Hill, South Carolina 29732

(Address of Principal Executive Offices)

(803) 325-9400

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 (Section 232.405 of this chapter) 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o Accelerated filer o

Non-accelerated filer o 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 Corporation had 1,790,599 shares, $0.01 par value, of common stock issued and outstanding as of November 5, 2012.

PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

INDEX

Part I.	Financial Information	Page
	Item 1. Financial Statements
	Consolidated Balance Sheets as of September 30, 2012
	and December 31, 2011	3
	Consolidated Statements of Income (Loss) for the three and nine
	months ended September 30, 2012 and 2011	4
	Consolidated Statements of Comprehensive Income (Loss)
	for the nine months ended September 30, 2012 and 2011	5
	Consolidated Statements of Cash Flows for the nine
	months ended September 30, 2012 and 2011	6
	Consolidated Statements of Changes in Shareholders’ Equity
	for the nine months ended September 30, 2012 and 2011	7
	Notes to Consolidated Financial Statements	8
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3. Quantitative and Qualitative Disclosures
	about Market Risk	50
	Item 4. Controls and Procedures	50
Part II.	Other Information
	Item 1. Legal Proceedings	50
	Item 1A. Risk Factors	50
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	51
	Item 3. Defaults Upon Senior Securities	51
	Item 4. Mine Safety Disclosures	51
	Item 5. Other Information	51
	Item 6. Exhibits	51
	Signatures	52

Part 1.    Financial Information
PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2012 and December 31, 2011
	September 30,			December 31,
ASSETS	2012			2011
	(Unaudited)			(Audited)
	(DOLLARS IN THOUSANDS)
Cash and due from banks	$	4,908		$	4,900
Interest earning balances with the Federal Reserve		2,618			4,241
Federal funds sold		20,025			14,752
Cash and cash equivalents		27,551			23,893
Investment and mortgage-backed securities-available for sale		167,478			165,878
Loans, net of unearned fees		134,996			160,568
Allowance for loan losses (ALLL)		(4,505	)		(4,549	)
Loans, net of ALLL		130,491			156,019
Real estate acquired through foreclosure		9,620			8,398
Office properties and equipment, net		3,242			4,787
Federal Home Loan Bank stock, at cost		2,253			3,363
Federal Reserve Bank stock, at cost		749			689
Accrued interest receivable		1,125			1,340
Cash surrender value of life insurance		8,138			7,923
Other assets		3,801			4,355
TOTAL ASSETS	$	354,448		$	376,645
LIABILITIES
Demand and savings deposits	$	163,489		$	158,372
Time deposits		117,934			124,877
Total deposits		281,423			283,249
Advances from the Federal Home Loan Bank		37,500			59,500
Securities sold under agreements to repurchase		6,057			5,268
Floating rate junior subordinated deferrable interest debentures		12,372			12,372
Accrued interest payable		1,080			1,028
Other liabilities		3,092			2,758
TOTAL LIABILITIES		341,524			364,175
Commitments and contingencies-Note 5
SHAREHOLDERS' EQUITY
Serial preferred stock - $0.01 par value
authorized - 500, 000 shares
issued and outstanding - 9,266 shares
at September 30, 2012 and December 31, 2011		9,258			9,255
Common stock - $0.01 par value,
authorized - 5,000,000 shares,
issued-2,192,958 and outstanding-1,790,599 shares at September 30, 2012
and December 31, 2011, respectively		20			20
Common stock warrant		25			25
Additional paid-in capital		12,919			12,919
Accumulated other comprehensive loss		(100	)		(387	)
Retained deficit, substantially restricted		(2,898	)		(3,062	)
Treasury stock, at cost		(6,300	)		(6,300	)
TOTAL SHAREHOLDERS' EQUITY		12,924			12,470
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	354,448		$	376,645
See notes to consolidated financial statements.

3

PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three and Nine Months Ended September 30, 2012 and 2011 (unaudited)
	Three Months Ended						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2012			2011			2012			2011
	(DOLLARS IN THOUSANDS EXCEPT PER SHARE)						(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
Interest Income:
Loans	$	1,775		$	2,151		$	5,556		$	6,939
Deposits and federal funds sold		5			3			13			17
Interest on mortgage-backed securities		348			677			1,115			2,038
Interest and dividends on investment securities		592			650			1,835			1,799
Total interest income		2,720			3,481			8,519			10,793
Interest Expense:
Deposit accounts		312			552			1,030			2,095
Floating rate junior subordinated deferrable interest debentures		69			118			210			355
Advances from the FHLB and other borrowings		448			632			1,622			1,875
Total interest expense		829			1,302			2,862			4,325
Net Interest Income		1,891			2,179			5,657			6,468
Provision for loan losses		--			290			630			290
Net interest income after
provision for loan losses		1,891			1,889			5,027			6,178
Non-Interest Income:
Fees for financial services		722			645			1,986			1,929
Other fees, net		4			5			14			27
Other-than-temporary-impairment write-down on securities		--			(218	)		--			(409	)
Net gain on sale of investments		584			419			1,108			697
Total non-interest income		1,310			851			3,108			2,244
Non-Interest Expense:
Compensation and employee benefits		1,028			1,008			3,154			3,115
Occupancy and equipment		654			623			1,934			1,911
Deposit insurance premiums		217			179			611			536
Professional services		164			144			519			454
Advertising and public relations		5			5			29			25
OREO and loan operations		539			483			614			1,304
Items processing		65			74			202			225
Telephone		44			40			133			133
Other		223			178			605			576
Total non-interest expense		2,939			2,734			7,801			8,279
Net income before income taxes		262			6			334			143
Expense for income taxes		154			7			167			25
Net income (loss)		108			(1	)		167			118
Accretion of preferred stock to redemption value and preferred dividends accrued		120			120			356			355
Net loss to common shareholders	$	(12	)	$	(121	)	$	(189	)	$	(237	)
Net loss per common share (basic)	$	(0.01	)	$	(0.07	)	$	(0.11	)	$	(0.13	)
Net loss per common share (diluted)	$	(0.01	)	$	(0.07	)	$	(0.11	)	$	(0.13	)
Weighted average number of common shares outstanding
Basic		1,790,599			1,790,599			1,790,599			1,790,599
Diluted		1,790,599			1,790,599			1,790,599			1,790,599
See notes to consolidated financial statements.

4

PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three and Nine Months Ended September 30, 2012 and 2011 (unaudited)
	Three Months Ended						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2012			2011			2012			2011
	(DOLLARS IN THOUSANDS)						(DOLLARS IN THOUSANDS)
Net income (loss)	$	108		$	(1	)	$	167		$	118
Other comprehensive income, net of tax:
unrealized holding gains on securities available for sale
arising during period		530			2,453			974			2,846
Less reclassification adjustment for gains in net income		(361	)		(132	)		(687	)		(179	)
Comprehensive income	$	277		$	2,320		$	454		$	2,785

5

PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2012 and 2011 (unaudited)
	Nine Months Ended
	September 30,			September 30,
	2012			2011
	(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income	$	167		$	118
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses		630			290
Amortization of securities		1,215			495
Depreciation expense		269			292
Recognition of deferred income, net of costs		(209	)		(85	)
Deferral of fee income, net of costs		200			99
Other than temporary impairment charge on  AFS securities		--			409
Gain on investment transactions		(1,108	)		(697	)
(Gain) loss on OREO sales		(77	)		14
OREO impairment		650			1,272
Changes in operating assets and liabilities:
Decrease in accrued interest receivable		215			456
Increase in cash surrender value of life insurance		(215	)		(252	)
Decrease in other assets		554			311
Increase in other liabilities		334			370
Increase in accrued interest payable		52			301
Net cash provided by operating activities		2,677			3,393
INVESTING ACTIVITIES:
Purchase of investment and mortgage-backed securities:
Available for sale		(166,011	)		(97,885	)
Proceeds from sale of investment and mortgage-
backed securities:
Available for sale		38,954			50,210
Proceeds from maturity of investment and mortgage-
backed securities:
Available for sale		114,199			37,237
Principal repayments on mortgage-backed securities:
Available for sale		11,438			7,748
Net decrease in loans		22,841			33,489
Redemption of FHLB/FRB stock		1,050			285
Proceeds from sales of foreclosed assets, net of costs and improvements		1,627			3,532
Purchase of office properties and equipment		(80	)		(28	)
Net cash provided by investing activities		24,018			34,588
FINANCING ACTIVITIES:
Proceeds from redemption of life insurance		--			1,032
Decrease in other borrowings		(21,211	)		(4,663	)
Decrease in deposit accounts		(1,826	)		(22,632	)
Net cash used by financing activities		(23,037	)		(26,263	)
NET INCREASE IN CASH
AND CASH EQUIVALENTS		3,658			11,718
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD		23,893			24,865
CASH AND CASH EQUIVALENTS
AT END OF PERIOD	$	27,551		$	36,583
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Income taxes	$	--		$	--
Interest		2,810			4,024
Non-cash transactions:
Loans foreclosed	$	3,422		$	3,299
Unrealized gains on securities available for sale, net of income tax		974			2,846
Bank property transferred to OREO		1,356			--
See notes to consolidated financial statements.

6

PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 2012 and 2011 (Unaudited)
											Retained			Accumulated
									Additional		Earnings,			Other						Total
	Preferred Stock			Common Stock					Paid-in		Substantially			Comprehensive			Treasury Stock			Shareholders'
	Shares	Amount		Shares	Amount		Warrants		Capital		Restricted			Income (loss)			at Cost			Equity
				(Dollars in Thousands, Except Share Data)
BALANCE AT DECEMBER 31, 2010	9,266	$	9,250	1,790,599	$	20	$	25	$	12,919	$	(2,867	)	$	(2,778	)	$	(6,300	)	$	10,269
Net income												118									118
Other comprehensive income, net of tax of $968 on
unrealized holding gains on securities available for sale
arising during period															2,846						2,846
Less reclassification adjustment for gains and other than
temporary investment charge in net income, net of tax															(179	)					(179	)
Comprehensive income
Accretion of Preferred Stock to redemption value			4									(4	)								--
BALANCE AT SEPTEMBER 30, 2011	9,266	$	9,254	1,790,599	$	20	$	25	$	12,919	$	(2,753	)	$	(111	)	$	(6,300	)	$	13,054
BALANCE AT DECEMBER 31, 2011	9,266	$	9,255	1,790,599	$	20	$	25	$	12,919	$	(3,062	)	$	(387	)	$	(6,300	)	$	12,470
Net income												167									167
Other comprehensive income, net of tax of $341 on
unrealized holding gains on securities available for sale
arising during period															974						974
Less reclassification adjustment for gains in net income															(687	)					(687	)
Accretion of Preferred Stock to redemption value			3									(3	)								--
BALANCE AT SEPTEMBER 30, 2012	9,266	$	9,258	1,790,599	$	20	$	25	$	12,919	$	(2,898	)	$	(100	)	$	(6,300	)	$	12,924
See notes to consolidated financial statements

7

PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.           Presentation of Consolidated Financial Statements

The accompanying unaudited consolidated financial statements of Provident Community Bancshares, Inc. (the “Corporation”) and Provident Community Bank, N.A. (the “Bank”) were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments which are, in the opinion of management, necessary for the fair presentation of the interim consolidated financial statements have been included. All such adjustments are of a normal and recurring nature. The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of the results which may be expected for the entire calendar year or for any other period. This quarterly report should be read in conjunction with the Corporation’s annual report on Form 10-K for the year ended December 31, 2011. Certain amounts in the prior year’s financial statements have been reclassified to conform to current year classifications.

Recently Issued Accounting Standards

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

In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the Accounting Standards Codification (“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 were effective for the Corporation beginning January 1, 2012 and did not 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 were effective for the Corporation beginning January 1, 2012 and are reflected in Note 7.

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 amendments were applied retrospectively. In December 2011, the topic was further amended to defer the effective date of presenting reclassification adjustments from other comprehensive income to net income on the face of the financial statements.

Other accounting standards that have been issued or proposed by the Financial Accounting Standards Board (“FASB”) or other standards-setting bodies are not expected to have a material impact on the Corporation’s financial position, results of operations or cash flows.

8

2.           Loss Per Common Share

Basic loss per common share amounts for the three and nine months ended September 30, 2012 and 2011 were computed based on the weighted average number of common shares outstanding during the period. Diluted loss per share adjusts for the dilutive effect of outstanding common stock options  and warrants during the periods utilizing the treasury stock method. There were no common stock equivalents included in the diluted loss per share calculation for the three and nine months ended September 30, 2012 and 2011 as all outstanding options and warrants had a higher average exercise price than the average market price and were therefore anti-dilutive. Anti-dilutive common stock equivalents that were excluded in the diluted loss per common share calculation for the three and nine months ended September 30, 2012 and 2011 were 235,380 and 265,543, respectively.

3.           Assets Pledged

Approximately $64.0 million and $85.1 million of debt securities at September 30, 2012 and December 31, 2011, respectively, were pledged by the Bank as collateral to secure deposits of the State of South Carolina, and Union, Laurens and York counties along with additional borrowings and repurchase agreements. The Bank pledges as collateral for Federal Home Loan Bank (the “FHLB”) advances commercial and residential real estate mortgage loans under a collateral agreement with the FHLB whereby the Bank maintains, free of other encumbrances, qualifying mortgages (as defined) with unpaid principal balances equal to, when discounted at 75% of the unpaid principal balances, 100% of total advances. As part of the total assets pledged, the Bank will also pledge securities to cover additional advances from the FHLB that exceed the qualifying mortgages balance along with security repurchase lines with various brokerage houses.

9

4.           Loans, net

Loans receivable consisted of the following (dollars in thousands):

	September 30,			December 31,
	2012			2011
Mortgage loans:
Fixed-rate residential	$	6,820		$	8,063
Adjustable-rate residential		3,431			3,967
Commercial real estate		79,803			97,547
Construction		--			308
Total mortgage loans		90,054			109,885
Commercial non-real estate		9,600			12,939
Consumer loans:
Home equity		14,542			14,590
Consumer and installment		20,555			22,939
Consumer lines of credit		286			300
Total consumer loans		35,383			37,829
Total loans		135,037			160,653
Less:
Unamortized loan discount		(193	)		(231	)
Allowance for loan losses		(4,505	)		(4,549	)
Net deferred loan origination costs		152			146
Total, net	$	130,491		$	156,019
Weighted-average interest rate of loans		5.01	%		5.08	%

Information about impaired loans for the periods ended September 30, 2012 and December 31, 2011 is as follows (in thousands):

	September 30,		December 31,
	2012		2011
Loans receivable for which there is a related allowance for credit losses determined in accordance with ASC 310-10/Statement No. 114	$	10,336	$	1,923
Other impaired loans		17,889		25,550
Total impaired loans	$	28,225	$	27,473
Average monthly balance of impaired loans	$	29,013	$	29,916
Specific allowance for credit losses	$	1,786	$	439

10

Impaired Loans

For the Periods Ended September 30, 2012 and December 31, 2011

(in thousands)

September 30, 2012	Unpaid Principal  Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial
Commercial Real Estate	$	14,913	$	11,643	$	--	$	13,278
Commercial Non Real Estate		971		764		--		868
Consumer
Consumer – other		4,034		3,124		--		3,579
Consumer - home equity		784		756		--		770
Residential Real Estate
1-4 Family		1,692		1,601		--		1,646
With a related allowance recorded:
Commercial
Commercial Real Estate	$	6,583	$	6,410	$	1,067	$	6,496
Commercial Non Real Estate		1,355		1,205		54		1,280
Consumer
Consumer - other		2,267		2,254		546		2,261
Residential Real Estate
1-4 Family		537		467		119		502
Total:	$	33,136	$	28,225	$	1,786	$	30,306
Commercial		23,822		20,022		1,121		21,922
Consumer		7,085		6,135		546		6,611
Residential		2,229		2,068		119		2,148

11

December 31, 2011	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial
Commercial Real Estate	$	22,454	$	16,949	$	--	$	19,702
Commercial Non Real Estate		2,376		2,075		--		2,225
Consumer
Consumer - other		5,135		4,203		--		4,669
Consumer - home equity		511		491		--		501
Residential Real Estate
1-4 Family		1,891		1,832		--		1,862
With a related allowance recorded:
Commercial
Commercial Real Estate	$	1,564	$	1,403	$	306	$	1,483
Commercial Non Real Estate		282		281		60		282
Consumer
Consumer - other		239		239		73		239
Total:	$	34,452	$	27,473	$	439	$	30,963
Commercial		26,676		20,708		366		23,692
Consumer		5,885		4,933		73		5,409
Residential		1,891		1,832		--		1,862

At September 30, 2012 and December 31, 2011, loans which are accounted for on a non-accrual basis:

Loans Receivable on Non-accrual Status

As of September 30, 2012 and December 31, 2011

(in thousands)

	September 30,		December 31,
	2012		2011
Commercial
Commercial real estate	$	10,147	$	11,338
Commercial non real estate		1,238		1,340
Consumer
Consumer – other		2,445		2,536
Consumer – automobile		35		65
Consumer – home equity		623		307
Residential Real Estate
1-4 family		1,298		1,220
Total	$	15,786	$	16,806

12

Allowance for Loan Losses and Recorded Investment in Loans Receivable

(in thousands)

The following tables present the activity in the allowance for loan losses by portfolio segment as of September 30, 2012 and 2011.

				Commercial
	Commercial			Real Estate			Consumer			Residential			Total
September 30, 2012
Allowance for loan losses:
Beginning balance	$	1,887		$	1,920		$	484		$	258		$	4,549
Charge-offs		(82	)		(325	)		(363	)		(7	)		(777	)
Recoveries		5			90			4			4			103
Provisions		(202	)		--			692			140			630
Ending Balance	$	1,608		$	1,685		$	817		$	395		$	4,505
September 30, 2011
Allowance for loan losses:
Beginning balance	$	2,166		$	4,602		$	335		$	276		$	7,379
Charge-offs		(334	)		(3,217	)		(189	)		(3	)		(3,743	)
Recoveries		35			155			27			40			257
Provisions		--			182			186			(78	)		290
Ending Balance	$	1,867		$	1,722		$	359		$	235		$	4,183

The following tables present the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2012 and December 31, 2011.

			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2012
Allowance for loan losses:
Beginning balances attributable to loans
Individually evaluated for impairment	$	54	$	1,067	$	546	$	119	$	1,786
Collectively evaluated for impairment		1,554		618		271		276		2,719
Ending Balance	$	1,608	$	1,685	$	817	$	395	$	4,505
Loans receivable:
Ending balance – total	$	9,600	$	79,803	$	35,383	$	10,251	$	135,037
Ending balances:
Individually evaluated for impairment	$	1,969	$	18,053	$	6,135	$	2,068	$	28,225
Collectively evaluated for impairment	$	7,631	$	61,750	$	29,248	$	8,183	$	106,812

13

			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
December 31, 2011
Allowance for loan losses:
Beginning balances attributable to loans
Individually evaluated for impairment	$	60	$	306	$	73	$	--	$	439
Collectively evaluated for impairment		1,827		1,614		411		258		4,110
Ending Balance	$	1,887	$	1,920	$	484	$	258	$	4,549
Loans receivable:
Ending balance – total	$	12,939	$	97,547	$	37,829	$	12,338	$	160,653
Ending balances:
Individually evaluated for impairment	$	2,356	$	18,352	$	4,933	$	1,832	$	27,473
Collectively evaluated for impairment	$	10,583	$	79,195	$	32,896	$	10,506	$	133,180

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Credit Quality Indicators

As of September 30, 2012 and December 31, 2011

(in thousands)

Credit Quality Indicators: The Corporation regularly monitors the credit quality of its loan portfolio. Credit quality refers to the current and expected ability of borrowers to repay their obligations according to the contractual terms of such loans. Credit quality is evaluated through assignment of individual loan grades, as well as past-due and performing status analysis. Credit quality indicators allow the Corporation to assess the inherent loss on certain individual and pools of loans.

Commercial Credit Exposure (1)

Credit Risk Profile by Creditworthiness Category

	Commercial Non Real				Commercial Real
	Estate				Estate
	September 30,		December 31,		September 30,		December 31,
	2012		2011		2012		2011
Grade 1 Minimal Risk	$	63	$	51	$	--	$	--
Grade 2 Low Risk		--		223		--		--
Grade 3 Moderate Risk		86		363		7,354		9,242
Grade 4 Acceptable Risk		4,880		6,458		30,004		39,168
Grade 5 Watch		1,467		1,778		20,948		21,263
Grade 6 Special Mention		2,239		1,933		7,429		9,890
Grade 7 Substandard		770		1,926		12,818		17,984
Grade 8 Doubtful		95		206		1,250		--
Total	$	9,600	$	12,939	$	79,803	$	97,547

(1) Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

The Corporation uses an internal risk rating system to classify and monitor the credit quality of loans. Loan risk ratings are based on a graduated scale representing increasing likelihood of loss. Primary responsibility for the assignment of risk ratings of loans is with the individual loan officer assigned to each loan, subject of verification by the Credit Administration department. Risk ratings are also reviewed periodically by an independent third party loan review firm that reports directly to the Board of Directors.

Consumer Credit Exposure (1)

Credit Risk Profile by Internally Assigned Grade

	Residential				Consumer
	September 30,		December 31,		September 30,		December 31,
	2012		2011		2012		2011
Grade:
Pass	$	8,512	$	10,833	$	29,293	$	33,307
Special mention		632		243		2,043		480
Substandard		1,107		1,262		4,047		4,042
Total	$	10,251	$	12,338	$	35,383	$	37,829

(1) Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

Consumer Credit Exposure (1)

Credit Risk Profile Based on Payment Activity

	Consumer								Residential real estate
	Other				Automobile				Home equity				1-4 family
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2012		2011		2012		2011		2012		2011		2012		2011
Performing	$	17,578	$	19,760	$	783	$	878	$	13,919	$	14,282	$	8,953	$	11,118
Nonperforming		2,445		2,536		35		65		623		308		1,298		1,220
Total	$	20,023	$	22,296	$	818	$	943	$	14,542	$	14,590	$	10,251	$	12,338

(1) Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

15

Loans graded one through five are considered “pass” credits.  As of September 30, 2012, approximately 76% of the loan portfolio were considered pass credits.  For loans to qualify for these grades, they must be performing relatively close to expectations, with no significant departures from the intended source and timing of repayment.

Loans with a credit grade of six are not considered classified; however they are categorized as a special mention or watch list credit. This classification is utilized by us when we have an initial concern about the financial health of a borrower. These loans are designated as such in order to be monitored more closely than other credits in our portfolio. We then gather current financial information about the borrower and evaluate our current risk in the credit. We will then either reclassify the loan as “substandard” or back to its original risk rating after a review of the information. There are times when we may leave the loan on the watch list, if, in management’s opinion, there are risks that cannot be fully evaluated without the passage of time, and we determine to review the loan on a more regular basis. Loans on the watch list are not considered problem loans until they are determined by management to be classified as substandard. As of September 30, 2012, we had loans totaling $12.3 million rated as Special Mention.

Loans graded seven or greater are considered classified credits. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. The loan has well-defined weaknesses that jeopardize the liquidation value and has the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have the weaknesses of Substandard but have additional factors that make collection or liquidation in full highly questionable and improbable. At September 30, 2012, classified loans totaled $20.1 million, with all but one loan being collateralized by real estate. This compares to classified loans of $25.4 million at December 31, 2011.Classified credits are evaluated for impairment on a quarterly basis.

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The following are past due loans for the Corporation’s loans receivable for the periods ended September 30, 2012 and December 31, 2011(in thousands).

					Greater				90 days
	30 – 59 Days		60 – 89 Days		Than		Total Past		Past Due				Total Loans
	Past Due		Past Due		90 Days		Due		& Still Accruing		Current		Receivable
September 30, 2012
Commercial:
Commercial non real estate	$	36	$	--	$	643	$	679	$	--	$	8,921	$	9,600
Commercial real estate		437		91		7,522		8,050		--		71,753		79,803
Consumer:
Consumer – other		90		139		1,287		1,516		--		18,507		20,023
Consumer – automobile		11		8		6		25		--		793		818
Consumer – home equity		245		80		537		862		--		13,680		14,542
Residential 1-4 family		511		284		544		1,339		--		8,912		10,251
Total	$	1,330	$	602	$	10,539	$	12,471	$	--	$	122,566	$	135,037
December 31, 2011
Commercial:
Commercial non real estate	$	485	$	139	$	996	$	1,237	$	383	$	11,319	$	12,939
Commercial real estate		714		472		8,046		9,232		--		88,315		97,547
Consumer:
Consumer – other		422		69		2,052		2,543		--		19,753		22,296
Consumer – automobile		69		--		--		69		--		874		943
Consumer – home equity		408		47		182		578		59		13,953		14,590
Residential 1-4 family		482		--		675		1,157		--		11,181		12,338
Total	$	2,580	$	727	$	11,951	$	14,816	$	442	$	145,395	$	160,653

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Troubled Debt Restructurings

As a result of adopting the amendments in ASU 2011-02, the Corporation reassessed all restructurings that occurred on or after the beginning of the fiscal year of adoption (January 1, 2011) to determine whether they were considered troubled debt restructurings (TDRs) under the amended guidance. The Corporation 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 Corporation 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 September 30, 2012, the recorded investment in loans for which the allowance was previously measured under a general allowance methodology and are now impaired under ASC 310-10-35 was $2.8 million, and the allowance for loan losses associated with those loans, on the basis of a current evaluation of loss was $283,000. The following are loan modifications for the Corporation’s loans receivable for the three and nine month periods ended September 30, 2012.

	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
			Pre		Post				Pre		Post
			Modification		Modification				Modification		Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
Troubled Debt Restructurings	of New		Recorded		Recorded		of New		Recorded		Recorded
Added during current period	Contracts		Investment		Investment		Contracts		Investment		Investment
	(in thousands)						(in thousands)
Commercial:
Commercial non real estate		1	$	201	$	181		1	$	201	$	181
Commercial real estate		4		520		519		7		788		776
Consumer:
Consumer – other		10		1,128		1,127		17		1,891		1,890
Residential 1-4 family		--		--		--		1		1		1
Total		15	$	1,849	$	1,827		26	$	2,881	$	2,848

	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
			Post						Post
			Modification						Modification
	Number		Outstanding		Defaulted		Number		Outstanding		Defaulted
Troubled Debt Restructurings	of New		Recorded		Recorded		of New		Recorded		Recorded
Defaulted during the period	Contracts		Investment		Investment		Contracts		Investment		Investment
Added since June 30, 2011	(in thousands)						(in thousands)
Commercial:
Commercial non real estate		--	$	--	$	--		1	$	290	$	273
Commercial real estate		2		689		689		3		864		854
Consumer:
Consumer – other		1		70		70		1		70		70
Total		3	$	759	$	759		5	$	1,224	$	1,197

During the nine months ended September 30, 2012, the Corporation modified 26 loans that were considered to be troubled debt restructurings. We extended the terms for 13 of these loans and the interest rate was lowered for 9 of these loans. During the nine months ended September 30, 2012, the Corporation had 26 loans default that had previously been restructured, 3 of which went into default in the quarter and 7 of which went into default during the previous 12 months.

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5.           Contingencies and loan commitments

In the ordinary course of business, the Corporation enters into financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These instruments expose the Bank to credit risk in excess of the amount recognized on the balance sheet.

The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Total credit exposure at September 30, 2012 related to these items is summarized below:

Loan Commitments:	Contract Amount
Unused portions of loans and credit lines	$	15,390,000

Loan commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on management’s credit evaluation of the counter party. Collateral held is primarily residential and commercial property. Total loan commitments outstanding at September 30, 2012 consisted of fixed and adjustable rate loans at rates ranging from 4.5% to 6.5%.

6.           Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures

On July 18, 2006, the Corporation sponsored the creation of Provident Community Bancshares Capital Trust I (“Capital Trust I”). The Corporation is the owner of all of the common securities of Capital Trust I.  On July 21, 2006, Capital Trust I issued $4,000,000 in the form of floating/fixed rate capital securities through a pooled trust preferred securities offering.  The proceeds from this issuance, along with the Corporation’s $124,000 capital contribution for Capital Trust I’s common securities, were used to acquire $4,124,000 aggregate principal amount of the Corporation’s floating rate junior subordinated deferrable interest debentures due October 1, 2036 (the “Debentures”), which constitute the sole asset of Capital Trust I. The interest rate on the Debentures and the capital securities is variable and adjustable quarterly at 1.74% over the three-month LIBOR. The Corporation has, through the Trust Agreement establishing Capital Trust I, the Guarantee Agreement, the notes and the related Debenture, taken together, fully irrevocably and unconditionally guaranteed all of the Capital Trust I obligations under the capital securities.

On November 28, 2006, the Corporation sponsored the creation of Provident Community Bancshares Capital Trust II (“Capital Trust II”). The Corporation is the owner of all of the common securities of Capital Trust II. On December 15, 2006, Capital Trust II issued $8,000,000 in the form of floating rate capital securities through a pooled trust preferred securities offering. The proceeds of Capital Trust II were utilized for the redemption of Union Financial Bancshares Statutory Trust (the “Trust”) issued on December 18, 2001. The proceeds from this issuance, along with the Corporation’s $247,000 capital contribution for Capital Trust’s II common securities, were used to acquire $8,247,000 aggregate principal amount of the Corporation’s floating rate junior subordinated deferrable interest debentures due March 1, 2037 (the “Debentures”), which constitute the sole asset of  Capital Trust II.  The interest rate on the Debentures and the capital securities is variable and adjustable quarterly at 1.74% over the three-month LIBOR. The Corporation has, through the Trust agreement establishing Capital Trust II, the Guarantee Agreement, the notes and the related Debenture, taken together, fully irrevocably and unconditionally guaranteed all of Capital Trust II obligations under the capital securities.

19

A summary of the Subordinated Deferrable Interest Debentures issued and outstanding follows:

	Amount Outstanding at September 30,
Name	2012		2011		Rate			Maturity	Distribution Payment Frequency
Provident Community  Bancshares Capital Trust I	$	4,000,000	$	4,000,000		2.21	%	October 1, 2036	Quarterly
Provident Community  Bancshares Capital Trust II		8,000,000		8,000,000		2.21	%	March 1, 2037	Quarterly
Total	$	12,000,000	$	12,000,000

The above debentures are subject to redemption at par at the option of the Corporation, subject to prior regulatory approval, in whole or in part on any interest payment date.

The Corporation exercised its right on July 22, 2010 to defer the payment of interest on its outstanding subordinated debentures for an indefinite period (which can be no longer than 20 consecutive quarterly periods). Further, pursuant to a written agreement between the Corporation and the Federal Reserve, the Corporation cannot pay any dividends on its subordinated debentures without the prior written consent of the Federal Reserve Bank. This and any future deferred distributions will continue to accrue interest at a current rate of  LIBOR+1.74% for the $4.0 million of trust preferred securities issued in July 2006 and at a current rate of LIBOR+1.74% for the $8.0 million of trust preferred securities issued in December 2006. Distributions on the trust preferred securities are cumulative. Therefore, in accordance with generally accepted accounting principles, the Corporation will continue to accrue the monthly cost of the trust preferred securities as it has since issuance.

7.           Fair Value of Financial Instruments

The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Effective January 1, 2008, the Corporation adopted FASB 157 (ASC 820-10-15), Fair Value Measurements, which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. This standard 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).

Fair Value Hierarchy

ASC 820-10-15 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10-15  also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

20

Level 1	Valuation is based upon quoted prices in active markets for identical assets or liabilities.
Level 2	Valuation is based upon 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 3	Valuation is based upon quoted prices for similar assets or liabilities; quoted prices in markets that are not active; and model-based techniques whose value is determined using pricing models, discounted cash flow methodologies and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available-for-Sale

Available-for-sale investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 may include asset-backed securities in less liquid markets.

Loans

The Corporation is predominantly an asset based lender with real estate serving as collateral on a substantial majority of loans. The Corporation does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and the related impairment is charged against the allowance or a specific allowance is established. The Corporation performs its allowance for loan and lease losses calculation on a quarterly basis, which also includes an evaluation of all non-performing loans for further impairment even if a new appraisal is not obtained on a quarterly basis. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Loans which are deemed to be impaired are primarily valued at the fair values of the underlying real estate collateral. Such fair values are obtained using collateral net liquidation value, market value of similar debt, enterprise value, and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of the expected repayment or collateral meet or exceed the recorded investment in such loans. The Corporation considers all non-accrual loans and troubled debt restructurings to be impaired. When the fair value of the collateral is based on an observable market price or a current appraised value, the Corporation records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Corporation records the impaired loans as nonrecurring Level 3. Certain assumptions and unobservable inputs are currently being used by appraisers, therefore qualifying impaired loans as Level 3. Consistent with the regulator’s appraisal guidance dated December 10, 2010, the Corporation has adopted a loan reappraisal policy.  The regulatory guidance states that a bank should establish criteria for assessing whether an existing appraisal or evaluation continues to reflect the market value of the property.  Generally, impaired loans will be evaluated using an existing appraisal if the valuation has been established within the previous twelve months. However, market conditions may dictate an updated appraisal for a lesser timeframe. Factors include deterioration in the credit since origination or changes in market conditions. Changes in market conditions could include material changes in current and projected vacancy, absorption rates, lease terms, rental rates, and sale prices, including concessions and overruns and delays in construction costs.  Fluctuations in discount or direct capitalization rates also are indicators of changing market conditions. In assessing whether changes in market conditions are material, the Bank  considers the individual and aggregate effect of these changes on its collateral protection and the risk in its real estate lending program or credit portfolios.

21

Real Estate Acquired Through Foreclosure

Other real estate owned (“OREO”) is adjusted to fair value upon transfer of the loans to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. Certain assumptions and unobservable inputs are currently being used by appraisers, therefore qualifying these assets as Level 3.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present the balances of assets recorded at fair value on a recurring basis by level within the hierarchy as of September 30, 2012 and December 31, 2011 (in thousands).

			Quoted Prices in		Significant Other		Significant
	Total		Active Markets for		Observable		Unobservable
	September 30,		Identical Assets		Inputs		Inputs
	2012		(Level 1)		(Level 2)		(Level 3)
Investment Securities:
Government Sponsored Enterprises	$	107,588	$	107,588	$	--	$	--
Trust Preferred Securities		4,308		--		2,801		1,507
Total Investment Securities		111,896		107,588		2,801		1,507
Mortgage-Backed and       Related Securities		55,582		--		55,582		--
Total	$	167,478	$	107,588	$	58,383	$	1,507

			Quoted Prices in		Significant Other		Significant
	Total		Active Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
	2011		(Level 1)		(Level 2)		(Level 3)
Investment Securities:
U.S. Agency Obligations	$	1	$	1	$	--	$	--
Government Sponsored Enterprises		87,538		87,538		--		--
Trust Preferred Securities		4,205		--		2,750		1,455
Total Investment Securities		91,744		87,539		2,750		1,455
Mortgage-Backed and       Related Securities		74,134		--		74,134		--
Total	$	165,878	$	87,539	$	76,884	$	1,455

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The following is a reconciliation of the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period ended September 30, 2012.

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	(in thousands)
Investment Securities	Available-for-Sale
Beginning balance at June 30, 2012	$	1,521
Transfers into Level 3		--
Total gains/ (losses) included in:
Net loss		--
Other comprehensive income		27
Purchases, sales, issuances and settlements, net		(41	)
Ending balance at September 30, 2012	$	1,507
	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	(in thousands)
Investment Securities	Available-for-Sale
Beginning balance at December 31, 2011	$	1,455
Transfers into Level 3		--
Total gains/ (losses) included in:
Net loss		--
Other comprehensive income		90
Purchases, sales, issuances and settlements, net		(38	)
Ending balance at September 30, 2012	$	1,507

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Corporation may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period and assumes all non-performing assets have specific reserves or have been written down to fair value.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2012, the significant unobservable inputs used in the fair value measurements were as follows: (in thousands)

				Significant	Significant
	Fair Value at		Valuation	Unobservable	Unobservable
	September 30, 2012		Technique	Inputs	InputValue
Non-performing Loans	$	14,000	Appraised Value/	Appraisals and/or sales of		n/a
			Discounted Cash Flows/	comparable properties/
			Market Value of the Note	Independent quotes
OREO		9,620	Appraised Value/	Appraisals and/or sales of		n/a
			Comparable Sales/	comparable properties/
			Other Estimates from	Independent quotes/bids
			Independent Sources
Total assets at fair value	$	23,620

23

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2011, the significant unobservable inputs used in the fair value measurements were as follows: (in thousands)

				Significant	Significant
	Fair Value at		Valuation	Unobservable	Unobservable
	December 31, 2011		Technique	Inputs	InputValue
Impaired loans	$	16,367	Appraised Value/	Appraisals and/or sales of		n/a
			Discounted Cash Flows/	comparable properties/
			Market Value of the Note	Independent quotes
OREO		8,398	Appraised Value/	Appraisals and/or sales of		n/a
			Comparable Sales/	comparable properties/
			Other Estimates from	Independent quotes/bids
			Independent Sources
Total assets at fair value	$	24,765

Level 3 Valuation Methodologies. Following is a description of the unobservable inputs used for Level 3 fair value measurements.

Impaired Loans. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Loans which are deemed to be impaired are primarily valued at the fair values of the underlying real estate collateral. Such fair values are obtained using collateral net liquidation value, market value of similar debt, enterprise value, and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of the expected repayment or collateral meet or exceed the recorded investment in such loans. The Corporation considers all non-accrual loans and troubled debt restructurings to be impaired. When the fair value of the collateral is based on an observable market price or a current appraised value, the Corporation records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Corporation records the impaired loans as nonrecurring Level 3. Certain assumptions and unobservable inputs are currently being used by appraisers, therefore qualifying impaired loans as Level 3. Impaired loan totals represent non-performing loans for the periods indicated.

Real Estate Acquired Through Foreclosure. OREO is adjusted to fair value upon transfer of the loans to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. Certain assumptions and unobservable inputs are currently being used by appraisers, therefore qualifying these assets as Level 3.

Investment Securities: Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 may include asset-backed securities in less liquid markets.

The following methods and assumptions were used by the Corporation in estimating fair values of financial instruments as disclosed herein:

Cash and federal funds sold- The carrying amounts of cash and due from banks and federal funds sold approximate their fair value.

Available for sale and held to maturity securities - Fair values for securities are based on quoted market prices. The carrying values of restricted equity securities approximate fair values.If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.

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Loans - The Corporation is predominantly an asset based lender with real estate serving as collateral on a substantial majority of loans. The Corporation does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and the related impairment is charged against the allowance or a specific allowance is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Loans which are deemed to be impaired are primarily valued at the fair values of the underlying real estate collateral. Such fair values are obtained using collateral net liquidation value, market value of similar debt, enterprise value, and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of the expected repayment or collateral meet or exceed the recorded investment in such loans. The Corporation considers all non-accrual loans and troubled debt restructurings to be impaired.

Cash surrender value of life insurance - The carrying amounts of cash surrender values of life insurance approximate their fair value.

Deposit liabilities - The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money-market accounts and certificates of deposit (CDs) approximate their fair values at the reporting date. Fair values for fixed-rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Advances from the Federal Home Loan Bank (“FHLB”) and other borrowings - The fair values of the Corporation’s borrowings are estimated using discounted cash flow analysis based on the Corporation’s current incremental borrowing rates for similar types of borrowing arrangements.

Securities sold under agreements to repurchase - The fair values of the Corporation’s repurchase agreements are estimated using discounted cash flow analysis based on the Corporation’s current incremental borrowing rates for similar types of borrowing arrangements.

Accrued interest - The carrying amounts of accrued interest approximate their fair values.

Floating rate junior subordinated deferrable interest debentures - The fair values of the Corporation’s floating rate debentures are estimated using discounted cash flow analysis based on the Corporation’s current incremental borrowing rates for similar types of borrowing arrangements.

Off-balance-sheet instruments - Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter parties’ credit standings.

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The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of September 30, 2012 and December 31, 2011.  This table excludes financial instruments for which the carrying amount approximates fair value.  For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization.  For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

					Fair Value Measurements
					Quoted
					Prices in
					Active Markets		Significant
					for Identical		Other		Significant
					Assets or		Observable		Unobservable
	Carrying				Liabilities		Inputs		Inputs
(dollars in thousands)	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2012
Financial Instruments - Assets
Cash and cash equivalents	$	27,551	$	27,551	$	27,551	$	--	$	--
Loans		130,491		131,483		--		--		131,483
Financial Instruments – Liabilities
Time deposits	$	117,934	$	118,335	$	-	$	118,335	$	--
Securities sold under agreements
to repurchase		6,057		6,057		--		6,057		--
Subordinated debentures		12,372		12,372		--		12,372		--
December 31, 2011
Financial Instruments - Assets
Cash and cash equivalents	$	23,893	$	23,893	$	23,893	$	--	$	--
Loans		156,019		161,219		--		--		161,219
Financial Instruments – Liabilities
Time deposits	$	124,877	$	125,404	$	--	$	125,404	$	--
Securities sold under agreements
to repurchase		5,268		5,268		--		5,268		--
Subordinated debentures		12,372		12,372		--		12,372		--

8.           Preferred Stock

On March 13, 2009, as part of the Capital Purchase Program of the Troubled Asset Relief Program (“TARP”) United States Department of the Treasury’s Capital Purchase Program, the Corporation issued 9,266 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, $1,000 per share liquidation preference (“TARP Preferred Stock”), and a warrant to purchase up to 178,880 shares of the Corporation’s common stock for a period of ten years at an exercise price of $7.77 per share, in exchange for $9.3 million in cash from the United States Department of the Treasury. The proceeds, net of issuance costs consisting primarily of legal fees, were allocated between the preferred stock and the warrant on a pro rata basis, based upon the estimated market values of the preferred stock and the warrant. As a result, $25,000 of the proceeds were allocated to the warrant, which increased additional paid-in-capital from common stock.  The amount allocated to the warrant is considered a discount on the preferred stock and will be amortized using the level yield method over a five-year period through a charge to retained earnings.  Such amortization will not reduce net income, but will reduce income available for common shares.

The Corporation may redeem the preferred stock at its liquidation preference plus accrued and unpaid dividends at any time with prior regulatory approval.

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Under the terms of the TARP Preferred Stock, the Corporation is required to pay on a quarterly basis a dividend rate of 5% per year for the first five years, after which the dividend rate automatically increases to 9% per year.  Dividend payments may be deferred, but the dividend is cumulative and failure to pay dividends for six dividend periods would trigger board appointment rights for the holder of the TARP Preferred Stock. The Corporation exercised its right on July 22, 2010 to defer its regular quarterly cash dividend on its TARP Preferred Stock. Total deferred dividends to date is $1 million. No action has been taken by the holder of the TARP Preferred Stock regarding board appointments.

9. Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through the date the financial statements were issued and no subsequent events have occurred requiring accrual or disclosure.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

The Corporation has adopted various accounting policies which govern the application of accounting principles generally accepted in the United States of America in the preparation of financial statements.

Certain accounting policies involve significant judgments and assumptions by management. 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 which could have a material impact on the carrying values of assets and liabilities and the results of operations of the Corporation.

The Corporation’s critical accounting policies are listed below:

Allowance for Loan Losses

We consider our accounting policies related to the allowance for loan losses to be critical, as these policies involve considerable subjective judgment and estimation by management. The allowance for loan losses is established through a provision for loan losses charged to expense. Our allowance for loan losses methodology is based on historical loss experience by loan type, specific homogeneous risk pools, and specific loss allocations. Our process for determining the appropriate level of the allowance for losses is designed to account for asset deterioration as it occurs. The provision for loan losses reflects loan quality trends, including the levels of and trends related to non-accrual loans, potential problem loans, criticized loans, and loans charged-off or recovered, among other factors.

The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectability of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and size of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower’s ability to pay. The evaluation also includes a component for expected losses on groups of loans that are related to future events or expected changes in economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses, and may require the Corporation to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

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The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as either impaired, substandard or special mention. For such loans that are also accounted for as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.  An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

The general allocated segment for loan loss calculation includes a stratification of loan categories subdivided by residential mortgage, commercial, commercial real estate and consumer loans. These stratifications are further divided into individual segments by call report groupings. The portfolio is segregated into risk-similar segments for which historical loss ratios are calculated and adjusted for identified changes in current portfolio characteristics. The allowance for each portfolio segment is developed from a combination of factors that reflects management’s best judgment of the extent to which environmental factors, current trends and historical loss levels are accurate indicators of current losses in the portfolio. Each category is rated for all loans including pass rated groups, special mention loans, and adversely classified non-impaired credits. The weights assigned to each performing group is developed from previous loan loss experience and as the loss experience changes, the category weight is adjusted accordingly. In addition, as the amount of loans in each category increases and decreases, the provision for loan loss calculation adjusts accordingly. Recovery of the carrying value of loans is dependent to some extent on the future economic environment and operating and other conditions that may be beyond the Corporation’s control.  Unanticipated future adverse changes in such conditions could result in material adjustments to the allowance (and future results of operation).

Loans are placed on non-accrual status depending upon the type of loan, the past due status, and the collections activities in progress. Well-secured loans, in the process of collection, remain on an accrual basis until they become 90 days past due. Partially secured loans are written down to the collateral value and placed on non-accrual status on or before becoming 90 days past due. Unsecured commercial loans are charged off on or before the date they become 90 days past due. Consumer loans are charged off or written down to the fair value of collateral on or before becoming 90 days past due. A past due loan may not be considered impaired if it is expected the delay in payment is minimal. Interest payments are applied to the principal balance on non-accrual loans.

All interest accrued but not collected for loans that are placed on non-accrual status or charged off are reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

A loan is considered impaired when, in management’s judgment, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines when loans become impaired through its normal loan administration and review functions. Loans identified as non-accrual are potentially impaired loans. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired, provided that management expects to collect all amounts due, including interest accrued at the contractual interest rate for the period of delay. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for loss and a general reserve is established accordingly.

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We review each impaired loan on a loan-by-loan basis to determine whether the impairment should be recorded as a charge-off or a reserve based on our assessment of the status of the borrower and the underlying collateral. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical matter, at the loan's observable market value or fair value of the collateral less cost to sell if the loan is collateral dependent. If the resulting value of the impaired non-collateral dependent loan is less than the recorded balance, the impairment must be recognized by creating a valuation allowance for the difference and recognizing a corresponding bad debt expense. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.  The risk characteristics used to aggregate loans are collateral type, borrower’s financial condition and geographic location. Impairment of a collateral dependent loan is immediately charged-off against the allowance for loan and lease losses unless the fair value was based on an internal valuation pending receipt of a third party appraisal or other extenuating circumstances. Consumer loans are charged-off generally based on pre-defined past due periods.

Fair Value Measurements

A number of valuation techniques are used to determine the fair value of assets and liabilities in our financial statements.  These include quoted market prices for securities, interest rate valuations based on the modeling of termination values adjusted for credit spreads with counterparties, and appraisals of real estate from independent licensed appraisers, among other valuation techniques.  Fair value measures for assets and liabilities where there exists limited or no observable market data are based primarily on estimates, and are often calculated based on the economic and competitive environment, the characteristics of the asset or liability, and other factors.  Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there are inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.  Significant changes in the aggregate fair value of assets or liabilities required to be measured at fair value or for impairment will be recognized in the statement of operations.

Other-Than-Temporary Impairment

The evaluation and recognition of other-than-temporary impairment ("OTTI") on certain investments including our private label mortgage-backed securities and other corporate debt security holdings requires significant judgment and estimates. Some of the more critical judgments supporting the evaluation of OTTI include projected cash flows including prepayment assumptions, default rates and severities of losses on the underlying collateral within the security.

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Income Taxes

Some of the more critical judgments supporting the deferred tax asset amount include judgments about the recovery of these accrued tax benefits.  Deferred income tax assets are recorded to reflect the tax effect of the difference between the book and tax basis of assets and liabilities.  These differences result in future deductible amounts that are dependent on the generation of future taxable income through operations or the execution of tax planning strategies. Due to the doubt of our ability to utilize the portion of the deferred tax asset that is not able to be offset against net operating loss carry backs and reversals of future taxable temporary differences projected to occur, in December, 2011, management established a valuation allowance in the amount of $816,000 for the portion of the net deferred tax asset that is not recoverable through loss carry-backs.

Forward Looking Statements

Management’s discussion and analysis of financial condition and results of operations and other portions of this Form 10-Q may contain certain “forward-looking statements” concerning the future operations, plans or strategies of the Corporation and the Bank. These forward-looking statements are generally identified by the use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions. Management intends to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this statement for the express purpose of availing the Corporation of the protections of such safe harbor with respect to all forward-looking statements contained in this report. Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include interest rate trends, the general economic climate in the Corporation’s and the Bank’s market area and the country as a whole, real estate values in the Bank’s market area, the ability of the Corporation and the Bank to control costs and expenses, competitive products and pricing and the demand for such products, loan delinquency rates, the quality and composition of the loan and investment portfolios, changes in accounting principles and guidelines and changes in federal and state laws and regulations. The Corporation provides greater detail regarding some of these factors in its Form 10-K for the year ended December 31, 2011, including in the Risk Factors section of that report, and in its other SEC reports. These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements.

Except as required by applicable law or regulation, the Corporation does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward looking statements to reflect events or circumstances after the date of these statements or to reflect the occurrence of anticipated or unanticipated events.

Financial Condition

Assets

Assets decreased $22.2 million, or 5.9%, to $354.4 million at September 30, 2012 from $376.6 million at December 31, 2011. The largest decrease in assets was the reduction in net loans, whichdecreased $25.5 million from December 31, 2011 to September 30, 2012, due primarily to a significant reduction in loan demand as a result of economic conditions in South Carolina and more stringent underwriting standards. Investment securities at September 30, 2012 increased $1.6 million, or 1.0%, to $167.5 million from $165.9 million at December 31, 2011, primarily due to a decrease in mortgage-backed securities, offset by an increase in securities of government sponsored enterprises. Federal funds sold at September 30, 2012 increased $5.3 million to $20.0 million from $14.8 million at December 31, 2011 as a result of funds invested with proceeds from sales and maturities of securities and loan payments.

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The Corporation uses the investment securities portfolio for several purposes. It serves as a vehicle to manage interest rate and prepayment risk, to generate interest and dividend income from investment of funds, to provide liquidity to meet funding requirements, and to provide collateral for pledges on public funds and FHLB borrowings. The average yield on investments at September 30, 2012 was 2.19% compared to 2.14% at December 31, 2011.

The carrying values of the investment securities at September 30, 2012 and December 31, 2011 and percentage of each category to total investments are as follows: (dollars in thousands)

	September 30, 2012					December 31, 2011
	Fair Value		Percent of Portfolio			Fair Value		Percent of Portfolio
Available for sale:
Investment Securities:
U.S. Agency Obligations	$	--		-	%	$	1		0.01	%
Government Sponsored Enterprises		107,588		64.24			87,538		52.77
Trust Preferred Securities		4,308		2.57			4,205		2.53
Total Investment Securities		111,896		66.81			91,744		55.31
Mortgage-Backed Securities		55,582		33.19			74,134		44.69
Total	$	167,478		100.00	%	$	165,878		100.00	%

The Corporation accounts for investment securities in accordance with FASB ASC Topic 320: Investments in Debt and Equity Securities. In accordance with FASB ASC Topic 320, debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as “held to maturity” securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling in the near term are classified as “trading” securities and reported at fair value, with unrealized gains and losses included in earnings.  Debt and equity securities not classified as either held to maturity or trading securities are classified as “available for sale” securities and reported at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity. All securities were classified as available for sale at September 30, 2012.

Purchases and sales of securities are accounted for on a settlement date basis. Premiums and discounts on debt securities are amortized or accreted as adjustments to income over the estimated life of the security using a method approximating the level yield method. Gains or losses on the sale of securities are based on the specific identification method. The fair value of securities is based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

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The amortized cost and fair value of investment securities are summarized as follows:

Available for Sale - Securities classified as available for sale consisted of the following (in thousands):

	As of September 30, 2012
			Gross Unrealized
	Amortized Cost		Gains		Losses			Fair Value
Investment Securities:
Government Sponsored Enterprises	$	107,025	$	564	$	(1	)	$	107,588
Trust Preferred Securities		6,340		–		(2,032	)		4,308
Total Investment Securities		113,365		564		(2,033	)		111,896
Mortgage-Backed Securities:
Fannie Mae		15,847		163		(13	)		15,997
Ginnie Mae		24,691		857		(34	)		25,514
Freddie Mac		13,410		337		(--	)		13,747
Collateralized Mortgage Obligations		320		4		(--	)		324
Total Mortgage-Backed Securities		54,268		1,361		(47	)		55,582
Total Available for Sale	$	167,633	$	1,925	$	(2,080	)	$	167,478

	As of December 31, 2011
			Gross Unrealized
	Amortized Cost		Gains		Losses			Fair Value
Investment Securities:
U.S. Agency Obligations	$	1	$	--	$	--		$	1
Government Sponsored Enterprises		87,295		259		(16	)		87,538
Trust Preferred Securities		6,378		--		(2,173	)		4,205
Total Investment Securities		93,674		259		(2,189	)		91,744
Mortgage-Backed Securities:
Fannie Mae		17,609		250		(5	)		17,854
Ginnie Mae		29,854		868		(52	)		30,670
Freddie Mac		24,966		305		(13	)		25,258
Collateralized Mortgage Obligations		370		--		(18	)		352
Total Mortgage-Backed Securities		72,799		1,423		(88	)		74,134
Total Available for Sale	$	166,473	$	1,682	$	(2,277	)	$	165,878

The maturities of securities at September 30, 2012 are as follows (in thousands):

	Available for Sale
	Amortized Cost		Fair Value
Due in one year or less	$	2,000	$	2,002
Due after one year through five years		11		11
Due after five years through ten years		30,423		30,603
Due after ten years		135,199		134,862
Total Investment and Mortgage-Backed Securities	$	167,633	$	167,478

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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, 2012 (in thousands).

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for Sale
Government Sponsored Enterprises	$	2,499	$	1	$	–	$	–	$	2,499	$	1
Trust Preferred Securities		–		–		4,308		2,032		4,308		2,032
Mortgage-Backed    Securities		5,239		13		2,359		34		7,598		47
Total	$	7,738	$	14	$	6,667	$	2,066	$	14,405	$	2,080

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, 2011 (in thousands).

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for Sale
Government Sponsored Enterprises	$	17,440	$	16	$	–	$	–	$	17,440	$	16
Trust Preferred Securities		–		–		4,205		2,173		4,205		2,173
Mortgage-Backed    Securities		9,617		70		377		18		9,994		88
Total	$	27,057	$	86	$	4,582	$	2,191	$	31,639	$	2,277

Management reviews securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. The Corporation reviews several items in determining whether its trust preferred securities are other than temporarily impaired.  These items include a valuation of the securities; an analysis of cash flows following the guidance in ASC 320-10-35 to measure credit loss for OTTI purposes; a stress analysis; a summary of deferrals and defaults of the individual issues in the pool; and information regarding the issuers in the pool.  A detailed description of each of these items of evidence is provided below.

Valuation of Securities – The first item reviewed is the fair market value of the security.  If the security is in an unrealized loss position, the Corporation proceeds to analyze the security for other than temporary impairment (“OTTI”) based on the following items.  The pricing of securities is performed by a third party and is considered Level III pricing.

Cash flow analysis – A cash flow analysis following the guidance in ASC 320-10-35 is the primary evidence utilized in determining whether there is a credit-related issue with respect to the security. The basic methodology is to calculate the present value of the cash flows using a current effective yield. This calculation uses assumptions for default rates, prepayment speeds and discount rates. We have used 0% as assumed prepayment rates, default rates ranging from 1.2% to 3.6% and discount rates ranging from 100 basis points to 300 basis points. In conjunction with the process of determining the key assumptions, the Corporation also reviews the key financial information on the underlying issuers that are the collateral for the investment securities. The result of these analyses are used to determine estimates of default rates and also to provide additional information for consideration in determining the reasonableness of assumed prepayment rates. ASC 320-10-35 is used to measure credit loss for OTTI purposes. The change in the expected cash flows is reviewed to determine if OTTI should be recorded. The result calculated for the current quarter is then compared to the previous quarter's book value to determine if the change is “adverse.” The credit component of any impairment should be the difference between the book value and the projected present value for the current quarter.

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The analysis is based on cash flow and utilizes a number of assumptions relating to credit and prepayment.  There are 9 scenarios available within three deal cash flow assumption categories (prepays constant, no prepays, prepays constant utilizing select years and defaults over 5 years and constant thereafter).  Each of these scenarios includes different prepayment assumptions and defaults at various levels in addition to projection of recoveries, if applicable, with a two-year lag.  Scenarios in each category range from a base to worse case in addition to two analyses that project defaults over the course of the following year on a quarterly basis and annually thereafter.

Stress Analysis– The Corporation obtains a stress analysis report of each security.  This report provides a snapshot of the immediate deferrals/defaults that a given pool and tranche/class can withstand before causing either a break in yield or temporary interest shortfall position.  There are various assumptions utilized in this report with respect to prepayments, deferrals/defaults, and recovery rates.

● Break in Yield – This is the level of deferrals/defaults the tranche could experience before the tranche would not receive all of its contractual cash flows (principal and interest) by maturity (not just a temporary interest shortfall but an actual loss in yield on the investment).  In other words, a break in yield occurs when the magnitude of the deferrals/defaults has depleted all of the credit enhancement (excess interest and over-collateralization) beneath the given tranche.

● Temporary Interest Shortfall– A temporary interest shortfall is caused by an amount of deferrals/defaults high enough such that there is insufficient cash flow available to pay current interest on the given tranche or by breaching the principal coverage test of the tranche immediately senior to the given tranche.  Principal coverage tests are set up to protect the Senior and Mezzanine Notes from credit events, providing the most credit protection to the Class A-1 Senior Notes, then to the Class A-2 Senior Notes, then to the Class B notes and so on. Cash flow is diverted from the lowest tranches first then from the successively higher tranches as necessary.

The existence of a break in yield or a temporary interest shortfall is an initial indication that OTTI may exist.

Deferral/Default Summary – The Corporation reviews a report that contains current information for individual issues to determine the extent of deferrals and/or defaults, the status of any issuers in the pool, and the impact to the tranche owned by the Corporation. This report lists the issue (i.e., the pool/deal), the amount of deferrals/defaults related to the issue, the issuer that has deferred/defaulted, and the percentage of total current collateral this represents.  Additionally, the report provides the status of the amount in question (i.e. whether it is cured, purchased, in default, or deferred), the projected senior and mezzanine note status for the next payment date, the projected income note status for the next payment date and the next bond payment date. The Corporation compares the information in this report to the assumptions used in the cash flow analysis to ensure that deferral and defaults are correctly reflected in the cash flow analysis.

Issuer Lists –A report listing all of the companies in the pool, along with other relevant information such as organization type (mutual vs. stock), primary geographic location (state), rating, issue amount, years in business and principal line of business. The Corporation reviews the issuer lists for the individual pools held by the Corporation to gain better insight as to the underlying companies, the specific credit characteristics of the collateral underlying each individual security, and to determine risks associated with any concentrations with respect to issue amounts or lines of business.

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To determine impairment charges for the Corporation’s collateralized debt obligations (“CDO”), we performed discounted cash flow valuations through a static default model test. The model used assumed a 3.6% default rate, which is three times the historic default rates for all collateralized debt obligations (“CDO”), a 0% recovery on all banks in deferral of interest payments and a 0% prepayment rate. Cash flow valuations with a premium mark up of 300 basis points were also used to determine the fair market values of the Corporation’s collateralized debt obligations. All of the Corporation’s pooled trust preferred securities have the same terms, which is that the securities cannot be redeemed for five years and then can be called quarterly thereafter.  All of the securities are past the five-year no-call period. Valuation documentation for the cash flow analysis is provided by an independent third party.

Amounts in the following table are in thousands.

Security Name	Single/ Pooled	Class Tranche	Amortized Cost		Fair Value		Unrealized Loss			Credit Portion		Other		YTD OTTI Total		Life to Date OTTI Total
Alesco II	Pooled	B-1	$	1,161	$	1,027	$	134		$	--	$	--	$	--	$	1,423
MM Com III	Pooled	B		528		364		164			--		--		--		68
PreTSL  IV	Pooled	Mezz		152		105		47			--		--		--		--
PreTSL X	Pooled	B-2		499		10		489	*		--		--		--		1,062
Total			$	2,340	$	1,507	$	834		$	--	$	--	$	--	$	2,553

*This security was sold on October 3, 2012 for $504,000, resulting in a gain of $5,000. Delinquent interest in the pool was brought current, thereby, increasing the fair market value after quarter end.

OTTI-Other Than Temporary Impairment

	Lowest Rating (1)	% of Current  Performing			% Deferrals/ Defaults (2)			High			Low			Discount Margin (3)
Alesco II	C		82.64	%		17.36	%		1.20	%		0.40	%		4.65	%
MM Com III	CC		58.89	%		41.11	%		1.20	%		0.40	%		5.05	%
PreTSL IV	CCC		72.93	%		27.07	%		1.50	%		0.75	%		2.25	%
PreTSL X	C		61.76	%		38.24	%		1.50	%		0.75	%		1.70	%

Notes to table above:

(1) Credit Ratings represent Moody’s and Fitch ratings (S&P does not rate this security)

(2) The ratio represents the amount of underlying trust preferred collateral not currently making dividend payments. Fewer deferrals/defaults produce a lower ratio.

(3) Fair market value discount margin to LIBOR

For the period ended September, 30, 2012, the Corporation did not experience a credit-related other-than-temporary impairment on the pooled trust preferred securities portfolio but we have recorded a $2.6 million loss cumulatively since 2008 in this portfolio. All of these securities are in the Corporation’s available for sale portfolio. The previous impairment costs were charged to earnings in non-interest income as “Other-than-temporary-impairment write-down on securities”. The total securities impacted by credit-related other-than-temporary impairment have a current carrying value of $1.5 million and represent approximately 0.92% of available for sale securities. The Corporation does not intend to sell these securities and it is more likely than not that the Corporation will not be required to sell these securities before recovery of their amortized cost. Management continues to monitor these securities with a high degree of scrutiny. The Corporation may conclude in future periods that conditions existing at that time indicate some or all of the securities may be sold or are other-than-temporarily impaired, which would require a charge to earnings in such periods.

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Loans

Net loans decreased to $130.5 million at September 30, 2012 compared to $156.0 million at December 31, 2011. The decrease was due to a significant reduction in loan demand as a result of economic conditions in South Carolina and more conservative underwriting standards. Consumer loans decreased $2.4 million, or 6.5%, commercial loans, primarily lines of credit, and commercial real estate loans decreased $21.1 million, or 19.1%, and residential mortgage loans decreased $1.8 million, or 14.8%, for the period ended September 30, 2012.

The following table sets forth information with respect to the Bank’s non-performing assets at the dates indicated (dollars in thousands):

	September 30, 2012			December 31, 2011
Non-accruing loans which are
contractually past due 90 days or more
Residential real estate	$	1,298		$	1,220
Commercial		11,385			12,678
Consumer		3,103			2,908
Total non-accrual loans		15,786			16,806
Loans past due 90 days
and still accruing interest		--			442
Troubled debt restructurings (1)		8,071			8,486
Real estate acquired through
Foreclosure		9,620			8,398
Total non-performing assets	$	33,477		$	34,132
Non-performing loans to total loans, net		12.10	%		10.77	%
Non-performing assets to total assets		9.44	%		9.06	%
Allowance for loan losses to total
loans outstanding		3.34	%		2.83	%
Allowance for loan losses to
problem assets		18.88	%		17.68	%
Allowance for loan losses	$	4,505		$	4,549

(1) Not  included in non-accrual loans. Also known as accruing troubled debt restructurings.

Loans classified as impaired generally will be non-performing loans, and the accrual of interest is discontinued at the time the loan is 90 days delinquent. Non-performing assets decreased $655,000 to $33.5 million at September 30, 2012, or 9.4% of total assets, as compared to $34.1 million or 9.1% of total assets at December 31, 2011. These assets are primarily supported by commercial real estate and are currently being carried at management’s best estimate of net realizable value, although further losses may be incurred on loans until the collateral has been acquired and liquidated or other arrangements can be made.

Interest income that would have been recorded for the nine months ended September 30, 2012 had non-accruing loans been current in accordance with their original terms amounted to approximately $826,000.

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Management has allocated specific reserves to its non-performing assets that it believes will offset losses, if any, arising from less than full recovery of the loans from the supporting collateral. Specific reserves for non-performing loans are allocated to the loan as a write-down after completion of the impairment analysis for all collateral dependent loans. These additional reserves are based on management’s evaluation of a number of factors, including the estimated value of the collateral supporting each of these loans. Management believes that the combination of additional reserves and established impairment of these loans will be adequate to account for the current risk associated with these loans as of September 30, 2012. Management continues to evaluate and assess all non-performing assets on a regular basis as part of its well-established loan monitoring and review process. At September 30, 2012, criticized and classified loans, which include all non-performing loans, totaled $25.3 million, compared to $28.5 million at December 31, 2011 and $37.3 million at September 30, 2011. Impaired loans totaled $28.2 million at September 30, 2012 compared to $27.5 million at December 31, 2011. While management uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the valuations. Such adjustments would be made in the relevant period and may be material to the financial statements.

Real estate acquired through foreclosure increased $1.2 million to $9.6 million at September 30, 2012 from $8.4 million at December 31, 2011, primarily as a result of the transfer of two bank properties totaling $1.0 million. Bank properties that are no longer in use and are for sale are required to be removed from fixed assets and transferred to OREO. OREO is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. The properties are being actively marketed and maintained with the primary objective of liquidating the collateral at a level which most accurately approximates fair market value and allows recovery of as much of the unpaid balance as possible upon the sale of the properties in a reasonable period of time. The carrying values of these assets are believed to be representative of their fair market value, although the ultimate proceeds from the sale of these assets may not be equal to or greater than the carrying values.

Real estate acquired in settlement of loans through foreclosure is summarized as follows (in thousands):

	September 30,			December 31,
	2012			2011
Balance at beginning of period	$	8,398		$	10,618
Foreclosures added during the period		3,422			3,251
Sales of foreclosed property		(1,627	)		(4,133	)
Provision charged as a write-down		(573	)		(1,338	)
Balance at the end of period	$	9,620		$	8,398

Liabilities

Total liabilities decreased $22.7 million to $341.5 million at September 30, 2012 from $364.2 million at December 31, 2011. Deposits decreased $1.8 million, or 0.6%, to $281.4 million at September 30, 2012 from $283.2 million at December 31, 2011. The decrease was due to a reduction in funding needs. However, total core deposits (deposits less certificates of deposit) increased $5.1 million, or 3.2%, to $163.5 million or 58.1% of total deposits. This change in deposit composition contributed to the decrease in the costs of funds. Security agreements to repurchase increased $789,000 to $6.1 million at September 30, 2012 from $5.3 million at December 31, 2011. Federal Home loan advances decreased $22.0 million due to the maturity of these instruments.

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Deposit accounts were as follows (dollars in thousands):

	September 30, 2012*								December 31, 2011
	Rate			Balance		%			Rate			Balance		%
Account Type
NOW accounts:
Commercial non-interest-bearing		--		$	36,720		13.04	%		--		$	19,930		7.04	%
Non-commercial		0.34	%		68,173		24.26	%		0.42	%		87,803		31.00	%
Money market checking accounts		0.31	%		28,196		10.01	%		0.36	%		23,575		8.32	%
Regular savings		0.35	%		30,400		10.80	%		0.42	%		27,064		9.55	%
Total demand and savings deposits		0.26	%		163,489		58.11	%		0.36	%		158,372		55.91	%
Time deposits:
Up to 1.00%					79,785		28.34	%					68,695		24.25	%
1.00 %-2.00%					37,950		13.48	%					55,262		19.51	%
2.01 %- 3.00%					151		0.05	%					148		0.05	%
3.01 %- 4.00%					48		0.02	%					47		0.02	%
4.01 %- 5.00%					--		--	%					725		0.26	%
Total time deposits		0.66	%		117,934		41.89	%		0.91	%		124,877		44.09	%
Total deposit accounts		0.43	%	$	281,423		100.00	%		0.60	%	$	283,249		100.00	%

*During the quarter ended September 30, 2012, the Corporation restructured all deposit accounts and corresponding interest and fee classifications.

The maturities of the advances from the FHLB are as follows (dollars in thousands):

	September 30, 2012					December 31, 2011
	Balance		Wtd Avg Rate			Balance		Wtd Avg Rate
Contractual Maturity:
Within one year - adjustable rate	$	--		--	%	$	22,000		4.58	%
After three but within five years – adjustable rate		24,000		4.10	%		--		--	%
Greater than five years - adjustable rate		13,500		3.52	%		37,500		3.89	%
Total advances	$	37,500		3.89	%	$	59,500		4.14	%

The Bank pledges as collateral for the advances its investment securities and has entered into a blanket collateral agreement with the FHLB whereby the Bank maintains, free of other encumbrances, qualifying loans with unpaid principal balances equal to, when discounted at 50% to 75% of the unpaid principal balances, 100% of total advances.

Shareholders’ Equity

Shareholders’ equity increased $454,000, or 3.6%, to $12.9 million at September 30, 2012 from $12.5 million at December 31, 2011 primarily due to a $287,000 decrease in unrealized losses on securities available for sale along with net operating income of $167,000.

Liquidity

Liquidity is the ability to meet demand for loan disbursements, deposit withdrawals, repayment of debt, payment of interest on deposits and other operating expenses. The primary sources of liquidity are deposits, loan repayments, borrowings, maturity and sale of securities and interest payments.

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While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows, security sales and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The primary investing activities of the Corporation are the origination of commercial and consumer loans, and the purchase of investment and mortgage-backed securities. These activities are funded primarily by principal and interest payments on loans and investment securities, deposit growth, securities sold under agreements to repurchase and FHLB advances.

At September 30, 2012, the Corporation’s investment in marketable securities totaled $167.5 million, all of which was available for sale. In addition, the Corporation had $20.0 million in federal funds sold at September 30, 2012 compared to $14.8 million at December 31, 2011. Approximately $64.0 million and $85.1 million of debt securities at September 30, 2012 and December 31, 2011, respectively, were pledged by the Corporation as collateral to secure deposits of the State of South Carolina, and Union, Laurens and York counties along with additional borrowings and repurchase agreements.

Outstanding loan commitments (including commitments to fund credit lines) totaled $15.4 million at September 30, 2012. Management of the Corporation anticipates that it will have sufficient funds available to meet its current loan commitments.

The Corporation closely monitors its liquidity position on a daily basis. Time deposits that are scheduled to  mature in one year or less from September 30, 2012, totaled $77.5 million or 27.5% of total deposits. The Corporation relies primarily on competitive rates, customer service, and long-standing relationships with customers to retain deposits. From time to time, the Corporation will also offer special products to its customers to increase retention and to attract new deposits. Based upon the Corporation’s experience with deposit retention and current retention strategies, management believes that, although it is not possible to predict future terms and conditions upon renewal, a significant portion of such deposits will remain with the Corporation. If the Corporation requires funds beyond its ability to generate them internally, additional sources of funds are available through FHLB advances, securities sold under agreements to repurchase and lines of credit. At September 30, 2012, the Corporation had $37.5 million of FHLB borrowings and $6.1 million of securities sold under agreements to repurchase outstanding. At September 30, 2012, the Corporation had unused short-term lines of credit to purchase federal funds from unrelated banks totaling $4.0 million and the ability to borrow an additional $33.4 million from secured borrowing lines. Lines of credit are available on a one-to-ten day basis for general purposes of the Corporation.  All of the lenders have reserved the right to withdraw these lines at their option.

Provident Community Bancshares, Inc. is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, Provident Community Bancshares is responsible for paying any dividends declared to its shareholders and paying the obligations on its outstanding debentures and preferred stock. Provident Community Bancshares’ primary source of income is dividends received from the Bank. The dividends that may be paid by the Bank to the Corporation are subject to legal limitations and regulatory capital requirements. The amount of dividends that the Bank may declare and pay to Provident Community Bancshares in any calendar year, without the receipt of prior approval from the Office of the Comptroller of the Currency (“OCC”) cannot exceed retained net income for that year combined with retained net income for the prior two years less any transfers to surplus and capital distributions. Further, the Corporation cannot pay cash dividends on its common stock during any calendar quarter unless full dividends on the Preferred Stock have been paid. However, restrictions currently exist, including within the Consent Order the Bank signed with the OCC on December 21, 2010, that prohibit the Bank from paying cash dividends to the Corporation.  See “Consent Order and Written Agreement”. For the three and nine month periods ended September 30, 2012, no cash dividends have been declared or paid by the Bank or the Corporation. 

The Corporation is exercising its right to defer the regularly scheduled quarterly distribution on its $12.6 million in subordinated debentures related to its two outstanding trust preferred security issuances and its regular quarterly cash dividend on its Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “TARP Preferred Stock”) issued to the U.S. Treasury Department in connection with the Corporation’s participation in the Treasury’s TARP Capital Purchase Program. Total dividends deferred to date are $1.0 million.

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Capital Management and Regulatory Matters

Dividend Restrictions

The Bank is prohibited from declaring cash dividends on its common stock or repurchasing its common stock if the effect thereof would cause its net worth to be reduced below the amount required for the minimum regulatory capital requirement.  In addition, the Bank is also prohibited from declaring cash dividends without prior regulatory approval if the total amount of all dividends or stock repurchases (including any proposed dividends) for the applicable calendar year exceeds its current year’s net income plus its retained net income for the preceding two years. Under current OCC regulations, the Bank is limited in the amount it may loan to affiliates, including the Corporation. Loans to a single affiliate may not exceed 10%, and the aggregate of loans to all affiliates may not exceed 20% of bank capital and surplus.

Capital Guidelines

The Bank and the Corporation are subject to various regulatory capital requirements administered by banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for Prompt Corrective Action (“PCA”), the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.  The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. PCA provisions are not applicable to bank holding companies.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Under present regulations of the OCC, the Bank must have core capital (leverage requirement) equal to 4.0% of assets. The Bank must also maintain risk-based regulatory capital as a percent of risk weighted assets at least equal to 8.0%. In addition, for an institution to be classified as well capitalized under present regulations of the OCC, the Bank must have core capital (leverage requirement) equal to 5.0% of assets and total risk-based of 10%. In measuring compliance with capital standards, certain adjustments must be made to capital and total assets.

The Bank is required by the consent order to maintain Tier 1 capital at least equal to 8% of adjusted total assets and total capital of at least 12% of risk-weighted assets. So long as the Bank is subject to the enforcement action executed with the OCC on December 21, 2010, it will not be deemed to be well-capitalized even if it maintains the minimum capital ratios to be well-capitalized unless it achieves the higher thresholds required by the consent order. At September 30, 2012, the Bank did not meet the higher Tier 1 capital requirements required by the consent order and is evaluating alternatives to increase capital. The Bank’s capital category as of September 30, 2012 is determined solely for the purpose of applying the PCA restrictions, and the Bank’s capital category as of September 30, 2012 may not constitute an accurate representation of the Bank’s overall financial condition or prospects.

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The following tables present the total risk-based, Tier 1 risk-based and Tier 1 leverage requirements for the Corporation and the Bank (in thousands).

	Minimum Capital Levels
	Actual					Regulatory Minimum					From Consent Order(1)
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Leverage ratio
Corporation	$	16,549		4.61	%	$	14,369		4.00	%	$	n/a		n/a	%
Bank		24,974		6.96			14,354		4.00			28,708		8.00
Tier 1 capital ratio
Corporation		16,549		9.03			7,333		4.00			n/a		n/a
Bank		24,974		13.65			7,318		4.00			n/a		n/a
Total risk-based capital ratio
Corporation		26,522		14.47			14,667		8.00			n/a		n/a
Bank		27,288		14.91			14,637		8.00			21,955		12.00

(1) Minimum capital amounts and ratios presented for the Bank as of September 30, 2012, are the minimum levels set forth in the Consent Order.  No minimum Tier 1 capital to risk-weighted assets ratio was specified in the Consent Order. 

Under current Federal Reserve guidelines, the Corporation includes trust preferred securities in Tier 1 capital.

The Bank is required to maintain reserves, in the form of cash and balances with the Federal Reserve Bank, against its deposit liabilities. The amounts of such reserves totaled $2.6 million at September 30, 2012.

Consent Order and Written Agreement

Due to the Bank’s financial condition, the OCC required that the Bank’s Board of Directors sign a formal enforcement action (“Consent Order”) with the OCC which conveys specific actions needed to address certain findings from their examination and to address the Bank’s current financial condition.  The Bank entered into a Consent Order with the OCC on December 21, 2010, which contained a list of strict requirements ranging from a capital directive, which required it to achieve and maintain minimum regulatory capital levels in excess of the statutory minimums to be well-capitalized, to developing a liquidity risk management and contingency funding plan, in connection with which it is subject to limitations on the maximum interest rates it can pay on deposit accounts.

In addition, the Consent Order required the Bank to develop a three-year capital plan, which includes, among other things, specific plans for maintaining adequate capital, a discussion of the sources and timing of additional capital, as well as contingency plans for alternative sources of capital. The Consent Order also required the Bank to develop a strategic plan covering at least a three-year period, which among other things, included a specific description of the strategic goals and objectives to be achieved, the targeted markets, the specific Bank personnel who are responsible and accountable for the plan, and a description of systems to monitor our progress. On March 19, 2011, the Bank’s Board submitted a written strategic plan and capital plan to the OCC covering a three-year period which included an action plan for increasing the Bank’s capital ratios to the minimums set forth in the order. The consent order also required the Bank to achieve and maintain total capital of at least equal to 12% of risk-weighted assets and Tier 1 capital at least equal to 8% of adjusted total assets. The Bank has been working on efforts to achieve the Tier 1 capital levels imposed under the Consent Order.

The Consent Order also contained restrictions on future extensions of credit and required the development of various programs and procedures to improve the Bank’s asset quality as well as routine reporting on its progress toward compliance with the Consent Order to the Board of Directors and the OCC. 

The Bank’s compliance committee monitors and coordinates compliance with the Consent Order. The committee consists of five members of its Board of Directors and meets at least monthly to receive written progress reports from management on the results and status of actions needed to achieve full compliance with each article of the Consent Order.

41

In response to the Consent Order, the Bank:

• Revised its loan policy, and created a commercial real estate concentration management program.  The Bank also established a new loan review program to ensure the timely and independent identification of problem loans and  modified  its existing program for the maintenance of an adequate allowance for loan and lease losses;

• Took immediate and continuing action to protect the Bank’s interest in certain assets identified by the OCC and develop a criticized assets report covering the entire credit relationship with respect to such assets;

• Implemented and adhered to a program for the maintenance of an adequate allowance for loan and lease loss that is consistent with OCC requirements; and

• Ensured that the Bank has competent management in place on a full-time basis to carry out the Board’s policies and operate the Bank in a safe and sound manner.

Overall, the Bank is not well capitalized and must increase its capital or it may face further regulatory action. If the Bank does not obtain additional capital or sell assets to reduce the size of its balance sheet to a level which can be supported by its capital levels, it will not meet the capital minimums set forth in the Consent Order. Failure to meet the minimum ratios set forth in the Consent Order could result in regulators taking additional enforcement actions against the Bank. Our ability to raise capital is contingent on the current capital markets and on its financial performance.  

Written Agreement with Federal Reserve Bank

On May 20, 2011, the Corporation entered into a written agreement with the Federal Reserve Bank of Richmond, which, among other things:

● required the Corporation to fully utilize its financial and managerial resources to serve as a source of strength to the Bank;

● prohibited the Company from paying any dividends and taking any dividends representing a reduction in capital from the Bank, in each case without the prior written approval of the Federal Reserve;

● prohibited the Corporation from making any distributions on subordinated debentures or trust preferred securities without the prior written approval of the Federal Reserve; and

● prohibited the Corporation from incurring, increasing or guaranteeing any debt or redeeming any shares of its common stock, in each case without the prior written approval of the Federal Reserve.

Off-Balance Sheet Risk

In the normal course of operations, the Corporation engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in its financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of legally binding agreements to lend money to customers at predetermined interest rates for a specified period of time. Outstanding loan commitments (including commitments to fund credit lines) totaled $15.4 million at September 30, 2012. Each customer's credit worthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on the credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate. The credit risk on these commitments is managed by subjecting each customer to normal underwriting and risk management processes. For the quarter ended September 30, 2012, the Corporation did not engage in any off-balance sheet transactions reasonably likely to have a material effect on its financial condition, results of operations or cash flows.

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Results of operations for the three months ended September 30, 2012 and 2011

General

The Corporation recorded a net loss to common shareholders of $12,000 for the three months ended September 30, 2012 as compared to a net loss to common shareholders of $121,000 for the same period in 2011. The decrease in loss in 2012 was primarily due to the absence of a provision for loan losses for the period ended September 30, 2012, due to a net reduction in loans of $10.0 million, and no other-than-temporary impairment of securities compared to $218,000 for the three months ended September 30, 2011. These decreases were partially offset by  a reduction in net interest income due primarily to lower loan balances due to economic conditions and higher underwriting standards.

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Average Yields and Rates

    (dollars in thousands)

	Three Months Ended September 30,
	2012							2011
	Average Balance		Interest		Average Yield/Cost(2)			Average Balance		Interest		Average Yield/Cost(2)
Interest-earning assets:
Loans (1)	$	138,154	$	1,775		5.14	%	$	170,060	$	2,151		5.06	%
Mortgage-backed securities		57,132		348		2.44	%		77,669		677		3.49	%
Investment securities		107,186		592		2.21	%		83,691		650		3.11	%
Deposits and fed funds sold		25,036		5		0.08	%		19,492		3		0.06	%
Total interest-earning assets		327,508		2,720		3.32	%		350,912		3,481		3.97	%
Non-interest-earning assets		32,536							34,287
Total assets	$	360,044						$	385,199
Interest-bearing liabilities:
Deposits	$	247,815		312		0.50	%	$	272,431		552		0.81	%
Floating rate junior subordinated deferrable interest debentures		12,372		69		2.23	%		12,372		118		3.82	%
FHLB advances and other borrowings		49,970		448		3.59	%		64,923		632		3.89	%
Total interest-bearing liabilities		310,157		829		1.07	%		349,726		1,302		1.49	%
Non-interest-bearing sources:
Non-interest-bearing deposits		33,013							20,659
Non-interest-bearing liabilities		4,200							3,712
Total liabilities		347,370							374,097
Shareholders’ equity		12,674							11,102
Total liabilities and shareholders’ equity	$	360,044						$	385,199
Net interest income			$	1,891						$	2,179
Interest rate spread (3)						2.25	%						2.48	%
Impact of non-interest-bearing (4) deposits						0.11	%						0.06	%
Net interest margin (5)						2.36	%						2.54	%

(1) Average balance of loans includes non-accruing loans. Interest income includes deferred loan fees and does not include interest on nonaccrual loans.

(2) Annualized.

(3) Represents difference between weighted average yield on all interest-earning assets and weighted average rate on all interest bearing liabilities.

(4) Represents the reduction of non-interest bearing deposits on total deposit funding costs.

(5) Represents net interest income before provision for loan losses as a percentage of average interest-earning assets.

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Interest Income

Interest income decreased $761,000, or 21.9%, to $2.7 million for the three months ended September 30, 2012 as compared to the same period in 2011. Interest income on loans decreased by 17.5%, or $376,000, to $1.8 million for the three months ended September 30, 2012 from $2.2 million for the three months ended September 30, 2011, due primarily to lower average balances due to lower demand, offset by higher interest rates. Interest on deposits and federal funds sold, combined with interest and dividends on investment and mortgage-backed securities, decreased $385,000 for the three months ended September 30, 2012 compared to the same period in 2011 due  primarily to lower interest rates offset by higher average balances.

Interest Expense

Interest expense decreased $473,000, or 36.3%, to $829,000 for the three months ended September 30, 2012 as compared to $1.3 million for the three months ended September 30, 2011. Interest expense on deposit accounts decreased $240,000, or 43.5%, to $312,000 for the three months ended September 30, 2012 from $552,000 during the same period in 2011 due primarily to lower average balances, as a result of reductions in funding needs, and lower average costs due to lower market interest rates and an increase in core deposits. Interest expense on borrowings decreased $233,000, to $517,000 for the three months ended September 30, 2012 from $750,000 during the same period in 2011 due primarily to lower average balances as a result of the pay-down of $22 million in FHLB advances and lower market interest rates.

Provision for Loan Losses

We have developed policies and procedures for evaluating the overall quality of our credit portfolio and the timely identification of potential problem credits. The Board of Directors reviews and ratifies the appropriate level for the allowance for loan losses quarterly based upon management’s recommendations, the results of the internal monitoring and reporting system, quarterly external independent loan reviews and the analysis of economic conditions in our local markets. Additions to the allowance for loan losses, which are expensed as the provision for loan losses on our income statement, are periodically made to maintain the allowance at an appropriate level based on our analysis of the potential risk in the loan portfolio. Loan losses, which include write downs and charge-offs, are charged directly to the allowance while recoveries are credited against the allowance. The amount of the provision is a function of the amount and composition of loans outstanding, the level of classified, non-performing and impaired loans, the number of troubled debt restructurings and impairment analysis of such loans, historical loan loss experience, the amount of loan losses actually charged against the reserve during the given period, and current and anticipated economic conditions.

Our allowance for loan losses is based upon judgments and assumptions of risk elements in the portfolio, future economic conditions and other factors affecting borrowers. The process includes identification and analysis of loss potential in various portfolio segments utilizing a credit risk grading process and specific reviews and evaluations of significant problem credits. In addition, we monitor overall portfolio quality through observable trends in delinquency, charge offs, and general and economic conditions in the market area. The adequacy of the allowance for loan losses and the effectiveness of our monitoring and analysis system are also reviewed periodically by the banking regulators which may require that we increase the allowance for loan losses. Risks are inherent in making all loans, including risks with respect to the period of time over which loans may be repaid, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers, and, in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral.

Our judgment about the adequacy of the allowance is based upon a number of assumptions about future events, which we believe to be reasonable, but which may not prove to be accurate. Thus, charge-offs in future periods could exceed the allowance for loan losses, or substantial additional increases in the allowance for loan losses could be required. Additions to the allowance for loan losses would result in a decrease of our net income and, possibly, our capital. Based on present information, we believe the allowance for loan losses is adequate at September 30, 2012 to meet presently known and inherent risks in the loan portfolio.

45

During the three months ended September 30, 2012, a provision for loan losses was not required due to a reduction in net loans of $10.0 million, lower write-downs and charge-offs and an improvement in historical classified loan loss ratios. This compares to a  provision of $290,000 for the same period in the previous year. Non-performing loans decreased $1.2 million from $17.0 million at September  30, 2011 to $15.8 million at September 30, 2012. The high level of non-performing loans relates primarily to commercial real estate relationships that have been affected by the downturn in the residential housing market. Slow housing conditions have affected these borrowers’ ability to sell the completed projects in a timely manner.

Loan charge-offs and recoveries consisted of the following for the three months ended September 30, 2012 and 2011. (in thousands)

	Commercial			Consumer			Residential			Total
September 30, 2012
Charge-offs	$	59		$	70		$	6		$	135
Recoveries		(64	)		(--	)		(--	)		(64	)
Net Charge-offs	$	( 5	)	$	70		$	6		$	71
	Commercial			Consumer			Residential			Total
September 30, 2011
Charge-offs	$	2,440		$	8		$	--		$	2,448
Recoveries		(18	)		(2	)		(39	)		(59	)
Net Charge-offs	$	2,422		$	6		$	(39	)	$	2,389

Specific reserves for non-performing loans at September 30, 2012 were $1.8 million compared to $302,000 for non-performing loans at September 30, 2011. The increase in specific reserves was primarily due to additional allocations of $1.1 million to cover TDR concessions. Management believes the specific reserves allocated to these and other non-accrual loans will offset losses, if any, arising from less than full recovery of the loans from the supporting collateral. Management has sought to provide the amount estimated to be necessary to maintain an allowance for loan losses that is adequate to cover the level of loss that management believes to be inherent in the portfolio as a whole, taking into account the Corporation’s experience, economic conditions and information about borrowers available at the time of the analysis. However, management expects that further deterioration of economic conditions in the Corporation’s market areas is likely in the short-term, especially with respect to real estate related activities and real property values.

Non-Interest Income

Total non-interest income increased $459,000, or 53.9%, to $1.3 million for the three months ended September 30, 2012 from $851,000 for the same period in the previous year. The increase was due primarily to higher gains on the sale of investments and no other-than-temporary impairment charge for the current year compared to $218,000 for the three months ended September 30,2011. The Corporation recorded a $584,000 gain on sale of investments from security sales of $15.8 million for the three months ended September 30, 2012 compared to a gain of $419,000 from security sales of $26.1 million for the same period in the previous year, as the Corporation continues to better position the investment portfolio for the potential of rising interest rates. Net fees from financial services increased $77,000, or 11.9%, to $722,000 for the three months ended September 30, 2012 from $645,000 for the same period in the previous year. The increase was due to higher return check charges on checking accounts.

46

Non-Interest Expense

For the three months ended September 30, 2012, total non-interest expense increased $205,000, or 7.5%, to $2.9 million. Compensation and employee benefits increased $20,000, or 2.0%, due primarily to normal annual salary increases. Occupancy expense increased $31,000, or 5.0%, to $654,000 for the three months ended September 30, 2012 from $623,000 for the same period in 2011, due primarily to higher computer equipment maintenance costs. Deposit insurance premiums expense increased $38,000, or 21.2%, to $217,000 for the three months ended September 30, 2012 from $179,000 for the same period in 2011, due to higher FDIC premium cost assessments. Professional services expense increased $20,000, or 13.9%, to $164,000 for the three months ended September 30, 2012 from $144,000 for the same period in 2011 due primarily to higher consultant expense for loan review. OREO and loan operations expense increased $56,000, or 11.6%, to $539,000 for the three months ended September 30, 2012 from $483,000 for the same period in 2011, due primarily to an increase in write-downs and operating expenses for foreclosed loans. Items processing expense decreased $9,000, or 12.2%, to $65,000 for the three months ended September 30, 2012 from $74,000 for the same period in 2011, due primarily to lower NOW account balances due to rate reductions. Other expense increased $45,000, or 25.3%, to $223,000 for the three months ended September 30, 2012 from $178,000 for the same period in 2011, due primarily to increases in corporate insurance expense.

Income taxes

Expense for income taxes for the three months ended September 30, 2012 was $154,000 as compared to $7,000 for the same period in 2011. The current period expense includes $145,000 for a write-down of tax credits to the fair market value. The Corporation has net operating loss carry-forwards of approximately $30.0 million which will expire by December 31, 2030 if not utilized to offset taxable income prior to that date. Therefore, federal income tax expense is not being recognized on taxable income.

Results of operations for the nine months ended September 30, 2012 and 2011

General

The Corporation recorded a net loss to common shareholders of $189,000 for the nine months ended September 30, 2012 as compared to a net loss to common shareholders of $237,000 for the same period in 2011. The decrease in the loss in 2012 was primarily due higher gain on the sales of securities of $1.1 million and no other-than-temporary impairment of securities compared to $409,000 for the nine months ended September 30, 2011 along with a reduction in OREO expenses of $690,000 due to expense reductions and recoveries on other real estate owned. These improvements to net income were partially offset by a reduction in net interest income due primarily to lower loan balances due to economic conditions and higher underwriting standards along with an increase in the loan loss provision of $340,000. The higher loan loss provision reflects higher classified loan loss ratios that are derived from a three-year historical average. However, these experience ratios improved significantly for the three-month period ended September 30, 2012, which contributed to the lack of a need for  a provision in the third quarter.

47

Average Yields and Rates

    (dollars in thousands)

	Nine Months Ended September 30,
	2012							2011
	Average Balance		Interest		Average Yield/Cost(2)			Average Balance		Interest		Average Yield/Cost(2)
Interest-earning assets:
Loans (1)	$	146,211	$	5,556		5.07	%	$	184,719	$	6,939		5.01	%
Mortgage-backed securities		63,616		1,115		2.34	%		77,504		2,038		3.51	%
Investment securities		103,559		1,835		2.36	%		74,491		1,799		3.22	%
Other interest-earning assets		22,267		13		0.08	%		24,367		17		0.09	%
Total interest-earning assets		335,653		8,519		3.38	%		361,081		10,793		3.99	%
Non-interest-earning assets		33,695							34,343
Total assets	$	369,348						$	395,424
Interest-bearing liabilities:
Deposits	$	257,367		1,030		0.53	%	$	282,370		2,095		0.99	%
Floating rate junior subordinated deferrable interest debentures		12,372		210		2.26	%		12,372		355		3.83	%
FHLB advances and other borrowings		57,958		1,622		3.73	%		66,319		1,875		3.77	%
Total interest-bearing liabilities		327,697		2,862		1.16	%		361,061		4,325		1.60	%
Non-interest-bearing sources:
Non-interest-bearing deposits		25,358							20,456
Non-interest-bearing liabilities		3,963							3,537
Total liabilities		357,018							385,054
Shareholders’ equity		12,330							10,370
Total liabilities and shareholders’ equity	$	369,348						$	395,424
Net interest income			$	5,657						$	6,468
Interest rate spread (3)						2.22	%						2.39	%
Impact of non-interest-bearing (4) deposits						0.08							0.07
Net interest margin (5)						2.30	%						2.46	%

(1) Average balance of loans includes non-accruing loans. Interest income includes deferred loan fees and does not include interest on nonaccrual loans.

(2) Annualized

(3) Represents difference between weighted average yield on all interest-earning assets and weighted average rate on all interest bearing liabilities.

(4) Represents the reduction of non-interest bearing deposits on total deposit funding costs.

(5) Represents net interest income before provision for loan losses as a percentage of average interest-earning assets.

48

Interest Income

Interest income decreased $2.3 million, or 21.1%, to $8.5 million for the nine months ended September 30, 2012 as compared to the same period in 2011. Interest income on loans decreased by 19.9%, or $1.4 million, to $5.6 million for the nine months ended September 30, 2012 from $6.9 million for the nine months ended September 30, 2011, due primarily to lower average balance of loans as a result of a decrease in demand. Interest on deposits and federal funds sold, combined with interest and dividends on investment and mortgage-backed securities decreased $891,000, or 23.1%, for the nine months ended September 30, 2012 due to lower investment yields due to declining market interest rates, offset by higher average balances.

Interest Expense

Interest expense decreased $1.5 million, or 33.8%, to $2.9 million for the nine months ended September 30, 2012 as compared to $4.3 million for the nine months ended September 30, 2011. Interest expense on deposit accounts decreased $1.1 million, or 50.8%, to $1.0 million for the nine months ended September 30, 2012 from $2.1 million during the same period in 2011 due primarily to lower market interest rates and a shift in the composition of the deposit portfolio from certificates of deposits to transaction accounts. Interest expense on borrowings decreased $398,000, or 17.8%, to $1.8 million for the nine months ended September 30, 2012 as compared to the same period in the previous year due to lower average balances as a result of the pay-down of $22 million in FHLB advances and lower market interest rates.

Provision for Loan Losses

During the nine months ended September 30, 2012, the provision for loan losses was $630,000 compared to $290,000 for the same period in the previous year. The provision in 2012 was a result of an increase in the classified loan loss ratios that are derived from a three-year historical average. However, these experience ratios improved significantly for the three-month period ended September 30,2012 and accordingly, contributed to the lack of a need for  a provision in the third quarter. During the nine months ended September 30, 2012, bad debt charge-offs, net of recoveries, were $675,000 as compared to $3.5 million for the same period in the previous year. In addition, specific reserves on non-performing loans were $1.8 million for the nine months ended September 30, 2012 compared to $302,000 for the same period in the previous year. The increase in specific reserves was primarily due to additional allocations of $1.1 million to cover TDR concessions. The Corporation’s loan loss allowance at September 30, 2012 was approximately 3.3% of the Corporation’s outstanding loan portfolio compared to 2.5% of the Corporation’s outstanding loan portfolio  at September 30, 2011.

Non-Interest Income

Total non-interest income increased $864,000, or 38.5%, to $3.1 million for the nine months ended September 30, 2012 from $2.2 million for the same period in the previous year. The increase was due primarily to higher gain on sale of investment securities and no other-than-temporary impairment charge for the current year compared to $409,000 at September 30,2011. Gain on sale of investments were $1.1 million from security sales of $39.0 million for the nine months ended September 30, 2012 compared to $697,000 from security sales of $50.2 million for the same period in the previous year, as the Corporation continues to better position the investment portfolio for the potential of rising interest rates. Fees from financial services increased $44,000 to $2.0 million for the nine  months ended September 30, 2012 from $1.9 million for the same period in the previous year. The increase was due to higher return check charges from checking accounts.

49

Non-Interest Expense

For the nine months ended September 30, 2012, total non-interest expense decreased $478,000, or 5.8%, to $7.8 million from $8.3 million for the same period in 2011. Compensation and employee benefits increased $39,000, or 1.3%, to $3.2 million for the nine months ended September 30, 2012 from $3.1 million for the same period in 2011 due primarily to normal annual salary increases. Occupancy and equipment expense increased $23,000, or 1.2%, to $1.9 million for the nine months ended September 30, 2012 from $1.9 million for the same period in 2011 due primarily to higher system maintenance expense. Deposit insurance premiums expense increased $75,000 to $611,000 for the nine months ended September 30, 2012 from $536,000 for the same period in 2011, due to higher FDIC premium cost assessments. Professional services expense increased $65,000, or 14.3%, to $519,000 for the nine months ended September 30, 2012 from $454,000 for the same period in 2011 due primarily to higher audit and consultant expense. OREO and loan operations expense decreased $690,000, or 52.9%, to $614,000 for the nine months ended September 30, 2012 from $1.3 million for the same period in 2011, due primarily to lower costs associated with loan foreclosures and write-downs required to adjust other real estate owned to fair market value. Items processing expense decreased $23,000, or 10.2%, to $202,000 for the nine months ended September 30, 2012 from $225,000 for the same period in 2011, due primarily to lower NOW account balances due to rate reductions. Other expense increased $29,000, or 5.0%, to $605,000 for the nine months ended September 30, 2012 from $576,000 for the same period in 2011, due primarily to increases in corporate insurance expense.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Not applicable as the registrant is a smaller reporting company.

Item 4.  Controls and Procedures

The Corporation’s management, including the Corporation’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Corporation’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Corporation’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Corporation files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Corporation’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in the Corporation’s internal control over financial reporting identified in connection with the evaluation required by Rule 13(a)-15(e) that occurred during the quarter that has materially affected or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item  1.                           Legal Proceedings

The Corporation is not involved in any legal proceedings. The Bank is not involved in any pending legal proceedings other than routine legal proceedings occurring in the normal course of business. Management believes that these proceedings are immaterial to the Corporation’s financial condition and results of operations.

Item  1A.                        Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

50

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

In May 2005, the Corporation implemented a share repurchase program under which the Board of Directors of the Corporation authorized the repurchase of up to 5% of the outstanding shares or 98,000 shares. The program was expanded by an additional 5%, or 92,000 shares, in August 2006. However, under the written agreement between the Corporation and the Federal Reserve Bank, the Corporation cannot repurchase its shares without the prior written consent of the Federal Reserve Bank. The Corporation did not repurchase any shares during the three months ended September 30, 2012 and 36,034 shares remain under the previously authorized plans.

Item  3.                           Defaults upon Senior Securities

Not applicable.

Item  4.                          Mine Safety Disclosures

        Not applicable.

Item 5.                            Other Information

None

Item  6.                           Exhibits

31(a)	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31(b)	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32(a)	Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32(b)	Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	Interactive Data File*
	The following materials from Provident Community Bancshares, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Shareholders’ Equity  and (v) related notes

*Furnished not filed.

51

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.

PROVIDENT COMMUNITY BANCSHARES, INC.

(Registrant)

Date: November 14, 2012	By:	/s/ Dwight V. Neese
		Dwight V. Neese, President and
		Chief Executive Officer

Date: November 14, 2012	By:	/s/ Richard H. Flake
		Richard H. Flake, Executive Vice President
		and Chief Financial Officer

52

EX-31.(A)

EXHIBIT 31(a)

CERTIFICATION

I, Dwight V. Neese, certify that:

1. I have reviewed this Form 10-Q of Provident Community Bancshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted account principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.   The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 14, 2012	/s/ Dwight V. Neese
	Dwight V. Neese
	President and Chief Executive Officer

EX-31.(B)

EXHIBIT 31(b)

CERTIFICATION

I, Richard H. Flake, certify that:

1. I have reviewed this Form 10-Q of Provident Community Bancshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted account principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 14, 2012	/s/ Richard H. Flake
	Richard H. Flake
	Executive Vice President and Chief Financial Officer

EX-32.(A)

EXHIBIT 32(a)

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADDED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Provident Community Bancshares, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2012 as filed with the Securities and Exchange Commission (the “Report”), I, Dwight V. Neese, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

	/s/ Dwight V. Neese
	Dwight V. Neese
	President and Chief Executive Officer
Date: November 14, 2012

EX-32.(B)

EXHIBIT 32(b)

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADDED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Provident Community Bancshares, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2012 as filed with the Securities and Exchange Commission (the “Report”), I, Richard H. Flake, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

	/s/ Richard H. Flake
	Richard H. Flake
	Executive Vice President and Chief Financial Officer
Date: November 14, 2012

XML

Assets Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	$ 167,478	$ 165,878
Securities Investment
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	111,896	91,744
Securities Investment | Government Sponsored Enterprises
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	107,588	87,538
Securities Investment | Trust Preferred Securities
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	4,308	4,205
Securities Investment | U.S. Agency Obligations
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure		1
Mortgage-Backed and Related Securities
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	55,582	74,134
Level 1
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	107,588	87,539
Level 1 | Securities Investment
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	107,588	87,539
Level 1 | Securities Investment | Government Sponsored Enterprises
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	107,588	87,538
Level 1 | Securities Investment | U.S. Agency Obligations
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure		1
Level 2
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	58,383	76,884
Level 2 | Securities Investment
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	2,801	2,750
Level 2 | Securities Investment | Trust Preferred Securities
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	2,801	2,750
Level 2 | Mortgage-Backed and Related Securities
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	55,582	74,134
Level 3
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	1,507	1,455
Level 3 | Securities Investment
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	1,507	1,455
Level 3 | Securities Investment | Trust Preferred Securities
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset Fair Value disclosure	$ 1,507	$ 1,455

XML

Past Due Loan Trends for Corporation's Loans Receivable (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	$ 1,330	$ 2,580
60 - 89 Days Past Due	602	727
Greater Than 90 Days	10,539	11,951
Total Past Due	12,471	14,816
90 days Past Due & Still Accruing		442
Current	122,566	145,395
Total loans	135,037	160,653
Commercial Portfolio Segment | Commercial Non Real Estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	36	485
60 - 89 Days Past Due		139
Greater Than 90 Days	643	996
Total Past Due	679	1,237
90 days Past Due & Still Accruing		383
Current	8,921	11,319
Total loans	9,600	12,939
Commercial Portfolio Segment | Commercial Real Estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	437	714
60 - 89 Days Past Due	91	472
Greater Than 90 Days	7,522	8,046
Total Past Due	8,050	9,232
Current	71,753	88,315
Total loans	79,803	97,547
Consumer Portfolio Segment | Other Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	90	422
60 - 89 Days Past Due	139	69
Greater Than 90 Days	1,287	2,052
Total Past Due	1,516	2,543
Current	18,507	19,753
Total loans	20,023	22,296
Consumer Portfolio Segment | Automobiles
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	11	69
60 - 89 Days Past Due	8
Greater Than 90 Days	6
Total Past Due	25	69
Current	793	874
Total loans	818	943
Consumer Portfolio Segment | Consumer Home Equity
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	245	408
60 - 89 Days Past Due	80	47
Greater Than 90 Days	537	182
Total Past Due	862	578
90 days Past Due & Still Accruing		59
Current	13,680	13,953
Total loans	14,542	14,590
Residential Real Estate | Residential 1-4 family
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	511	482
60 - 89 Days Past Due	284
Greater Than 90 Days	544	675
Total Past Due	1,339	1,157
Current	8,912	11,181
Total loans	$ 10,251	$ 12,338

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Impaired Loans (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Impaired [Line Items]
Loans receivable for which there is a related allowance for credit losses determined in accordance with ASC 310-10/Statement No. 114	$ 10,336	$ 1,923
Unpaid Principal Balance	33,136	34,452
Other impaired loans	17,889	25,550
Total impaired loans, Recorded Investment	28,225	27,473
Average monthly balance of impaired loans	29,013	29,916
Related Allowance	1,786	439
Average Recorded Investment	30,306	30,963
Commercial
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	23,822	26,676
Total impaired loans, Recorded Investment	20,022	20,708
Related Allowance	1,121	366
Average Recorded Investment	21,922	23,692
Consumer
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	7,085	5,885
Total impaired loans, Recorded Investment	6,135	4,933
Related Allowance	546	73
Average Recorded Investment	6,611	5,409
Owner Occupied Residential Real Estate Loans
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	2,229	1,891
Total impaired loans, Recorded Investment	2,068	1,832
Related Allowance	119
Average Recorded Investment	2,148	1,862
Impaired Financing Receivables with No Related Allowance | Commercial Real Estate
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	14,913	22,454
Total impaired loans, Recorded Investment	11,643	16,949
Average Recorded Investment	13,278	19,702
Impaired Financing Receivables with No Related Allowance | Commercial Non Real Estate
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	971	2,376
Total impaired loans, Recorded Investment	764	2,075
Average Recorded Investment	868	2,225
Impaired Financing Receivables with No Related Allowance | Other Consumer
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	4,034	5,135
Total impaired loans, Recorded Investment	3,124	4,203
Average Recorded Investment	3,579	4,669
Impaired Financing Receivables with No Related Allowance | Consumer Home Equity
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	784	511
Total impaired loans, Recorded Investment	756	491
Average Recorded Investment	770	501
Impaired Financing Receivables with No Related Allowance | Residential 1-4 family | Residential Real Estate
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	1,692	1,891
Total impaired loans, Recorded Investment	1,601	1,832
Average Recorded Investment	1,646	1,862
Impaired Financing Receivables with Related Allowance | Commercial Real Estate
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	6,583	1,564
Total impaired loans, Recorded Investment	6,410	1,403
Related Allowance	1,067	306
Average Recorded Investment	6,496	1,483
Impaired Financing Receivables with Related Allowance | Commercial Non Real Estate
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	1,355	282
Total impaired loans, Recorded Investment	1,205	281
Related Allowance	54	60
Average Recorded Investment	1,280	282
Impaired Financing Receivables with Related Allowance | Other Consumer
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	2,267	239
Total impaired loans, Recorded Investment	2,254	239
Related Allowance	546	73
Average Recorded Investment	2,261	239
Impaired Financing Receivables with Related Allowance | Residential 1-4 family | Residential Real Estate
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	537
Total impaired loans, Recorded Investment	467
Related Allowance	119
Average Recorded Investment	$ 502

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Fair Value Measurements (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financial Instruments - Assets, Carrying Amount
Cash and cash equivalents	$ 27,551	$ 23,893
Loans	130,491	156,019
Financial Instruments - Liabilities, Carrying Amount
Time deposits	117,934	124,877
Securities sold under agreements to repurchase	6,057	5,268
Subordinated debentures	12,372	12,372
Financial Instruments - Assets, Fair Value
Cash and cash equivalents	27,551	23,893
Loans	131,483	161,219
Financial Instruments - Liabilities, Fair Value
Time deposits	118,335	125,404
Securities sold under agreements to repurchase	6,057	5,268
Subordinated debentures	12,372	12,372
Level 1
Financial Instruments - Assets, Fair Value
Cash and cash equivalents	27,551	23,893
Level 2
Financial Instruments - Liabilities, Fair Value
Time deposits	118,335	125,404
Securities sold under agreements to repurchase	6,057	5,268
Subordinated debentures	12,372	12,372
Level 3
Financial Instruments - Assets, Fair Value
Loans	$ 131,483	$ 161,219

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Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures - Additional Information (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012	Dec. 15, 2006	Jul. 21, 2006
Securities Financing Transaction [Line Items]
Floating/fixed rate capital securities, issued		$ 8,000,000	$ 4,000,000
Capital contribution		247,000	124,000
Principal amount of junior subordinated deferrable interest debentures, acquired		$ 8,247,000	$ 4,124,000
Interest rate over three-month LIBOR		1.74%	1.74%
Right exercised, description	The Corporation exercised its right on July 22, 2010 to defer the payment of interest on its outstanding subordinated debentures for an indefinite period (which can be no longer than 20 consecutive quarterly periods). Further, pursuant to a written agreement between the Corporation and the Federal Reserve, the Corporation cannot pay any dividends on its subordinated debentures without the prior written consent of the Federal Reserve Bank. This and any future deferred distributions will continue to accrue interest at a current rate of LIBOR+1.74% for the $4.0 million of trust preferred securities issued in July 2006 and at a current rate of LIBOR+1.74% for the $8.0 million of trust preferred securities issued in December 2006.

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Presentation of Consolidated Financial Statements

9 Months Ended

Sep. 30, 2012

Presentation of Consolidated Financial Statements

1.           Presentation of Consolidated Financial Statements

The accompanying unaudited consolidated financial statements of Provident Community Bancshares, Inc. (the “Corporation”) and Provident Community Bank, N.A. (the “Bank”) were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments which are, in the opinion of management, necessary for the fair presentation of the interim consolidated financial statements have been included. All such adjustments are of a normal and recurring nature. The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of the results which may be expected for the entire calendar year or for any other period. This quarterly report should be read in conjunction with the Corporation’s annual report on Form 10-K for the year ended December 31, 2011. Certain amounts in the prior year’s financial statements have been reclassified to conform to current year classifications.

Recently Issued Accounting Standards

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

In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the Accounting Standards Codification (“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 were effective for the Corporation beginning January 1, 2012 and did not 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 were effective for the Corporation beginning January 1, 2012 and are reflected in Note 7.

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 amendments were applied retrospectively. In December 2011, the topic was further amended to defer the effective date of presenting reclassification adjustments from other comprehensive income to net income on the face of the financial statements.

Other accounting standards that have been issued or proposed by the Financial Accounting Standards Board (“FASB”) or other standards-setting bodies are not expected to have a material impact on the Corporation’s financial position, results of operations or cash flows.

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Preferred Stock - Additional Information (Detail) (USD $)	1 Months Ended	9 Months Ended
	Mar. 13, 2009 Y	Sep. 30, 2012	Dec. 31, 2011
Class of Stock [Line Items]
Preferred stock issued		9,266	9,266
Preferred Stock, liquidation preference per share	$ 1,000
Exercise price of warrant	7.77
Proceed from issuance of preferred stock and warrant	$ 9,300,000
Increase in Additional paid-in-capital due to allotment to warrants	25,000
Period in which warrant to be exercised	10 years
Amortization period for amount allocated to warrant	5
Preferred Stock, Dividend Payment Terms		Under the terms of the TARP Preferred Stock, the Corporation is required to pay on a quarterly basis a dividend rate of 5% per year for the first five years, after which the dividend rate automatically increases to 9% per year. Dividend payments may be deferred, but the dividend is cumulative and failure to pay dividends for six dividend periods would trigger board appointment rights for the holder of the TARP Preferred Stock.
Total deferred dividends		$ 1,000,000
Series A Preferred Stock
Class of Stock [Line Items]
Preferred stock issued	9,266
First five years
Class of Stock [Line Items]
Dividend Rate		5.00%
After five years
Class of Stock [Line Items]
Dividend Rate		9.00%
Maximum
Class of Stock [Line Items]
Common stock purchase warrant	178,880

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Credit Risk Profile by Creditworthiness Category (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Commercial Non Real Estate	$ 9,600	[1]	$ 12,939	[1]
Commercial real estate	79,803	[1]	97,547	[1]
Grade 1 Minimal Risk
Financing Receivable, Recorded Investment [Line Items]
Commercial Non Real Estate	63	[1]	51	[1]
Grade 2 Low Risk
Financing Receivable, Recorded Investment [Line Items]
Commercial Non Real Estate			223	[1]
Grade 3 Moderate Risk
Financing Receivable, Recorded Investment [Line Items]
Commercial Non Real Estate	86	[1]	363	[1]
Commercial real estate	7,354	[1]	9,242	[1]
Grade 4 Acceptable Risk
Financing Receivable, Recorded Investment [Line Items]
Commercial Non Real Estate	4,880	[1]	6,458	[1]
Commercial real estate	30,004	[1]	39,168	[1]
Grade 5 Watch
Financing Receivable, Recorded Investment [Line Items]
Commercial Non Real Estate	1,467	[1]	1,778	[1]
Commercial real estate	20,948	[1]	21,263	[1]
Grade 6 Special Mention
Financing Receivable, Recorded Investment [Line Items]
Commercial Non Real Estate	2,239	[1]	1,933	[1]
Commercial real estate	7,429	[1]	9,890	[1]
Grade 7 Substandard
Financing Receivable, Recorded Investment [Line Items]
Commercial Non Real Estate	770	[1]	1,926	[1]
Commercial real estate	12,818	[1]	17,984	[1]
Grade 8 Doubtful
Financing Receivable, Recorded Investment [Line Items]
Commercial Non Real Estate	95	[1]	206	[1]
Commercial real estate	$ 1,250	[1]

[1] Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

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Allowance for Loan Losses and Recorded Investment in Loans Receivable (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	$ 1,786	$ 439
Collectively evaluated for impairment	2,719	4,110
Ending Balance	4,505	4,549
Ending balance - total	135,037	160,653
Individually evaluated for impairment	28,225	27,473
Collectively evaluated for impairment	106,812	133,180
Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	54	60
Collectively evaluated for impairment	1,554	1,827
Ending Balance	1,608	1,887
Ending balance - total	9,600	12,939
Individually evaluated for impairment	1,969	2,356
Collectively evaluated for impairment	7,631	10,583
Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	1,067	306
Collectively evaluated for impairment	618	1,614
Ending Balance	1,685	1,920
Ending balance - total	79,803	97,547
Individually evaluated for impairment	18,053	18,352
Collectively evaluated for impairment	61,750	79,195
Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	546	73
Collectively evaluated for impairment	271	411
Ending Balance	817	484
Ending balance - total	35,383	37,829
Individually evaluated for impairment	6,135	4,933
Collectively evaluated for impairment	29,248	32,896
Residential Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	119
Collectively evaluated for impairment	276	258
Ending Balance	395	258
Ending balance - total	10,251	12,338
Individually evaluated for impairment	2,068	1,832
Collectively evaluated for impairment	$ 8,183	$ 10,506

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Credit Risk Profile by Internally Assigned Grade (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Residential	$ 10,251	[1]	$ 12,338	[1]
Consumer	35,383	[1]	37,829	[1]
Internally Assigned Grade | Pass Credit
Financing Receivable, Recorded Investment [Line Items]
Residential	8,512	[1]	10,833	[1]
Consumer	29,293	[1]	33,307	[1]
Internally Assigned Grade | Grade 6 Special Mention
Financing Receivable, Recorded Investment [Line Items]
Residential	632	[1]	243	[1]
Consumer	2,043	[1]	480	[1]
Internally Assigned Grade | Grade 7 Substandard
Financing Receivable, Recorded Investment [Line Items]
Residential	1,107	[1]	1,262	[1]
Consumer	$ 4,047	[1]	$ 4,042	[1]

[1] Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

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Credit Risk Profile Based on Payment Activity (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Consumer, Other	$ 20,023	[1]	$ 22,296	[1]
Consumer, Automobile	818	[1]	943	[1]
Residential real estate, Home equity	14,542	[1]	14,590	[1]
Residential real estate, 1-4 family	10,251	[1]	12,338	[1]
Performing
Financing Receivable, Recorded Investment [Line Items]
Consumer, Other	17,578	[1]	19,760	[1]
Consumer, Automobile	783	[1]	878	[1]
Residential real estate, Home equity	13,919	[1]	14,282	[1]
Residential real estate, 1-4 family	8,953	[1]	11,118	[1]
Nonperforming
Financing Receivable, Recorded Investment [Line Items]
Consumer, Other	2,445	[1]	2,536	[1]
Consumer, Automobile	35	[1]	65	[1]
Residential real estate, Home equity	623	[1]	308	[1]
Residential real estate, 1-4 family	$ 1,298	[1]	$ 1,220	[1]

[1] Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

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Consolidated Statements Of Changes In Shareholders' Equity (Parenthetical) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Other comprehensive income, tax on unrealized holding gains on securities available for sale	$ 341	$ 968

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Loans Net - Additional Information (Detail) (USD $)	9 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012 Troubled Debt Restructuring Loan	Sep. 30, 2012 Extended Term of Loan Loan	Sep. 30, 2012 Financing Receivable Troubled Debt Restructurings Interest Rate Reductions Loan	Sep. 30, 2012 Previously Restructured Loan	Sep. 30, 2012 Previously Restructured Defaulted in the Quarter Loan	Sep. 30, 2012 Previously Restructured Defaulted during the previous 12 months Loan	Sep. 30, 2012 Classified Loan	Dec. 31, 2011 Classified Loan	Sep. 30, 2012 Pass Credit	Sep. 30, 2012 Grade 6 Special Mention
Financing Receivable, Recorded Investment [Line Items]
Percentage of loan portfolio considered pass credits										76.00%
Loans rated as Special Mention								$ 20,100,000	$ 25,400,000		$ 12,300,000
Recorded investment in loans	2,800,000
Allowance for loan losses	$ 283,000
Loan considered for troubled debt restructuring		26			26	3	7
Loan Modified			13	9

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Reconciliation of Beginning and Ending Balances for Assets Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning balance	$ 1,521	$ 1,455
Transfers into Level 3
Total gains/ (losses) included in:
Net loss
Other comprehensive income	27	90
Purchases, sales, issuances and settlements, net	(41)	(38)
Ending balance	$ 1,507	$ 1,507

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Cash and due from banks	$ 4,908	$ 4,900
Interest earning balances with the Federal Reserve	2,618	4,241
Federal funds sold	20,025	14,752
Cash and cash equivalents	27,551	23,893
Investment and mortgage-backed securities-available for sale	167,478	165,878
Loans, net of unearned fees	134,996	160,568
Allowance for loan losses (ALLL)	(4,505)	(4,549)
Loans, net of ALLL	130,491	156,019
Real estate acquired through foreclosure	9,620	8,398
Office properties and equipment, net	3,242	4,787
Federal Home Loan Bank stock, at cost	2,253	3,363
Federal Reserve Bank stock, at cost	749	689
Accrued interest receivable	1,125	1,340
Cash surrender value of life insurance	8,138	7,923
Other assets	3,801	4,355
TOTAL ASSETS	354,448	376,645
LIABILITIES
Demand and savings deposits	163,489	158,372
Time deposits	117,934	124,877
Total deposits	281,423	283,249
Advances from the Federal Home Loan Bank	37,500	59,500
Securities sold under agreements to repurchase	6,057	5,268
Floating rate junior subordinated deferrable interest debentures	12,372	12,372
Accrued interest payable	1,080	1,028
Other liabilities	3,092	2,758
TOTAL LIABILITIES	341,524	364,175
Commitments and contingencies-Note 5
SHAREHOLDERS' EQUITY
Serial preferred stock - $0.01 par value authorized - 500, 000 shares issued and outstanding - 9,266 shares at September 30, 2012 and December 31, 2011	9,258	9,255
Common stock - $0.01 par value, authorized - 5,000,000 shares, issued-2,192,958 and outstanding-1,790,599 shares at September 30, 2012 and December 31, 2011, respectively	20	20
Common stock warrant	25	25
Additional paid-in capital	12,919	12,919
Accumulated other comprehensive loss	(100)	(387)
Retained deficit, substantially restricted	(2,898)	(3,062)
Treasury stock, at cost	(6,300)	(6,300)
TOTAL SHAREHOLDERS' EQUITY	12,924	12,470
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 354,448	$ 376,645

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
OPERATING ACTIVITIES:
Net income	$ 167	$ 118
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	630	290
Amortization of securities	1,215	495
Depreciation expense	269	292
Recognition of deferred income, net of costs	(209)	(85)
Deferral of fee income, net of costs	200	99
Other than temporary impairment charge on AFS securities		409
Gain on investment transactions	(1,108)	(697)
(Gain) loss on OREO sales	(77)	14
OREO impairment	650	1,272
Changes in operating assets and liabilities:
Decrease in accrued interest receivable	215	456
Increase in cash surrender value of life insurance	(215)	(252)
Decrease in other assets	554	311
Increase in other liabilities	334	370
Increase in accrued interest payable	52	301
Net cash provided by operating activities	2,677	3,393
Purchase of investment and mortgage-backed securities:
Available for sale	(166,011)	(97,885)
Proceeds from sale of investment and mortgage- backed securities:
Available for sale	38,954	50,210
Proceeds from maturity of investment and mortgage- backed securities:
Available for sale	114,199	37,237
Principal repayments on mortgage-backed securities:
Available for sale	11,438	7,748
Net decrease in loans	22,841	33,489
Redemption of FHLB/FRB stock	1,050	285
Proceeds from sales of foreclosed assets, net of costs and improvements	1,627	3,532
Purchase of office properties and equipment	(80)	(28)
Net cash provided by investing activities	24,018	34,588
FINANCING ACTIVITIES:
Proceeds from redemption of life insurance		1,032
Decrease in other borrowings	(21,211)	(4,663)
Decrease in deposit accounts	(1,826)	(22,632)
Net cash used by financing activities	(23,037)	(26,263)
NET INCREASE IN CASH AND CASH EQUIVALENTS	3,658	11,718
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	23,893	24,865
CASH AND CASH EQUIVALENTS AT END OF PERIOD	27,551	36,583
Cash paid for:
Income taxes
Interest	2,810	4,024
Non-cash transactions:
Loans foreclosed	3,422	3,299
Unrealized gains on securities available for sale, net of income tax	974	2,846
Bank property transferred to OREO	$ 1,356

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Credit Exposure (Detail) (Credit Exposure, Unused portions of loans and credit lines, USD $)	Sep. 30, 2012
Credit Exposure | Unused portions of loans and credit lines
Supply Commitment [Line Items]
Loan commitments	$ 15,390,000

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Loss Per Common Share - Additional Information (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive common stock equivalents excluded from diluted income (loss) per common share calculation	235,380	265,543	235,380	265,543

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Contingencies and Loan Commitments - Additional Information (Detail)	Sep. 30, 2012
Commitments Disclosure [Line Items]
Loan commitments fixed and adjusting rate, minimum	4.50%
Loan commitments fixed and adjusting rate, maximum	6.50%

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Loans Receivable (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended		12 Months Ended
	Sep. 30, 2012		Dec. 31, 2011
Mortgage loans:
Commercial real estate	$ 79,803	[1]	$ 97,547	[1]
Construction			308
Total mortgage loans	90,054		109,885
Commercial non-real estate	9,600	[1]	12,939	[1]
Consumer loans:
Home equity	14,542	[1]	14,590	[1]
Consumer and installment	20,555		22,939
Consumer lines of credit	286		300
Total consumer loans	35,383	[1]	37,829	[1]
Total loans	135,037		160,653
Unamortized loan discount	(193)		(231)
Allowance for loan losses	(4,505)		(4,549)
Net deferred loan origination costs	152		146
Total, net	130,491		156,019
Weighted-average interest rate of loans	5.01%		5.08%
Fixed Rate Residential Mortgage
Mortgage loans:
Residential	6,820		8,063
Adjustable Rate Residential Mortgage
Mortgage loans:
Residential	$ 3,431		$ 3,967

[1] Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

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Consolidated Statements Of Changes In Shareholders' Equity (USD $) In Thousands	Total	Preferred Stock	Common Stock	Warrants	Additional Paid-in Capital	Retained Earnings, Substantially Restricted	Accumulated Other Comprehensive Income (loss)	Treasury Stock at Cost
BALANCE at Dec. 31, 2010	$ 10,269	$ 9,250	$ 20	$ 25	$ 12,919	$ (2,867)	$ (2,778)	$ (6,300)
BALANCE (in shares) at Dec. 31, 2010		9,266	1,790,599
Net income	118					118
Other comprehensive income, net of tax of ($341 in 2012 and $968 in 2011) on unrealized holding gains on securities available for sale arising during period	2,846						2,846
Less reclassification adjustment for gains and other than temporary investment charge in net income, net of tax	(179)						(179)
Accretion of Preferred Stock to redemption value		4				(4)
BALANCE at Sep. 30, 2011	13,054	9,254	20	25	12,919	(2,753)	(111)	(6,300)
BALANCE (in shares) at Sep. 30, 2011		9,266	1,790,599
BALANCE at Dec. 31, 2011	12,470	9,255	20	25	12,919	(3,062)	(387)	(6,300)
BALANCE (in shares) at Dec. 31, 2011		9,266	1,790,599
Net income	167					167
Other comprehensive income, net of tax of ($341 in 2012 and $968 in 2011) on unrealized holding gains on securities available for sale arising during period	974						974
Less reclassification adjustment for gains and other than temporary investment charge in net income, net of tax	(687)						(687)
Accretion of Preferred Stock to redemption value		3				(3)
BALANCE at Sep. 30, 2012	$ 12,924	$ 9,258	$ 20	$ 25	$ 12,919	$ (2,898)	$ (100)	$ (6,300)
BALANCE (in shares) at Sep. 30, 2012		9,266	1,790,599

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Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Serial preferred stock, par value	$ 0.01	$ 0.01
Serial preferred stock, authorized	500,000	500,000
Serial preferred stock, issued	9,266	9,266
Serial preferred stock, outstanding	9,266	9,266
Common stock, par value	$ 0.01	$ 0.01
Common stock, authorized	5,000,000	5,000,000
Common stock, issued	2,192,958	2,192,958
Common stock, outstanding	1,790,599	1,790,599

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Subsequent Events

9 Months Ended

Sep. 30, 2012

Subsequent Events

9. Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through the date the financial statements were issued and no subsequent events have occurred requiring accrual or disclosure.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 05, 2012
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Trading Symbol	PCBS
Entity Registrant Name	PROVIDENT COMMUNITY BANCSHARES, INC.
Entity Central Index Key	0000926164
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		1,790,599

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Loans, net (Tables)

9 Months Ended

Sep. 30, 2012

Loans receivable

Loans receivable consisted of the following (dollars in thousands):

	September 30,			December 31,
	2012			2011
Mortgage loans:
Fixed-rate residential	$	6,820		$	8,063
Adjustable-rate residential		3,431			3,967
Commercial real estate		79,803			97,547
Construction		--			308
Total mortgage loans		90,054			109,885
Commercial non-real estate		9,600			12,939
Consumer loans:
Home equity		14,542			14,590
Consumer and installment		20,555			22,939
Consumer lines of credit		286			300
Total consumer loans		35,383			37,829
Total loans		135,037			160,653
Less:
Unamortized loan discount		(193	)		(231	)
Allowance for loan losses		(4,505	)		(4,549	)
Net deferred loan origination costs		152			146
Total, net	$	130,491		$	156,019
Weighted-average interest rate of loans		5.01	%		5.08	%

Information about Impaired Loans

Information about impaired loans for the periods ended September 30, 2012 and December 31, 2011 is as follows (in thousands):

	September 30,		December 31,
	2012		2011
Loans receivable for which there is a related allowance for credit losses determined in accordance with ASC 310-10/Statement No. 114	$	10,336	$	1,923
Other impaired loans		17,889		25,550
Total impaired loans	$	28,225	$	27,473
Average monthly balance of impaired loans	$	29,013	$	29,916
Specific allowance for credit losses	$	1,786	$	439

Impaired Loans

Impaired Loans

For the Periods Ended September 30, 2012 and December 31, 2011

(in thousands)

September 30, 2012	Unpaid Principal  Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial
Commercial Real Estate	$	14,913	$	11,643	$	--	$	13,278
Commercial Non Real Estate		971		764		--		868
Consumer
Consumer – other		4,034		3,124		--		3,579
Consumer - home equity		784		756		--		770
Residential Real Estate
1-4 Family		1,692		1,601		--		1,646
With a related allowance recorded:
Commercial
Commercial Real Estate	$	6,583	$	6,410	$	1,067	$	6,496
Commercial Non Real Estate		1,355		1,205		54		1,280
Consumer
Consumer - other		2,267		2,254		546		2,261
Residential Real Estate
1-4 Family		537		467		119		502
Total:	$	33,136	$	28,225	$	1,786	$	30,306
Commercial		23,822		20,022		1,121		21,922
Consumer		7,085		6,135		546		6,611
Residential		2,229		2,068		119		2,148

December 31, 2011	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial
Commercial Real Estate	$	22,454	$	16,949	$	--	$	19,702
Commercial Non Real Estate		2,376		2,075		--		2,225
Consumer
Consumer - other		5,135		4,203		--		4,669
Consumer - home equity		511		491		--		501
Residential Real Estate
1-4 Family		1,891		1,832		--		1,862
With a related allowance recorded:
Commercial
Commercial Real Estate	$	1,564	$	1,403	$	306	$	1,483
Commercial Non Real Estate		282		281		60		282
Consumer
Consumer - other		239		239		73		239
Total:	$	34,452	$	27,473	$	439	$	30,963
Commercial		26,676		20,708		366		23,692
Consumer		5,885		4,933		73		5,409
Residential		1,891		1,832		--		1,862

Loans Receivable on Non - Accrual Basis

At September 30, 2012 and December 31, 2011, loans which are accounted for on a non-accrual basis:

Loans Receivable on Non-accrual Status

As of September 30, 2012 and December 31, 2011

(in thousands)

	September 30,		December 31,
	2012		2011
Commercial
Commercial real estate	$	10,147	$	11,338
Commercial non real estate		1,238		1,340
Consumer
Consumer – other		2,445		2,536
Consumer – automobile		35		65
Consumer – home equity		623		307
Residential Real Estate
1-4 family		1,298		1,220
Total	$	15,786	$	16,806

Allowance for Loan Losses by Portfolio

Allowance for Loan Losses and Recorded Investment in Loans Receivable

(in thousands)

The following tables present the activity in the allowance for loan losses by portfolio segment as of September 30, 2012 and 2011.

				Commercial
	Commercial			Real Estate			Consumer			Residential			Total
September 30, 2012
Allowance for loan losses:
Beginning balance	$	1,887		$	1,920		$	484		$	258		$	4,549
Charge-offs		(82	)		(325	)		(363	)		(7	)		(777	)
Recoveries		5			90			4			4			103
Provisions		(202	)		--			692			140			630
Ending Balance	$	1,608		$	1,685		$	817		$	395		$	4,505
September 30, 2011
Allowance for loan losses:
Beginning balance	$	2,166		$	4,602		$	335		$	276		$	7,379
Charge-offs		(334	)		(3,217	)		(189	)		(3	)		(3,743	)
Recoveries		35			155			27			40			257
Provisions		--			182			186			(78	)		290
Ending Balance	$	1,867		$	1,722		$	359		$	235		$	4,183

Allowance for Loan Losses and Recorded Investment in Loans

The following tables present the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2012 and December 31, 2011.

			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2012
Allowance for loan losses:
Beginning balances attributable to loans
Individually evaluated for impairment	$	54	$	1,067	$	546	$	119	$	1,786
Collectively evaluated for impairment		1,554		618		271		276		2,719
Ending Balance	$	1,608	$	1,685	$	817	$	395	$	4,505
Loans receivable:
Ending balance – total	$	9,600	$	79,803	$	35,383	$	10,251	$	135,037
Ending balances:
Individually evaluated for impairment	$	1,969	$	18,053	$	6,135	$	2,068	$	28,225
Collectively evaluated for impairment	$	7,631	$	61,750	$	29,248	$	8,183	$	106,812

			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
December 31, 2011
Allowance for loan losses:
Beginning balances attributable to loans
Individually evaluated for impairment	$	60	$	306	$	73	$	--	$	439
Collectively evaluated for impairment		1,827		1,614		411		258		4,110
Ending Balance	$	1,887	$	1,920	$	484	$	258	$	4,549
Loans receivable:
Ending balance – total	$	12,939	$	97,547	$	37,829	$	12,338	$	160,653
Ending balances:
Individually evaluated for impairment	$	2,356	$	18,352	$	4,933	$	1,832	$	27,473
Collectively evaluated for impairment	$	10,583	$	79,195	$	32,896	$	10,506	$	133,180

Credit Risk Profile by Creditworthiness Category

Consumer Credit Exposure (1)

Credit Risk Profile Based on Payment Activity

	Consumer								Residential real estate
	Other				Automobile				Home equity				1-4 family
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2012		2011		2012		2011		2012		2011		2012		2011
Performing	$	17,578	$	19,760	$	783	$	878	$	13,919	$	14,282	$	8,953	$	11,118
Nonperforming		2,445		2,536		35		65		623		308		1,298		1,220
Total	$	20,023	$	22,296	$	818	$	943	$	14,542	$	14,590	$	10,251	$	12,338

(1) Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

Past Due Loan Trends for Corporation's Loans Receivable

The following are past due loans for the Corporation’s loans receivable for the periods ended September 30, 2012 and December 31, 2011(in thousands).

					Greater				90 days
	30 – 59 Days		60 – 89 Days		Than		Total Past		Past Due				Total Loans
	Past Due		Past Due		90 Days		Due		& Still Accruing		Current		Receivable
September 30, 2012
Commercial:
Commercial non real estate	$	36	$	--	$	643	$	679	$	--	$	8,921	$	9,600
Commercial real estate		437		91		7,522		8,050		--		71,753		79,803
Consumer:
Consumer – other		90		139		1,287		1,516		--		18,507		20,023
Consumer – automobile		11		8		6		25		--		793		818
Consumer – home equity		245		80		537		862		--		13,680		14,542
Residential 1-4 family		511		284		544		1,339		--		8,912		10,251
Total	$	1,330	$	602	$	10,539	$	12,471	$	--	$	122,566	$	135,037
December 31, 2011
Commercial:
Commercial non real estate	$	485	$	139	$	996	$	1,237	$	383	$	11,319	$	12,939
Commercial real estate		714		472		8,046		9,232		--		88,315		97,547
Consumer:
Consumer – other		422		69		2,052		2,543		--		19,753		22,296
Consumer – automobile		69		--		--		69		--		874		943
Consumer – home equity		408		47		182		578		59		13,953		14,590
Residential 1-4 family		482		--		675		1,157		--		11,181		12,338
Total	$	2,580	$	727	$	11,951	$	14,816	$	442	$	145,395	$	160,653

Loan Modifications for Corporation's Loans Receivable

The following are loan modifications for the Corporation’s loans receivable for the three and nine month periods ended September 30, 2012.

	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
			Pre		Post				Pre		Post
			Modification		Modification				Modification		Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
Troubled Debt Restructurings	of New		Recorded		Recorded		of New		Recorded		Recorded
Added during current period	Contracts		Investment		Investment		Contracts		Investment		Investment
	(in thousands)						(in thousands)
Commercial:
Commercial non real estate		1	$	201	$	181		1	$	201	$	181
Commercial real estate		4		520		519		7		788		776
Consumer:
Consumer – other		10		1,128		1,127		17		1,891		1,890
Residential 1-4 family		--		--		--		1		1		1
Total		15	$	1,849	$	1,827		26	$	2,881	$	2,848

	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
			Post						Post
			Modification						Modification
	Number		Outstanding		Defaulted		Number		Outstanding		Defaulted
Troubled Debt Restructurings	of New		Recorded		Recorded		of New		Recorded		Recorded
Defaulted during the period	Contracts		Investment		Investment		Contracts		Investment		Investment
Added since June 30, 2011	(in thousands)						(in thousands)
Commercial:
Commercial non real estate		--	$	--	$	--		1	$	290	$	273
Commercial real estate		2		689		689		3		864		854
Consumer:
Consumer – other		1		70		70		1		70		70
Total		3	$	759	$	759		5	$	1,224	$	1,197

Internally Assigned Grade

Credit Risk Profile by Creditworthiness Category

Consumer Credit Exposure (1)

Credit Risk Profile by Internally Assigned Grade

	Residential				Consumer
	September 30,		December 31,		September 30,		December 31,
	2012		2011		2012		2011
Grade:
Pass	$	8,512	$	10,833	$	29,293	$	33,307
Special mention		632		243		2,043		480
Substandard		1,107		1,262		4,047		4,042
Total	$	10,251	$	12,338	$	35,383	$	37,829

(1) Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

Corporate Credit Quality Indicator

Credit Risk Profile by Creditworthiness Category

Commercial Credit Exposure (1)

Credit Risk Profile by Creditworthiness Category

	Commercial Non Real				Commercial Real
	Estate				Estate
	September 30,		December 31,		September 30,		December 31,
	2012		2011		2012		2011
Grade 1 Minimal Risk	$	63	$	51	$	--	$	--
Grade 2 Low Risk		--		223		--		--
Grade 3 Moderate Risk		86		363		7,354		9,242
Grade 4 Acceptable Risk		4,880		6,458		30,004		39,168
Grade 5 Watch		1,467		1,778		20,948		21,263
Grade 6 Special Mention		2,239		1,933		7,429		9,890
Grade 7 Substandard		770		1,926		12,818		17,984
Grade 8 Doubtful		95		206		1,250		--
Total	$	9,600	$	12,939	$	79,803	$	97,547

(1) Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

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Consolidated Statements Of Income (Loss) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Interest Income:
Loans	$ 1,775	$ 2,151	$ 5,556	$ 6,939
Deposits and federal funds sold	5	3	13	17
Interest on mortgage-backed securities	348	677	1,115	2,038
Interest and dividends on investment securities	592	650	1,835	1,799
Total interest income	2,720	3,481	8,519	10,793
Interest Expense:
Deposit accounts	312	552	1,030	2,095
Floating rate junior subordinated deferrable interest debentures	69	118	210	355
Advances from the FHLB and other borrowings	448	632	1,622	1,875
Total interest expense	829	1,302	2,862	4,325
Net Interest Income	1,891	2,179	5,657	6,468
Provision for loan losses		290	630	290
Net interest income after provision for loan losses	1,891	1,889	5,027	6,178
Non-Interest Income:
Fees for financial services	722	645	1,986	1,929
Other fees, net	4	5	14	27
Other-than-temporary-impairment write-down on securities		(218)		(409)
Net gain on sale of investments	584	419	1,108	697
Total non-interest income	1,310	851	3,108	2,244
Non-Interest Expense:
Compensation and employee benefits	1,028	1,008	3,154	3,115
Occupancy and equipment	654	623	1,934	1,911
Deposit insurance premiums	217	179	611	536
Professional services	164	144	519	454
Advertising and public relations	5	5	29	25
OREO and loan operations	539	483	614	1,304
Items processing	65	74	202	225
Telephone	44	40	133	133
Other	223	178	605	576
Total non-interest expense	2,939	2,734	7,801	8,279
Net income before income taxes	262	6	334	143
Expense for income taxes	154	7	167	25
Net income (loss)	108	(1)	167	118
Accretion of preferred stock to redemption value and preferred dividends accrued	120	120	356	355
Net loss to common shareholders	$ (12)	$ (121)	$ (189)	$ (237)
Net loss per common share (basic)	$ (0.01)	$ (0.07)	$ (0.11)	$ (0.13)
Net loss per common share (diluted)	$ (0.01)	$ (0.07)	$ (0.11)	$ (0.13)
Weighted average number of common shares outstanding
Basic	1,790,599	1,790,599	1,790,599	1,790,599
Diluted	1,790,599	1,790,599	1,790,599	1,790,599

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Loans, net

9 Months Ended

Sep. 30, 2012

Loans, net

4.           Loans, net

Loans receivable consisted of the following (dollars in thousands):

	September 30,			December 31,
	2012			2011
Mortgage loans:
Fixed-rate residential	$	6,820		$	8,063
Adjustable-rate residential		3,431			3,967
Commercial real estate		79,803			97,547
Construction		--			308
Total mortgage loans		90,054			109,885
Commercial non-real estate		9,600			12,939
Consumer loans:
Home equity		14,542			14,590
Consumer and installment		20,555			22,939
Consumer lines of credit		286			300
Total consumer loans		35,383			37,829
Total loans		135,037			160,653
Less:
Unamortized loan discount		(193	)		(231	)
Allowance for loan losses		(4,505	)		(4,549	)
Net deferred loan origination costs		152			146
Total, net	$	130,491		$	156,019
Weighted-average interest rate of loans		5.01	%		5.08	%

Information about impaired loans for the periods ended September 30, 2012 and December 31, 2011 is as follows (in thousands):

	September 30,		December 31,
	2012		2011
Loans receivable for which there is a related allowance for credit losses determined in accordance with ASC 310-10/Statement No. 114	$	10,336	$	1,923
Other impaired loans		17,889		25,550
Total impaired loans	$	28,225	$	27,473
Average monthly balance of impaired loans	$	29,013	$	29,916
Specific allowance for credit losses	$	1,786	$	439

Impaired Loans

For the Periods Ended September 30, 2012 and December 31, 2011

(in thousands)

September 30, 2012	Unpaid Principal  Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial
Commercial Real Estate	$	14,913	$	11,643	$	--	$	13,278
Commercial Non Real Estate		971		764		--		868
Consumer
Consumer – other		4,034		3,124		--		3,579
Consumer - home equity		784		756		--		770
Residential Real Estate
1-4 Family		1,692		1,601		--		1,646
With a related allowance recorded:
Commercial
Commercial Real Estate	$	6,583	$	6,410	$	1,067	$	6,496
Commercial Non Real Estate		1,355		1,205		54		1,280
Consumer
Consumer - other		2,267		2,254		546		2,261
Residential Real Estate
1-4 Family		537		467		119		502
Total:	$	33,136	$	28,225	$	1,786	$	30,306
Commercial		23,822		20,022		1,121		21,922
Consumer		7,085		6,135		546		6,611
Residential		2,229		2,068		119		2,148

December 31, 2011	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial
Commercial Real Estate	$	22,454	$	16,949	$	--	$	19,702
Commercial Non Real Estate		2,376		2,075		--		2,225
Consumer
Consumer - other		5,135		4,203		--		4,669
Consumer - home equity		511		491		--		501
Residential Real Estate
1-4 Family		1,891		1,832		--		1,862
With a related allowance recorded:
Commercial
Commercial Real Estate	$	1,564	$	1,403	$	306	$	1,483
Commercial Non Real Estate		282		281		60		282
Consumer
Consumer - other		239		239		73		239
Total:	$	34,452	$	27,473	$	439	$	30,963
Commercial		26,676		20,708		366		23,692
Consumer		5,885		4,933		73		5,409
Residential		1,891		1,832		--		1,862

At September 30, 2012 and December 31, 2011, loans which are accounted for on a non-accrual basis:

Loans Receivable on Non-accrual Status

As of September 30, 2012 and December 31, 2011

(in thousands)

	September 30,		December 31,
	2012		2011
Commercial
Commercial real estate	$	10,147	$	11,338
Commercial non real estate		1,238		1,340
Consumer
Consumer – other		2,445		2,536
Consumer – automobile		35		65
Consumer – home equity		623		307
Residential Real Estate
1-4 family		1,298		1,220
Total	$	15,786	$	16,806

Allowance for Loan Losses and Recorded Investment in Loans Receivable

(in thousands)

The following tables present the activity in the allowance for loan losses by portfolio segment as of September 30, 2012 and 2011.

				Commercial
	Commercial			Real Estate			Consumer			Residential			Total
September 30, 2012
Allowance for loan losses:
Beginning balance	$	1,887		$	1,920		$	484		$	258		$	4,549
Charge-offs		(82	)		(325	)		(363	)		(7	)		(777	)
Recoveries		5			90			4			4			103
Provisions		(202	)		--			692			140			630
Ending Balance	$	1,608		$	1,685		$	817		$	395		$	4,505
September 30, 2011
Allowance for loan losses:
Beginning balance	$	2,166		$	4,602		$	335		$	276		$	7,379
Charge-offs		(334	)		(3,217	)		(189	)		(3	)		(3,743	)
Recoveries		35			155			27			40			257
Provisions		--			182			186			(78	)		290
Ending Balance	$	1,867		$	1,722		$	359		$	235		$	4,183

The following tables present the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2012 and December 31, 2011.

			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2012
Allowance for loan losses:
Beginning balances attributable to loans
Individually evaluated for impairment	$	54	$	1,067	$	546	$	119	$	1,786
Collectively evaluated for impairment		1,554		618		271		276		2,719
Ending Balance	$	1,608	$	1,685	$	817	$	395	$	4,505
Loans receivable:
Ending balance – total	$	9,600	$	79,803	$	35,383	$	10,251	$	135,037
Ending balances:
Individually evaluated for impairment	$	1,969	$	18,053	$	6,135	$	2,068	$	28,225
Collectively evaluated for impairment	$	7,631	$	61,750	$	29,248	$	8,183	$	106,812

			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
December 31, 2011
Allowance for loan losses:
Beginning balances attributable to loans
Individually evaluated for impairment	$	60	$	306	$	73	$	--	$	439
Collectively evaluated for impairment		1,827		1,614		411		258		4,110
Ending Balance	$	1,887	$	1,920	$	484	$	258	$	4,549
Loans receivable:
Ending balance – total	$	12,939	$	97,547	$	37,829	$	12,338	$	160,653
Ending balances:
Individually evaluated for impairment	$	2,356	$	18,352	$	4,933	$	1,832	$	27,473
Collectively evaluated for impairment	$	10,583	$	79,195	$	32,896	$	10,506	$	133,180

Credit Quality Indicators

As of September 30, 2012 and December 31, 2011

(in thousands)

Credit Quality Indicators: The Corporation regularly monitors the credit quality of its loan portfolio. Credit quality refers to the current and expected ability of borrowers to repay their obligations according to the contractual terms of such loans. Credit quality is evaluated through assignment of individual loan grades, as well as past-due and performing status analysis. Credit quality indicators allow the Corporation to assess the inherent loss on certain individual and pools of loans.

Commercial Credit Exposure (1)

Credit Risk Profile by Creditworthiness Category

	Commercial Non Real				Commercial Real
	Estate				Estate
	September 30,		December 31,		September 30,		December 31,
	2012		2011		2012		2011
Grade 1 Minimal Risk	$	63	$	51	$	--	$	--
Grade 2 Low Risk		--		223		--		--
Grade 3 Moderate Risk		86		363		7,354		9,242
Grade 4 Acceptable Risk		4,880		6,458		30,004		39,168
Grade 5 Watch		1,467		1,778		20,948		21,263
Grade 6 Special Mention		2,239		1,933		7,429		9,890
Grade 7 Substandard		770		1,926		12,818		17,984
Grade 8 Doubtful		95		206		1,250		--
Total	$	9,600	$	12,939	$	79,803	$	97,547

(1) Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

The Corporation uses an internal risk rating system to classify and monitor the credit quality of loans. Loan risk ratings are based on a graduated scale representing increasing likelihood of loss. Primary responsibility for the assignment of risk ratings of loans is with the individual loan officer assigned to each loan, subject of verification by the Credit Administration department. Risk ratings are also reviewed periodically by an independent third party loan review firm that reports directly to the Board of Directors.

Consumer Credit Exposure (1)

Credit Risk Profile by Internally Assigned Grade

	Residential				Consumer
	September 30,		December 31,		September 30,		December 31,
	2012		2011		2012		2011
Grade:
Pass	$	8,512	$	10,833	$	29,293	$	33,307
Special mention		632		243		2,043		480
Substandard		1,107		1,262		4,047		4,042
Total	$	10,251	$	12,338	$	35,383	$	37,829

(1) Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

Consumer Credit Exposure (1)

Credit Risk Profile Based on Payment Activity

	Consumer								Residential real estate
	Other				Automobile				Home equity				1-4 family
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2012		2011		2012		2011		2012		2011		2012		2011
Performing	$	17,578	$	19,760	$	783	$	878	$	13,919	$	14,282	$	8,953	$	11,118
Nonperforming		2,445		2,536		35		65		623		308		1,298		1,220
Total	$	20,023	$	22,296	$	818	$	943	$	14,542	$	14,590	$	10,251	$	12,338

(1) Credit quality indicators are reviewed and updated as applicable on an ongoing basis in accordance with credit policies.

Loans graded one through five are considered “pass” credits.  As of September 30, 2012, approximately 76% of the loan portfolio were considered pass credits.  For loans to qualify for these grades, they must be performing relatively close to expectations, with no significant departures from the intended source and timing of repayment.

Loans with a credit grade of six are not considered classified; however they are categorized as a special mention or watch list credit. This classification is utilized by us when we have an initial concern about the financial health of a borrower. These loans are designated as such in order to be monitored more closely than other credits in our portfolio. We then gather current financial information about the borrower and evaluate our current risk in the credit. We will then either reclassify the loan as “substandard” or back to its original risk rating after a review of the information. There are times when we may leave the loan on the watch list, if, in management’s opinion, there are risks that cannot be fully evaluated without the passage of time, and we determine to review the loan on a more regular basis. Loans on the watch list are not considered problem loans until they are determined by management to be classified as substandard. As of September 30, 2012, we had loans totaling $12.3 million rated as Special Mention.

Loans graded seven or greater are considered classified credits. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. The loan has well-defined weaknesses that jeopardize the liquidation value and has the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have the weaknesses of Substandard but have additional factors that make collection or liquidation in full highly questionable and improbable. At September 30, 2012, classified loans totaled $20.1 million, with all but one loan being collateralized by real estate. This compares to classified loans of $25.4 million at December 31, 2011.Classified credits are evaluated for impairment on a quarterly basis.

The following are past due loans for the Corporation’s loans receivable for the periods ended September 30, 2012 and December 31, 2011(in thousands).

					Greater				90 days
	30 – 59 Days		60 – 89 Days		Than		Total Past		Past Due				Total Loans
	Past Due		Past Due		90 Days		Due		& Still Accruing		Current		Receivable
September 30, 2012
Commercial:
Commercial non real estate	$	36	$	--	$	643	$	679	$	--	$	8,921	$	9,600
Commercial real estate		437		91		7,522		8,050		--		71,753		79,803
Consumer:
Consumer – other		90		139		1,287		1,516		--		18,507		20,023
Consumer – automobile		11		8		6		25		--		793		818
Consumer – home equity		245		80		537		862		--		13,680		14,542
Residential 1-4 family		511		284		544		1,339		--		8,912		10,251
Total	$	1,330	$	602	$	10,539	$	12,471	$	--	$	122,566	$	135,037
December 31, 2011
Commercial:
Commercial non real estate	$	485	$	139	$	996	$	1,237	$	383	$	11,319	$	12,939
Commercial real estate		714		472		8,046		9,232		--		88,315		97,547
Consumer:
Consumer – other		422		69		2,052		2,543		--		19,753		22,296
Consumer – automobile		69		--		--		69		--		874		943
Consumer – home equity		408		47		182		578		59		13,953		14,590
Residential 1-4 family		482		--		675		1,157		--		11,181		12,338
Total	$	2,580	$	727	$	11,951	$	14,816	$	442	$	145,395	$	160,653

Troubled Debt Restructurings

As a result of adopting the amendments in ASU 2011-02, the Corporation reassessed all restructurings that occurred on or after the beginning of the fiscal year of adoption (January 1, 2011) to determine whether they were considered troubled debt restructurings (TDRs) under the amended guidance. The Corporation 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 Corporation 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 September 30, 2012, the recorded investment in loans for which the allowance was previously measured under a general allowance methodology and are now impaired under ASC 310-10-35 was $2.8 million, and the allowance for loan losses associated with those loans, on the basis of a current evaluation of loss was $283,000. The following are loan modifications for the Corporation’s loans receivable for the three and nine month periods ended September 30, 2012.

	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
			Pre		Post				Pre		Post
			Modification		Modification				Modification		Modification
	Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
Troubled Debt Restructurings	of New		Recorded		Recorded		of New		Recorded		Recorded
Added during current period	Contracts		Investment		Investment		Contracts		Investment		Investment
	(in thousands)						(in thousands)
Commercial:
Commercial non real estate		1	$	201	$	181		1	$	201	$	181
Commercial real estate		4		520		519		7		788		776
Consumer:
Consumer – other		10		1,128		1,127		17		1,891		1,890
Residential 1-4 family		--		--		--		1		1		1
Total		15	$	1,849	$	1,827		26	$	2,881	$	2,848

	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
			Post						Post
			Modification						Modification
	Number		Outstanding		Defaulted		Number		Outstanding		Defaulted
Troubled Debt Restructurings	of New		Recorded		Recorded		of New		Recorded		Recorded
Defaulted during the period	Contracts		Investment		Investment		Contracts		Investment		Investment
Added since June 30, 2011	(in thousands)						(in thousands)
Commercial:
Commercial non real estate		--	$	--	$	--		1	$	290	$	273
Commercial real estate		2		689		689		3		864		854
Consumer:
Consumer – other		1		70		70		1		70		70
Total		3	$	759	$	759		5	$	1,224	$	1,197

During the nine months ended September 30, 2012, the Corporation modified 26 loans that were considered to be troubled debt restructurings. We extended the terms for 13 of these loans and the interest rate was lowered for 9 of these loans. During the nine months ended September 30, 2012, the Corporation had 26 loans default that had previously been restructured, 3 of which went into default in the quarter and 7 of which went into default during the previous 12 months.

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Assets Pledged

9 Months Ended

Sep. 30, 2012

Assets Pledged

3.           Assets Pledged

Approximately $64.0 million and $85.1 million of debt securities at September 30, 2012 and December 31, 2011, respectively, were pledged by the Bank as collateral to secure deposits of the State of South Carolina, and Union, Laurens and York counties along with additional borrowings and repurchase agreements. The Bank pledges as collateral for Federal Home Loan Bank (the “FHLB”) advances commercial and residential real estate mortgage loans under a collateral agreement with the FHLB whereby the Bank maintains, free of other encumbrances, qualifying mortgages (as defined) with unpaid principal balances equal to, when discounted at 75% of the unpaid principal balances, 100% of total advances. As part of the total assets pledged, the Bank will also pledge securities to cover additional advances from the FHLB that exceed the qualifying mortgages balance along with security repurchase lines with various brokerage houses.

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Assets Pledged - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Financial Instruments Owned and Pledged as Collateral [Line Items]
Debt securities pledged by bank as collateral	$ 64.0	$ 85.1
Securities pledged as collateral, description	The Bank pledges as collateral for Federal Home Loan Bank (the "FHLB") advances commercial and residential real estate mortgage loans under a collateral agreement with the FHLB whereby the Bank maintains, free of other encumbrances, qualifying mortgages (as defined) with unpaid principal balances equal to, when discounted at 75% of the unpaid principal balances, 100% of total advances.

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Contingencies and loan commitments (Tables)

9 Months Ended

Sep. 30, 2012

Credit Exposure

Total credit exposure at September 30, 2012 related to these items is summarized below:

Loan Commitments:	Contract Amount
Unused portions of loans and credit lines	$	15,390,000

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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2012

Fair Value of Financial Instruments

7.           Fair Value of Financial Instruments

The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Effective January 1, 2008, the Corporation adopted FASB 157 (ASC 820-10-15), Fair Value Measurements, which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. This standard 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).

Fair Value Hierarchy

ASC 820-10-15 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10-15  also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1	Valuation is based upon quoted prices in active markets for identical assets or liabilities.
Level 2	Valuation is based upon 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 3	Valuation is based upon quoted prices for similar assets or liabilities; quoted prices in markets that are not active; and model-based techniques whose value is determined using pricing models, discounted cash flow methodologies and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available-for-Sale

Available-for-sale investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 may include asset-backed securities in less liquid markets.

Loans

The Corporation is predominantly an asset based lender with real estate serving as collateral on a substantial majority of loans. The Corporation does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and the related impairment is charged against the allowance or a specific allowance is established. The Corporation performs its allowance for loan and lease losses calculation on a quarterly basis, which also includes an evaluation of all non-performing loans for further impairment even if a new appraisal is not obtained on a quarterly basis. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Loans which are deemed to be impaired are primarily valued at the fair values of the underlying real estate collateral. Such fair values are obtained using collateral net liquidation value, market value of similar debt, enterprise value, and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of the expected repayment or collateral meet or exceed the recorded investment in such loans. The Corporation considers all non-accrual loans and troubled debt restructurings to be impaired. When the fair value of the collateral is based on an observable market price or a current appraised value, the Corporation records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Corporation records the impaired loans as nonrecurring Level 3. Certain assumptions and unobservable inputs are currently being used by appraisers, therefore qualifying impaired loans as Level 3. Consistent with the regulator’s appraisal guidance dated December 10, 2010, the Corporation has adopted a loan reappraisal policy.  The regulatory guidance states that a bank should establish criteria for assessing whether an existing appraisal or evaluation continues to reflect the market value of the property.  Generally, impaired loans will be evaluated using an existing appraisal if the valuation has been established within the previous twelve months. However, market conditions may dictate an updated appraisal for a lesser timeframe. Factors include deterioration in the credit since origination or changes in market conditions. Changes in market conditions could include material changes in current and projected vacancy, absorption rates, lease terms, rental rates, and sale prices, including concessions and overruns and delays in construction costs.  Fluctuations in discount or direct capitalization rates also are indicators of changing market conditions. In assessing whether changes in market conditions are material, the Bank  considers the individual and aggregate effect of these changes on its collateral protection and the risk in its real estate lending program or credit portfolios.

Real Estate Acquired Through Foreclosure

Other real estate owned (“OREO”) is adjusted to fair value upon transfer of the loans to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. Certain assumptions and unobservable inputs are currently being used by appraisers, therefore qualifying these assets as Level 3.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present the balances of assets recorded at fair value on a recurring basis by level within the hierarchy as of September 30, 2012 and December 31, 2011 (in thousands).

			Quoted Prices in		Significant Other		Significant
	Total		Active Markets for		Observable		Unobservable
	September 30,		Identical Assets		Inputs		Inputs
	2012		(Level 1)		(Level 2)		(Level 3)
Investment Securities:
Government Sponsored Enterprises	$	107,588	$	107,588	$	--	$	--
Trust Preferred Securities		4,308		--		2,801		1,507
Total Investment Securities		111,896		107,588		2,801		1,507
Mortgage-Backed and       Related Securities		55,582		--		55,582		--
Total	$	167,478	$	107,588	$	58,383	$	1,507

			Quoted Prices in		Significant Other		Significant
	Total		Active Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
	2011		(Level 1)		(Level 2)		(Level 3)
Investment Securities:
U.S. Agency Obligations	$	1	$	1	$	--	$	--
Government Sponsored Enterprises		87,538		87,538		--		--
Trust Preferred Securities		4,205		--		2,750		1,455
Total Investment Securities		91,744		87,539		2,750		1,455
Mortgage-Backed and       Related Securities		74,134		--		74,134		--
Total	$	165,878	$	87,539	$	76,884	$	1,455

The following is a reconciliation of the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period ended September 30, 2012.

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	(in thousands)
Investment Securities	Available-for-Sale
Beginning balance at June 30, 2012	$	1,521
Transfers into Level 3		--
Total gains/ (losses) included in:
Net loss		--
Other comprehensive income		27
Purchases, sales, issuances and settlements, net		(41	)
Ending balance at September 30, 2012	$	1,507
	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	(in thousands)
Investment Securities	Available-for-Sale
Beginning balance at December 31, 2011	$	1,455
Transfers into Level 3		--
Total gains/ (losses) included in:
Net loss		--
Other comprehensive income		90
Purchases, sales, issuances and settlements, net		(38	)
Ending balance at September 30, 2012	$	1,507

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Corporation may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period and assumes all non-performing assets have specific reserves or have been written down to fair value.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2012, the significant unobservable inputs used in the fair value measurements were as follows: (in thousands)

				Significant	Significant
	Fair Value at		Valuation	Unobservable	Unobservable
	September 30, 2012		Technique	Inputs	InputValue
Non-performing Loans	$	14,000	Appraised Value/	Appraisals and/or sales of		n/a
			Discounted Cash Flows/	comparable properties/
			Market Value of the Note	Independent quotes
OREO		9,620	Appraised Value/	Appraisals and/or sales of		n/a
			Comparable Sales/	comparable properties/
			Other Estimates from	Independent quotes/bids
			Independent Sources
Total assets at fair value	$	23,620

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2011, the significant unobservable inputs used in the fair value measurements were as follows: (in thousands)

				Significant	Significant
	Fair Value at		Valuation	Unobservable	Unobservable
	December 31, 2011		Technique	Inputs	InputValue
Impaired loans	$	16,367	Appraised Value/	Appraisals and/or sales of		n/a
			Discounted Cash Flows/	comparable properties/
			Market Value of the Note	Independent quotes
OREO		8,398	Appraised Value/	Appraisals and/or sales of		n/a
			Comparable Sales/	comparable properties/
			Other Estimates from	Independent quotes/bids
			Independent Sources
Total assets at fair value	$	24,765

Level 3 Valuation Methodologies. Following is a description of the unobservable inputs used for Level 3 fair value measurements.

Impaired Loans. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Loans which are deemed to be impaired are primarily valued at the fair values of the underlying real estate collateral. Such fair values are obtained using collateral net liquidation value, market value of similar debt, enterprise value, and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of the expected repayment or collateral meet or exceed the recorded investment in such loans. The Corporation considers all non-accrual loans and troubled debt restructurings to be impaired. When the fair value of the collateral is based on an observable market price or a current appraised value, the Corporation records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Corporation records the impaired loans as nonrecurring Level 3. Certain assumptions and unobservable inputs are currently being used by appraisers, therefore qualifying impaired loans as Level 3. Impaired loan totals represent non-performing loans for the periods indicated.

Real Estate Acquired Through Foreclosure. OREO is adjusted to fair value upon transfer of the loans to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. Certain assumptions and unobservable inputs are currently being used by appraisers, therefore qualifying these assets as Level 3.

Investment Securities: Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 may include asset-backed securities in less liquid markets.

The following methods and assumptions were used by the Corporation in estimating fair values of financial instruments as disclosed herein:

Cash and federal funds sold- The carrying amounts of cash and due from banks and federal funds sold approximate their fair value.

Available for sale and held to maturity securities - Fair values for securities are based on quoted market prices. The carrying values of restricted equity securities approximate fair values.If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.

Loans - The Corporation is predominantly an asset based lender with real estate serving as collateral on a substantial majority of loans. The Corporation does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and the related impairment is charged against the allowance or a specific allowance is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Loans which are deemed to be impaired are primarily valued at the fair values of the underlying real estate collateral. Such fair values are obtained using collateral net liquidation value, market value of similar debt, enterprise value, and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of the expected repayment or collateral meet or exceed the recorded investment in such loans. The Corporation considers all non-accrual loans and troubled debt restructurings to be impaired.

Cash surrender value of life insurance - The carrying amounts of cash surrender values of life insurance approximate their fair value.

Deposit liabilities - The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money-market accounts and certificates of deposit (CDs) approximate their fair values at the reporting date. Fair values for fixed-rate CDs are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Advances from the Federal Home Loan Bank (“FHLB”) and other borrowings - The fair values of the Corporation’s borrowings are estimated using discounted cash flow analysis based on the Corporation’s current incremental borrowing rates for similar types of borrowing arrangements.

Securities sold under agreements to repurchase - The fair values of the Corporation’s repurchase agreements are estimated using discounted cash flow analysis based on the Corporation’s current incremental borrowing rates for similar types of borrowing arrangements.

Accrued interest - The carrying amounts of accrued interest approximate their fair values.

Floating rate junior subordinated deferrable interest debentures - The fair values of the Corporation’s floating rate debentures are estimated using discounted cash flow analysis based on the Corporation’s current incremental borrowing rates for similar types of borrowing arrangements.

Off-balance-sheet instruments - Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter parties’ credit standings.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of September 30, 2012 and December 31, 2011.  This table excludes financial instruments for which the carrying amount approximates fair value.  For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization.  For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

					Fair Value Measurements
					Quoted
					Prices in
					Active Markets		Significant
					for Identical		Other		Significant
					Assets or		Observable		Unobservable
	Carrying				Liabilities		Inputs		Inputs
(dollars in thousands)	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2012
Financial Instruments - Assets
Cash and cash equivalents	$	27,551	$	27,551	$	27,551	$	--	$	--
Loans		130,491		131,483		--		--		131,483
Financial Instruments – Liabilities
Time deposits	$	117,934	$	118,335	$	-	$	118,335	$	--
Securities sold under agreements
to repurchase		6,057		6,057		--		6,057		--
Subordinated debentures		12,372		12,372		--		12,372		--
December 31, 2011
Financial Instruments - Assets
Cash and cash equivalents	$	23,893	$	23,893	$	23,893	$	--	$	--
Loans		156,019		161,219		--		--		161,219
Financial Instruments – Liabilities
Time deposits	$	124,877	$	125,404	$	--	$	125,404	$	--
Securities sold under agreements
to repurchase		5,268		5,268		--		5,268		--
Subordinated debentures		12,372		12,372		--		12,372		--

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Contingencies and loan commitments

9 Months Ended

Sep. 30, 2012

Contingencies and loan commitments

5.           Contingencies and loan commitments

In the ordinary course of business, the Corporation enters into financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These instruments expose the Bank to credit risk in excess of the amount recognized on the balance sheet.

The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Total credit exposure at September 30, 2012 related to these items is summarized below:

Loan Commitments:	Contract Amount
Unused portions of loans and credit lines	$	15,390,000

Loan commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on management’s credit evaluation of the counter party. Collateral held is primarily residential and commercial property. Total loan commitments outstanding at September 30, 2012 consisted of fixed and adjustable rate loans at rates ranging from 4.5% to 6.5%.

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Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures

9 Months Ended

Sep. 30, 2012

Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures

6.           Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures

On July 18, 2006, the Corporation sponsored the creation of Provident Community Bancshares Capital Trust I (“Capital Trust I”). The Corporation is the owner of all of the common securities of Capital Trust I.  On July 21, 2006, Capital Trust I issued $4,000,000 in the form of floating/fixed rate capital securities through a pooled trust preferred securities offering.  The proceeds from this issuance, along with the Corporation’s $124,000 capital contribution for Capital Trust I’s common securities, were used to acquire $4,124,000 aggregate principal amount of the Corporation’s floating rate junior subordinated deferrable interest debentures due October 1, 2036 (the “Debentures”), which constitute the sole asset of Capital Trust I. The interest rate on the Debentures and the capital securities is variable and adjustable quarterly at 1.74% over the three-month LIBOR. The Corporation has, through the Trust Agreement establishing Capital Trust I, the Guarantee Agreement, the notes and the related Debenture, taken together, fully irrevocably and unconditionally guaranteed all of the Capital Trust I obligations under the capital securities.

On November 28, 2006, the Corporation sponsored the creation of Provident Community Bancshares Capital Trust II (“Capital Trust II”). The Corporation is the owner of all of the common securities of Capital Trust II. On December 15, 2006, Capital Trust II issued $8,000,000 in the form of floating rate capital securities through a pooled trust preferred securities offering. The proceeds of Capital Trust II were utilized for the redemption of Union Financial Bancshares Statutory Trust (the “Trust”) issued on December 18, 2001. The proceeds from this issuance, along with the Corporation’s $247,000 capital contribution for Capital Trust’s II common securities, were used to acquire $8,247,000 aggregate principal amount of the Corporation’s floating rate junior subordinated deferrable interest debentures due March 1, 2037 (the “Debentures”), which constitute the sole asset of  Capital Trust II.  The interest rate on the Debentures and the capital securities is variable and adjustable quarterly at 1.74% over the three-month LIBOR. The Corporation has, through the Trust agreement establishing Capital Trust II, the Guarantee Agreement, the notes and the related Debenture, taken together, fully irrevocably and unconditionally guaranteed all of Capital Trust II obligations under the capital securities.

A summary of the Subordinated Deferrable Interest Debentures issued and outstanding follows:

	Amount Outstanding at September 30,
Name	2012		2011		Rate			Maturity	Distribution Payment Frequency
Provident Community  Bancshares Capital Trust I	$	4,000,000	$	4,000,000		2.21	%	October 1, 2036	Quarterly
Provident Community  Bancshares Capital Trust II		8,000,000		8,000,000		2.21	%	March 1, 2037	Quarterly
Total	$	12,000,000	$	12,000,000

The above debentures are subject to redemption at par at the option of the Corporation, subject to prior regulatory approval, in whole or in part on any interest payment date.

The Corporation exercised its right on July 22, 2010 to defer the payment of interest on its outstanding subordinated debentures for an indefinite period (which can be no longer than 20 consecutive quarterly periods). Further, pursuant to a written agreement between the Corporation and the Federal Reserve, the Corporation cannot pay any dividends on its subordinated debentures without the prior written consent of the Federal Reserve Bank. This and any future deferred distributions will continue to accrue interest at a current rate of  LIBOR+1.74% for the $4.0 million of trust preferred securities issued in July 2006 and at a current rate of LIBOR+1.74% for the $8.0 million of trust preferred securities issued in December 2006. Distributions on the trust preferred securities are cumulative. Therefore, in accordance with generally accepted accounting principles, the Corporation will continue to accrue the monthly cost of the trust preferred securities as it has since issuance.

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Preferred Stock

9 Months Ended

Sep. 30, 2012

Preferred Stock

8.           Preferred Stock

On March 13, 2009, as part of the Capital Purchase Program of the Troubled Asset Relief Program (“TARP”) United States Department of the Treasury’s Capital Purchase Program, the Corporation issued 9,266 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, $1,000 per share liquidation preference (“TARP Preferred Stock”), and a warrant to purchase up to 178,880 shares of the Corporation’s common stock for a period of ten years at an exercise price of $7.77 per share, in exchange for $9.3 million in cash from the United States Department of the Treasury. The proceeds, net of issuance costs consisting primarily of legal fees, were allocated between the preferred stock and the warrant on a pro rata basis, based upon the estimated market values of the preferred stock and the warrant. As a result, $25,000 of the proceeds were allocated to the warrant, which increased additional paid-in-capital from common stock.  The amount allocated to the warrant is considered a discount on the preferred stock and will be amortized using the level yield method over a five-year period through a charge to retained earnings.  Such amortization will not reduce net income, but will reduce income available for common shares.

The Corporation may redeem the preferred stock at its liquidation preference plus accrued and unpaid dividends at any time with prior regulatory approval.

Under the terms of the TARP Preferred Stock, the Corporation is required to pay on a quarterly basis a dividend rate of 5% per year for the first five years, after which the dividend rate automatically increases to 9% per year.  Dividend payments may be deferred, but the dividend is cumulative and failure to pay dividends for six dividend periods would trigger board appointment rights for the holder of the TARP Preferred Stock. The Corporation exercised its right on July 22, 2010 to defer its regular quarterly cash dividend on its TARP Preferred Stock. Total deferred dividends to date is $1 million. No action has been taken by the holder of the TARP Preferred Stock regarding board appointments.

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Loan Modifications for Corporation's Loans Receivable (Detail) (Troubled Debt Restructuring, USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012 Contract	Sep. 30, 2012 Contract
Added during current period
Financing Receivable, Modifications [Line Items]
Number of New Contracts	15	26
Pre Modification Outstanding Recorded Investment	$ 1,849	$ 2,881
Post Modification Outstanding Recorded Investment	1,827	2,848
Added during current period | Commercial Non Real Estate
Financing Receivable, Modifications [Line Items]
Number of New Contracts	1	1
Pre Modification Outstanding Recorded Investment	201	201
Post Modification Outstanding Recorded Investment	181	181
Added during current period | Commercial Real Estate
Financing Receivable, Modifications [Line Items]
Number of New Contracts	4	7
Pre Modification Outstanding Recorded Investment	520	788
Post Modification Outstanding Recorded Investment	519	776
Added during current period | Other Consumer
Financing Receivable, Modifications [Line Items]
Number of New Contracts	10	17
Pre Modification Outstanding Recorded Investment	1,128	1,891
Post Modification Outstanding Recorded Investment	1,127	1,890
Added during current period | Residential 1-4 family
Financing Receivable, Modifications [Line Items]
Number of New Contracts		1
Pre Modification Outstanding Recorded Investment		1
Post Modification Outstanding Recorded Investment		1
Defaulted during the period
Financing Receivable, Modifications [Line Items]
Number of New Contracts	3	5
Post Modification Outstanding Recorded Investment	759	1,224
Defaulted Recorded Investment	759	1,197
Defaulted during the period | Commercial Non Real Estate
Financing Receivable, Modifications [Line Items]
Number of New Contracts		1
Post Modification Outstanding Recorded Investment		290
Defaulted Recorded Investment		273
Defaulted during the period | Commercial Real Estate
Financing Receivable, Modifications [Line Items]
Number of New Contracts	2	3
Post Modification Outstanding Recorded Investment	689	864
Defaulted Recorded Investment	689	854
Defaulted during the period | Other Consumer
Financing Receivable, Modifications [Line Items]
Number of New Contracts	1	1
Post Modification Outstanding Recorded Investment	70	70
Defaulted Recorded Investment	$ 70	$ 70

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Assets Recorded at Fair Value on Recurring Basis

The following tables present the balances of assets recorded at fair value on a recurring basis by level within the hierarchy as of September 30, 2012 and December 31, 2011 (in thousands).

			Quoted Prices in		Significant Other		Significant
	Total		Active Markets for		Observable		Unobservable
	September 30,		Identical Assets		Inputs		Inputs
	2012		(Level 1)		(Level 2)		(Level 3)
Investment Securities:
Government Sponsored Enterprises	$	107,588	$	107,588	$	--	$	--
Trust Preferred Securities		4,308		--		2,801		1,507
Total Investment Securities		111,896		107,588		2,801		1,507
Mortgage-Backed and       Related Securities		55,582		--		55,582		--
Total	$	167,478	$	107,588	$	58,383	$	1,507

			Quoted Prices in		Significant Other		Significant
	Total		Active Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
	2011		(Level 1)		(Level 2)		(Level 3)
Investment Securities:
U.S. Agency Obligations	$	1	$	1	$	--	$	--
Government Sponsored Enterprises		87,538		87,538		--		--
Trust Preferred Securities		4,205		--		2,750		1,455
Total Investment Securities		91,744		87,539		2,750		1,455
Mortgage-Backed and       Related Securities		74,134		--		74,134		--
Total	$	165,878	$	87,539	$	76,884	$	1,455

Reconciliation of Beginning and Ending Balances for Assets Measured at Fair Value on Recurring Basis

The following is a reconciliation of the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period ended September 30, 2012.

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	(in thousands)
Investment Securities	Available-for-Sale
Beginning balance at June 30, 2012	$	1,521
Transfers into Level 3		--
Total gains/ (losses) included in:
Net loss		--
Other comprehensive income		27
Purchases, sales, issuances and settlements, net		(41	)
Ending balance at September 30, 2012	$	1,507
	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	(in thousands)
Investment Securities	Available-for-Sale
Beginning balance at December 31, 2011	$	1,455
Transfers into Level 3		--
Total gains/ (losses) included in:
Net loss		--
Other comprehensive income		90
Purchases, sales, issuances and settlements, net		(38	)
Ending balance at September 30, 2012	$	1,507

Assets and Liabilities Measured at Fair Value on Recurring or Non-recurring Basis Using Significant Unobservable Inputs

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2012, the significant unobservable inputs used in the fair value measurements were as follows: (in thousands)

				Significant	Significant
	Fair Value at		Valuation	Unobservable	Unobservable
	September 30, 2012		Technique	Inputs	InputValue
Non-performing Loans	$	14,000	Appraised Value/	Appraisals and/or sales of		n/a
			Discounted Cash Flows/	comparable properties/
			Market Value of the Note	Independent quotes
OREO		9,620	Appraised Value/	Appraisals and/or sales of		n/a
			Comparable Sales/	comparable properties/
			Other Estimates from	Independent quotes/bids
			Independent Sources
Total assets at fair value	$	23,620

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2011, the significant unobservable inputs used in the fair value measurements were as follows: (in thousands)

				Significant	Significant
	Fair Value at		Valuation	Unobservable	Unobservable
	December 31, 2011		Technique	Inputs	InputValue
Impaired loans	$	16,367	Appraised Value/	Appraisals and/or sales of		n/a
			Discounted Cash Flows/	comparable properties/
			Market Value of the Note	Independent quotes
OREO		8,398	Appraised Value/	Appraisals and/or sales of		n/a
			Comparable Sales/	comparable properties/
			Other Estimates from	Independent quotes/bids
			Independent Sources
Total assets at fair value	$	24,765

Fair Value Measurements

					Fair Value Measurements
					Quoted
					Prices in
					Active Markets		Significant
					for Identical		Other		Significant
					Assets or		Observable		Unobservable
	Carrying				Liabilities		Inputs		Inputs
(dollars in thousands)	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2012
Financial Instruments - Assets
Cash and cash equivalents	$	27,551	$	27,551	$	27,551	$	--	$	--
Loans		130,491		131,483		--		--		131,483
Financial Instruments – Liabilities
Time deposits	$	117,934	$	118,335	$	-	$	118,335	$	--
Securities sold under agreements
to repurchase		6,057		6,057		--		6,057		--
Subordinated debentures		12,372		12,372		--		12,372		--
December 31, 2011
Financial Instruments - Assets
Cash and cash equivalents	$	23,893	$	23,893	$	23,893	$	--	$	--
Loans		156,019		161,219		--		--		161,219
Financial Instruments – Liabilities
Time deposits	$	124,877	$	125,404	$	--	$	125,404	$	--
Securities sold under agreements
to repurchase		5,268		5,268		--		5,268		--
Subordinated debentures		12,372		12,372		--		12,372		--

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Loans Receivable on Non-accrual Status (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans Receivable on Non-accrual Status	$ 15,786	$ 16,806
Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans Receivable on Non-accrual Status	10,147	11,338
Commercial Non Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans Receivable on Non-accrual Status	1,238	1,340
Other Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans Receivable on Non-accrual Status	2,445	2,536
Automobiles
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans Receivable on Non-accrual Status	35	65
Consumer Home Equity
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans Receivable on Non-accrual Status	623	307
Residential 1-4 family
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans Receivable on Non-accrual Status	$ 1,298	$ 1,220

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Assets and Liabilities Measured at Fair Value on Recurring or Non-recurring Basis Using Significant Unobservable Inputs (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 23,620	$ 24,765
Non Performing Loan
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	14,000	16,367
Valuation Technique	Appraised Value/ Discounted Cash Flows/ Market Value of the Note	Appraised Value/ Discounted Cash Flows/ Market Value of the Note
Significant Unobservable Inputs	Appraisals and/or sales of comparable properties/ Independent quotes	Appraisals and/or sales of comparable properties/ Independent quotes
Other Real Estate Owned
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 9,620	$ 8,398
Valuation Technique	Appraised Value/ Comparable Sales/ Other Estimates from Independent Sources	Appraised Value/ Comparable Sales/ Other Estimates from Independent Sources
Significant Unobservable Inputs	Appraisals and/or sales of comparable properties/ Independent quotes/bids	Appraisals and/or sales of comparable properties/ Independent quotes/bids

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Consolidated Statements Of Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net income (loss)	$ 108	$ (1)	$ 167	$ 118
Other comprehensive income, net of tax:
unrealized holding gains on securities available for sale arising during period	530	2,453	974	2,846
Less reclassification adjustment for gains in net income	(361)	(132)	(687)	(179)
Comprehensive income	$ 277	$ 2,320	$ 454	$ 2,785

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Loss Per Common Share

9 Months Ended

Sep. 30, 2012

Loss Per Common Share

2.           Loss Per Common Share

Basic loss per common share amounts for the three and nine months ended September 30, 2012 and 2011 were computed based on the weighted average number of common shares outstanding during the period. Diluted loss per share adjusts for the dilutive effect of outstanding common stock options  and warrants during the periods utilizing the treasury stock method. There were no common stock equivalents included in the diluted loss per share calculation for the three and nine months ended September 30, 2012 and 2011 as all outstanding options and warrants had a higher average exercise price than the average market price and were therefore anti-dilutive. Anti-dilutive common stock equivalents that were excluded in the diluted loss per common share calculation for the three and nine months ended September 30, 2012 and 2011 were 235,380 and 265,543, respectively.

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Allowance for Loan Losses by Portfolio Segment (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	$ 4,549	$ 7,379
Charge-offs	(777)	(3,743)
Recoveries	103	257
Provisions	630	290
Ending Balance	4,505	4,183
Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	1,887	2,166
Charge-offs	(82)	(334)
Recoveries	5	35
Provisions	(202)
Ending Balance	1,608	1,867
Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	1,920	4,602
Charge-offs	(325)	(3,217)
Recoveries	90	155
Provisions		182
Ending Balance	1,685	1,722
Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	484	335
Charge-offs	(363)	(189)
Recoveries	4	27
Provisions	692	186
Ending Balance	817	359
Residential Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	258	276
Charge-offs	(7)	(3)
Recoveries	4	40
Provisions	140	(78)
Ending Balance	$ 395	$ 235

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Subordinated Deferrable Interest Debentures Issued and Outstanding (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Subordinated Borrowing [Line Items]
Subordinated Deferrable Interest Debenture, Amount Outstanding	$ 12,000,000	$ 12,000,000
Provident Community Bancshares Capital Trust I
Subordinated Borrowing [Line Items]
Subordinated Deferrable Interest Debenture, Amount Outstanding	4,000,000	4,000,000
Subordinated Deferrable Interest Debenture Rate	2.21%
Subordinated Deferrable Interest Debenture Maturity date	Oct. 01, 2036
Subordinated Deferrable Interest Debenture Distribution Payment Frequency	Quarterly
Provident Community Bancshares Capital Trust II
Subordinated Borrowing [Line Items]
Subordinated Deferrable Interest Debenture, Amount Outstanding	$ 8,000,000	$ 8,000,000
Subordinated Deferrable Interest Debenture Rate	2.21%
Subordinated Deferrable Interest Debenture Maturity date	Mar. 01, 2037
Subordinated Deferrable Interest Debenture Distribution Payment Frequency	Quarterly

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Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (Tables)

9 Months Ended

Sep. 30, 2012

Subordinated Deferrable Interest Debentures Issued and Outstanding

A summary of the Subordinated Deferrable Interest Debentures issued and outstanding follows:

	Amount Outstanding at September 30,
Name	2012		2011		Rate			Maturity	Distribution Payment Frequency
Provident Community  Bancshares Capital Trust I	$	4,000,000	$	4,000,000		2.21	%	October 1, 2036	Quarterly
Provident Community  Bancshares Capital Trust II		8,000,000		8,000,000		2.21	%	March 1, 2037	Quarterly
Total	$	12,000,000	$	12,000,000