Peoples Bancorp Inc/Md - Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2008

¨ Transition report under Section 13 or 15(d) of the Exchange Act

For the transition period from _______________ to ________________

Commission File Number: 0-24169

PEOPLES BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland		52-2027776
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

P.O. Box 210, 100 Spring Avenue, Chestertown, Maryland		21620
(Address of Principal Executive Offices)		(Zip Code)

(410) 778-3500

Registrant’s Telephone Number, Including Area Code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods 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 o

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 ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x
(Do not check if a smaller reporting company)

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

Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 779,512 shares of common stock issued and outstanding as of August 1, 2008

PEOPLES BANCORP, INC.

FORM 10-Q

INDEX

		Page

Part I – Financial Information

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at June 30, 2008 (unaudited) and December 31, 2007	3

	Consolidated Statements of Income (unaudited) for three and six months ended June 30, 2008 and 2007	4

	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the six months ended June 30, 2008 and 2007	5

	Consolidated Statements of Cash Flows (unaudited) for six months ended June 30, 2008 and 2007	6

	Notes to Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition And Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4T.	Controls and Procedures	23

Part II – Other Information

Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Submission of Matters to a Vote of Security Holders	25
Item 5.	Other Information	25
Item 6.	Exhibits	25

Signatures		26
Exhibit Index		27

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

PEOPLES BANCORP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

	June 30,			December 31,
	2008			2007
	(unaudited)
ASSETS
Cash and due from banks	$	6,268,877		$	5,399,704
Federal funds sold		3,497,949			4,440,438
Cash and cash equivalents		9,766,826			9,840,142
Securities available for sale		4,050,625			5,037,273
Securities held to maturity (approximate fair value of $12,173,909 and $13,198,704)		12,028,383			13,026,151
Federal Home Loan Bank stock, at cost		2,629,000			2,897,600
Loans, less allowance for loan losses of $1,757,674 and $2,328,792		214,783,650			220,425,725
Premises and equipment		6,064,998			5,901,649
Goodwill and intangible assets		740,432			767,932
Accrued interest receivable		1,680,794			1,814,574
Deferred income taxes		1,117,883			1,121,746
Other assets		1,448,342			974,970
Total Assets	$	254,310,933		$	261,807,762
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Non-interest-bearing	$	34,647,353		$	36,630,744
Interest-bearing		134,244,220			132,421,505
		168,891,573			169,052,249
Securities sold under repurchase agreements and federal funds purchased		8,481,263			9,041,476
Federal Home Loan Bank advances		46,000,000			53,000,000
Other borrowings		180,561			192,597
Accrued interest payable		484,542			521,219
Other liabilities		1,995,950			1,960,427
		226,033,889			233,767,968
Stockholders' equity
Common stock, par value $10 per share, 1,000,000 shares authorized; issued and outstanding 779,512 shares at June 30, 2008 and 785,512 shares at December 31, 2007		7,795,120			7,855,120
Additional paid-in capital		2,920,866			2,920,866
Retained earnings		18,287,168			17,997,286
		29,003,154			28,773,272
Accumulated other comprehensive income (loss)
Unrealized gain (loss) on available for sales securities		40,335			32,967
Unfunded liability for defined benefit plan		(766,445	)		(766,445	)
		28,277,044			28,039,794
Total Liabilities and Stockholders’ Equity	$	254,310,933		$	261,807,762

The accompanying notes are an integral part of these consolidated financial statements.

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PEOPLES BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)

	For the three months ended June 30				For the six months ended June 30
	2008		2007		2008		2007
Interest and dividend revenue
Loans, including fees	$	3,662,673	$	4,053,906	$	7,520,516	$	8,012,102
U. S. government agency securities		192,818		220,023		398,050		436,918
Deposits in other banks		3,906		1,404		12,788		6,292
Federal funds sold		21,122		24,073		70,381		47,321
Equity securities		42,659		40,136		86,480		77,934
Total interest and dividend revenue		3,923,178		4,339,542		8,088,215		8,580,567

Interest expense
Deposits		869,291		918,239		1,827,896		1,804,056
Borrowed funds		614,597		719,182		1,306,085		1,398,064
Total interest expense		1,483,888		1,637,421		3,133,981		3,202,120

Net interest income		2,439,290		2,702,121		4,954,234		5,378,447

Provision for loan losses		480,000		30,000		600,000		30,000
Net interest income after provision for loan losses		1,959,290		2,672,121		4,354,234		5,348,447

Noninterest revenue
Service charges on deposit accounts		257,817		253,125		491,892		472,903
Insurance commissions		219,133		236,206		660,276		637,990
Other noninterest revenue		73,178		83,448		170,001		164,695
Total noninterest revenue		550,128		572,779		1,322,169		1,275,588

Noninterest expenses
Salaries and employee benefits		1,141,572		1,032,418		2,236,466		1,980,859
Occupancy		84,152		101,357		188,519		180,720
Furniture and equipment		66,123		72,818		139,331		116,032
Other operating		449,442		427,066		901,386		813,858
Total noninterest expenses		1,741,289		1,633,659		3,465,702		3,091,469

Income before income taxes		768,129		1,611,241		2,210,701		3,532,566
Income taxes		284,808		607,152		817,423		1,328,780
Net income	$	483,321	$	1,004,089	$	1,393,278	$	2,203,786

Earnings per common share	$	0.62	$	1.27	$	1.77	$	2.79

The accompanying notes are an integral part of these consolidated financial statements.

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PEOPLES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

SIX MONTHS ENDED JUNE 30, 2008 and 2007

	Par value			Additional paid-in capital		Retained earnings			Accumulated other comprehensive income			Comprehensive Income

Balance, December 31, 2006	$	7,890,120		$	2,920,866	$	15,632,965		$	(836,795	)

Net income		-			-		2,203,786			-		$	2,203,786
Unrealized loss on investment securities available for sale net Of income taxes of $5,475		-			-		-			(8,701	)		(8,701	)
Comprehensive income												$	2,195,085
Repurchase of stock		(35,000	)		-		(220,500	)		-
Cash dividend, $0.82 per share		-			-		(646,989	)		-

Balance, June 30, 2007	$	7,855,120		$	2,920,866	$	16,969,262		$	(845,496	)

Balance, December 31, 2007	$	7,855,120		$	2,920,866	$	17,997,286		$	(733,478	)

Net income		-			-		1,393,278			-		$	1,393,278
Unrealized gain on investment securities available for sale net of income taxes of $4,800		-			-		-			7,368			7,368
Comprehensive income												$	1,400,646
Repurchase of stock		(60,000	)		-		(420,000	)		-
Cash dividend, $0.87 per share		-			-		(683,396	)		-

Balance, June 30, 2008	$	7,795,120		$	2,920,866	$	18,287,168		$	(726,110	)

The accompanying notes are an integral part of these consolidated financial statements.

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PEOPLES BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

	For the six months ended
	June 30
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received	$	8,266,849		$	8,262,103
Fees and commissions received		1,322,169			1,191,898
Cash paid to suppliers and employees		(3,924,203	)		(2,459,569	)
Interest paid		(3,170,658	)		(3,146,561	)
Taxes paid		(628,502	)		(1,328,780	)
		1,865,655			2,519,091
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for premises, equipment, and software		(304,119	)		(1,277,705	)
Loans made, net of principal collected		4,980,895			(6,768,579	)
Proceeds from maturities and calls of securities
Available for sale		1,000,000			1,000,000
Held to maturity		3,000,794			1,001,808
Purchase of securities held to maturity		(1,988,820	)		(2,037,521	)
Acquisition of Insurance agency, net		0			(884,634	)
Acquisition of FHLB stock, net of purchases		268,600			(364,500	)
		6,957,350			(9,331,131	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in
Time deposits		1,096,994			3,353,241
Other deposits		(1,257,670	)		817,391
Securities sold under repurchase agreements		(560,213	)		(6,484,825	)
Advances under (repayments of) notes payable, net		(7,000,000	)		11,000,000
Repayment of other borrowings		(12,036	)		(169,929	)
Repurchase of stock		(480,000	)		(255,500	)
Dividends paid		(683,396	)		(646,989	)
		(8,896,321			7,613,389
NET INCREASE (DECREASE) IN CASH		(73,316	)		801,349
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD		9,840,142			7,465,410
CASH AND EQUIVALENTS AT END OF PERIOD	$	9,766,826		$	8,266,759

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PEOPLES BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited) (continued)

	For the six months ended June 30,
	2008			2007
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED FROM OPERATING ACTIVITIES
Net income	$	1,393,278		$	2,203,786
ADJUSTMENTS
Depreciation and amortization		140,770			102,839
Provision for loan losses		600,000			30,000
Amortization of intangible assets		27,500			0
Security discount accretion, net of premium amortization		(16,327	)		(30,450	)
Decrease (increase) in
Accrued interest receivable		133,780			(274,044	)
Income tax refund receivable		188,921			0
Other assets		(662,293	)		285,355
Increase (decrease) in
Deferred origination fees and costs, net		61,180			(13,970	)
Accrued interest payable and other liabilities		(1,154	)		188,075
Income taxes payable		0			0
	$	1,865,655		$	2,491,591
Supplemental disclosure
Fair value of assets acquired	$	0		$	686,499
Fair value of liabilities assumed		0			(634,797	)
Purchase price in excess of assets acquired		0			832,932
Net cash paid for acquisition	$	0		$	884,634

The accompanying notes are an integral part of these financial statements.

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Peoples Bancorp, Inc. and Subsidiaries

Notes to Financial Statements (unaudited)

1.	Basis of Presentation

The accompanying unaudited consolidated financial statements of Peoples Bancorp, Inc. (the “Company”) and its subsidiaries, The Peoples Bank, a Maryland-chartered bank (the “Bank”), and Fleetwood, Athey, Macbeth & McCown, Inc., a Maryland insurance agency (the “Insurance Agency”), have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008 or any other future interim period. The consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

2.	Cash Flows

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and overnight investments in federal funds sold.

3.	Comprehensive income

For the six months ended June 30, 2008 and 2007, total comprehensive income, net of taxes, was $1,400,646 and $2,195,085, respectively. Comprehensive income is the sum of net income and the change in the unrealized gain or loss on securities available for sale, net of income taxes.

4.	Commitments

Loan commitments are made to accommodate the financial needs of the Company’s customers. Letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. These obligations are not recorded in the Company’s financial statements. The credit risks inherent in loan commitments and letters of credit are essentially the same as those involved in extending loans to customers, and these arrangements are subject to the Company’s normal credit policies. The Company’s exposure to credit loss in the event the customer does not satisfy the terms of these arrangements equals the notional amount of the obligation less the value of any collateral. The table below represents unfunded obligations at June 30, 2008 and December 31, 2007.

	At June 30, 2008		At December 31, 2007

Revolving Home Equity Lines	$	3,700,105	$	3,717,964
1-4 Family Residential Construction Loans	$	1,079,566	$	991,715
Commercial Real Estate	$	4,919,941	$	5,864,181
Other Unused Commitments	$	20,835,175	$	15,382,454
Commercial Letters of Credit	$	4,861,064	$	4,636,444

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5.	Earnings Per Share

Earnings per common share is derived by dividing net income available to holders of shares of common stock by the weighted average number of shares of common stock outstanding of 781,512 and 784,979 for the three- and six-month periods ended June 30, 2008, respectively. For the three- and six month periods ended June 30, 2007, the weighted average number of shares of common stock outstanding was 787,845 and 788,915, respectively.

Pension

The Bank maintains a defined benefit pension plan covering substantially all employees of the Bank. Benefits are based on years of service and the employee’s highest average rate of earnings for five consecutive years during the final 10 full years before retirement. The Bank’s general funding policy is to contribute annually the maximum amount that can be deducted for income tax purposes, determined using the projected unit credit cost method. The assets of the plan are invested in various time deposits and held in trust as required by law.

During the six months ended June 30, 2008 and 2007, the Bank recognized net periodic costs for this plan of $140,000 and $137,500, respectively. During the six months ended June 30, 2008, the Bank contributed $103,937 to the plan.

7	Segment Reporting

The Company operates two primary businesses: Community Banking and Insurance Products & Services. Through the Community Banking business, the Company provides services to consumers and small businesses on the upper Eastern Shore of Maryland through its six branches. Community banking activities include serving the deposit needs of small business and individual consumers by providing banking products and services to fit their needs. Loan products available to consumers include mortgage, home equity, automobile, marine, and installment loans and other secured and unsecured personal lines of credit. Small business lending includes commercial mortgages, real estate development loans, equipment and operating loans, as well as secured and unsecured lines of credit, accounts receivable financing arrangements, and merchant card services.

Through the Insurance Products and Services business, the Company provides a full range of insurance products and services to businesses and consumers in the Company’s market areas. Products include property and casualty, life, marine, individual health and long-term care insurance.

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Selected financial information by line of business, is included in the following table:

			Insurance
For the six months ended	Community		products			Intersegment			Consolidated
June 30 2008	banking		and services			Transactions			Total

Net interest income	$	4,960,686		($6,452	)	$	0		$	4,954,234
Provision for loan losses		600,000		0			0			600,000
Net interest income after provision		4,360,686		(6,452	)		0			4,354,234

Noninterest revenue		658,908		663,261			0			1,322,169
Noninterest expense		2,942,133		523,569			0			3,465,702
Income before income taxes		2,077,461		133,240			0			2,210,701
Income taxes		773,553		43,870			0			817,423
Net income	$	1,303,908	$	89,370		$	0		$	1,393,278
Average assets	$	256,791,692	$	1,499,978			($212,052	)	$	258,079,618

			Insurance
For the six months ended	Community		products			Intersegment		Consolidated
June 30 2007	banking		and services			Transactions		Total

Net interest income	$	5,385,816		($7,369	)	$	0	$	5,378,447
Provision for loan losses		30,000		0			0		30,000
Net interest income after provision		5,355,816		(7,369	)		0		5,348,447

Noninterest revenue		634,571		641,017			0		1,275,588
Noninterest expense		2,585,901		505,569			0		3,091,469
Income before income taxes		3,404,487		128,079			0		3,532,566
Income taxes		1,279,328		49,452			0		1,328,780
Net income	$	2,125,159	$	78,627		$	0	$	2,203,786
Average assets	$	247,077,450	$	916,362		$	2,420	$	247,996,232

8.	Insurance Agency Acquisition

On January 2, 2007, the Company acquired all of the outstanding common stock of the Insurance Agency for approximately $1,000,000. The Insurance Agency has an office located in Chestertown, Maryland.

Through the acquisition, the Company acquired approximately $805,000 of assets, primarily real estate, accounts receivable and cash, and assumed approximately $635,000 of liabilities, primarily notes payable and operating payables. The acquisition resulted in the recognition of approximately $273,000 of goodwill, which will not be amortized, and $550,000 of intangible assets, which will be amortized on a straight-line basis over 10 years.

During the six months ended June 30. 2008, the Company recorded amortization of intangible assets of approximately $27,500.

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9.	Fair Value

On January 1, 2008 the Company adopted SFAS No. 157, Fair Value Measurements . The adoption of SFAS No. 157 had no affect on the Company’s December 31, 2007 and June 30, 2008 Consolidated Balance Sheets or the Consolidated Statement of Income for the six months ended June 30, 2008.

SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value. SFAS No. 157 also establishes a hierarchy for determining fair value measurement. The hierarchy includes three levels and is based upon the valuation techniques used to measure assets and liabilities. The three levels are as follows:

•

Level 1 — Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;

•

Level 2 — Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and

•

Level 3 — Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to valuation methodology.

Securities available for sale— If quoted prices are available in an active market, securities are classified within level 1 of the hierarchy. Level 1 includes securities that have quoted prices in an active market for identical assets. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. The Company has categorized its securities available for sale as follows:

		Total			Level 1 Inputs			Level 2 Inputs			Level 3 Inputs
Securities		$	4,050,627		$	4,050,627		$	-		$	-

10.	Recent Accounting Standards

The following are recent accounting pronouncements approved by the Financial Accounting Standards Board (FASB). These Statements will not have any material impact on the financial statements of the Company.

FASB Statement No. 160 (revised 2007), Noncontrolling Interests in Consolidated Financial Statement amends Accounting Research Bulletin 51, Consolidated Financial Statements , to establish accounting and reporting standards for noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS 160 is effective at the beginning of the company’s first fiscal year after December 15, 2008. Management does not expect that SFAS 160 will have a material impact on the Company’s results of operations or financial position.

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FASB Statement No. 141 (revised 2007), Business Combinations . SFAS No. 141(R) will significantly change the accounting for business combinations in a number of areas, including the treatment of contingent consideration, contingencies, acquisition costs, in-process research and development costs and restructuring costs. Additionally, under SFAS No. 141(R), changes in deferred tax asset valuation allowances and acquired income uncertainties in a business combination after the measurement period will impact income tax expense. The provisions of this standard are effective beginning January 1, 2009. Management does not expect that SFAS No. 141(R) will have a material impact on the Company’s results of operations or financial position.

FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities- an amendment of FASB Statement No. 133 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. The use and complexity of derivative instruments and hedging activities have increased significantly over the past several years. Constituents have expressed concerns that the existing disclosure requirements in FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, do not provide adequate information about how derivative and hedging activities affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. Management does not expect SFAS No. 161 will have a material impact on the Company’s results of operations or financial position .

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

Peoples Bancorp, Inc. is a Maryland corporation and a financial holding company registered under the Bank Holding Company Act of 1956, as amended, located in Chestertown, Kent County, Maryland. The Company was incorporated on December 10, 1996 to serve as the holding company of The Peoples Bank (the “Bank”), a Maryland commercial bank, which it acquired on March 24, 1997. On January 2, 2007, the Company acquired Fleetwood, Athey, Macbeth & McCown, Inc. (the “Insurance Agency”)

The Bank was incorporated on April 13, 1910 and operates five branches located in Kent County, Maryland and one branch located in Queen Annes County, Maryland. The Bank offers a variety of services to satisfy the needs of consumers and small- to medium-sized businesses and professional enterprises. Most of the Bank’s deposit and loan customers are located in and derived from Kent County, northern Queen Anne's County, and southern Cecil County, Maryland. This primary service area is located between the Chesapeake Bay and the western border of Delaware.

The Insurance Agency has roots dating back to the 1920s, when The Fleetwood-Kirby Agency was formed. In 1977, that agency was merged with several other well-respected insurances agencies to form Fleetwood, Athey, Macbeth & McCown, Inc. The Insurance Agency operates from one location in Kent County and provides a full range of insurance products to businesses and consumers. Product lines include property, casualty, life, marine, long-term care and health insurance.

Unless the context clearly requires otherwise, the terms “Company”, “we”, “us” and “our” in this report refer collectively to Peoples Bancorp, Inc. and the Subsidiaries.

Application of Critical Accounting Policies

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as this information changes, the unaudited consolidated financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the consolidated financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available.

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The policies, along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan losses as the accounting area that requires the most subjective or complex judgments, and as such should be most subject to revision as new information becomes available.

The allowance for loan losses represents management’s estimate of probable loan losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. In addition, various regulatory agencies, as an integral part of their examination processes, periodically review our allowance for loan losses. Such agencies may require us to make additional provisions for estimated loan losses based upon judgments different from those of management. The loan portfolio also represents the largest asset type on the balance sheet. Further information about the methodology used to determine the allowance for loan losses is discussed below under the heading “Loan Quality”.

The following discussion is designed to provide a better understanding of the financial position of the Company and should be read in conjunction with the interim Consolidated Financial Statements and Notes thereto included elsewhere in this report, and in conjunction with the audited Consolidated Financial Statements and Notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Annual Report of Peoples Bancorp, Inc. on Form 10-K for the year ended December 31, 2007.

Forward-Looking Information

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Readers of this quarterly report should be aware of the speculative nature of “forward-looking statements”. Statements that are not historical in nature, including the words “anticipate”, “estimate”, “should”, “expect”, “believe”, “intend”, and similar expressions, are based on current expectations, estimates and projections about (among other things) the industry and the markets in which we operate; they are not guarantees of future performance. Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including risks and uncertainties discussed in this report, general economic, market or business conditions; changes in interest rates, deposit flow, the cost of funds, and demand for loan products and financial services; changes in our competitive position or competitive actions by other companies; changes in the quality or composition of loan and investment portfolios; the ability to mange growth; changes in laws or regulations or policies of federal and state regulators and agencies; and other circumstances beyond our control. These and other risks are discussed in detail in the periodic reports that Peoples Bancorp, Inc. files with the Securities and Exchange Commission (see Item 1A of Part II of this report for further information). All of the forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results anticipated will be realized, or if substantially realized, will have the expected consequences on our business or operations. Except as required by applicable laws, we do not intend to publish updates or revisions of any forward-looking statements we make to reflect new information, future events or otherwise.

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RESULTS OF OPERATIONS

General

For the three- and six-month periods ended June 30, 2008, we reported net income of $483,321, or $0.62 per share, and $1,393,278, or $1.77 per share, respectively, compared to $1,004,089, or $1.27 per share, and $2,203,786, or $2.79 per share, respectively, for the same periods in 2007. The decreases for the three months (51.86%) and six months (36.78%) ended June 30, 2008 over the same periods last year resulted primarily from decreased net interest income and increased loan loss reserve. The insurance Agency produced a net loss of $46,893 for the three-month period ended June 30, 2008 and net income of $89,370 for the six-month period ended June 30, 2008. The Insurance Agency received its annual contingent sales commission during the first quarter of 2008 which increased income. The Insurance Agency disbursed agent’s commissions during the second quarter of 2008, which reduced income for that quarter.

Net Interest Income

Our primary source of income for the Company is net interest income, which is the difference between revenue on interest-earning assets, such as investment securities and loans, and interest incurred on interest-bearing sources of funds, such as deposits and borrowings.

The key performance measure for net interest income is the “net margin on interest-earning assets,” or net interest income divided by average interest-earning assets. The Company’s net interest margin for the six-month period ended June 30, 2008 was 4.16%, compared to 4.67% for the same period in 2007. The net margin may decline if competition increases, loan demand decreases, or the cost of funds rises faster than the return on loans and securities. Although these expectations are based on management’s judgment, actual results may be impacted by a number of unpredictable factors and cannot be assured.

Net interest income for the three-month period ended June 30, 2008 was $2,439,290, which represents a decrease of $262,831 or 9.73% over net interest income for the same period in 2007. Net interest income for the six-month period ended June 30, 2008 was $4,954,234, which represents a decrease of $424,213 or 7.89% over the net interest income for the first six months of 2007. The primary contributor to this decrease was lower interest rates on loans and deposits in other banks. This was a direct result of a reduction in the federal funds rate from 4.25% at December 31, 2007 to 2.00% at June 30, 2008. The 225 basis-point reduction in interest rates by the Federal Reserve in the first six months of 2008 had a significant and immediate impact on the overall yield on earning assets, while reductions on the rates we pay on deposit have lagged due to certificate of deposit rates that do not re-price until the certificate matures.

Interest revenue for the three and six months ended June 30, 2008 totaled $3,923,178 and $8,088,215, respectively, compared to $4,339,542 and $8,580,567, respectively, for the same periods last year, representing decreases of $416,364 or 9.59% and $492,352 or 5.74%, respectively. Although our average loan balances have increased by $5,021,073 (net of the allowance for loan losses) when compared to the first six months of 2007, we experienced a $491,586 decrease in interest income earned on loans primarily because of the aforementioned rate reductions.

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Interest expense for the three- and six-month periods ended June 30, 2008 totaled $1,483,888 and $3,133,981, respectively, compared to $1,637,421 and $3,202,120, respectively, for the same periods last year, representing decreases of $153,533 or 9.38% and $68,139 or 2.13%, respectively. Since loan balances have decreased slightly during the first six months of 2008, the Company was able to decrease its Federal Home Loan Bank (“FHLB”) borrowings from $53,000,000 at December 31, 2007 to $46,000,000 at June 30, 2008, resulting in a decrease in borrowed funds interest expense for the first six months of 2008 of $95,010 when compared to the same period last year. Advances from the FHLB were $54,700,000 at June 30, 2007. The Company assumed approximately $450,000 of debt in connection with the acquisition of the Insurance Subsidiary. This debt has been reduced to $180,561 at June 30, 2008.

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A table of our average balances, interest and yields follows.

Average Balances, Interest, and Yield

	For the Six Months Ended June 30, 2008							For the Six Months Ended June 30, 2007
	Average Balance		Interest		Yield			Average Balance		Interest		Yield
Assets
Federal funds sold	$	5,141,860	$	70,381		2.75	%	$	1,736,500	$	47,322		5.50	%
Interest-bearing deposits		1,001,081		13,408		2.69	%		308,734		6,581		4.30	%
Investment securities:
U.S.government agency		17,409,771		417,321		4.82	%		18,867,894		458,068		4.90	%
Other		0		0		0.00	%		27,095		266		1.98	%
FHLB of Atlanta Stock		2,763,875		90,668		6.60	%		2,783,857		81,430		5.90	%
Total investment securities		20,173,646		507,989		5.06	%		21,678,846		539,764		5.02	%
Loans:
Demand and time		41,213,835		1,403,895		6.85	%		42,589,710		1,954,167		9.25	%
Mortgage		172,835,017		5,962,687		6.94	%		165,651,855		5,885,092		7.16	%
Installment		4,608,113		189,553		8.27	%		4,814,429		206,245		8.64	%
Total loans		218,656,965		7,556,135		6.95	%		213,055,994		8,045,504		7.62	%
Allowance for loan losses		2,402,319							1,822,421
Total loans, net of allowance		216,254,646		7,556,135		7.03	%		211,233,573		8,045,504		7.68	%
Total interest-earning assets		242,571,233		8,147,913		6.75	%		234,957,653		8,639,171		7.41	%
Non-interest-bearing cash		4,841,992							4,527,840
Premises and equipment		6,001,812							4,979,554
Other assets		4,664,581							3,531,185
Total assets	$	258,079,618						$	247,996,232
Liabilities and Stockholders’ Equity
Interest-bearing Deposits
Savings and NOW deposits	$	36,604,766		57,250		0.31	%	$	37,444,809		107,638		0.58	%
Money market and supernow		17,374,889		95,959		1.11	%		16,241,553		122,553		1.52	%
Other time deposits		79,891,507		1,674,687		4.22	%		73,674,015		1,573,865		4.31	%
Total interest-bearing deposits		133,871,162		1,827,896		2.75	%		127,360,377		1,804,056		2.86	%
Borrowed funds		59,604,508		1,306,085		4.41	%		61,755,156		1,398,064		4.57	%
Total interest-bearing liabilities		193,475,670		3,133,981		3.26	%		189,115,533		3,202,120		3.41	%
Noninterest-bearing deposits		33,514,276							30,611,574
		226,989,946							219,727,107
Other liabilities		2,063,435							2,289,309
Stockholders’ equity		29,026,237							25,979,816
Total liabilities and stockholders equity	$	258,079,618						$	247,996,232
Net interest spread						3.49	%						4.00	%
Net interest income			$	5,013,932						$	5,437,051
Net margin on interest-earning assets						4.16	%						4.67	%

Interest on tax-exempt loans and investments are reported on fully taxable equivalent basis (a non GAAP financial measure).

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Noninterest Revenue

Noninterest revenue for the three- and six-month periods ended June 30, 2008 totaled $550,128 and $1,322,169, respectively, which represent a decrease of 3.95% and an increase of 3.65% over $572,779 and $1,275,588, respectively, for the same periods in 2007. The six-month increase resulted from a $22,286 or 3.49% increase in commission income earned by the Insurance Agency during the first six months of 2008. In addition, we experienced an increase in deposit service charges of $18,989 or 4.02% during the first six months of 2008 when compared to the same period of 2007 primarily due to increased overdraft activity. Management does not view the increased overdraft activity as an indication of economic problems within our customer base, as we have generally been successful at collecting these overdrawn balances and the fees associated with them.

Noninterest Expense

The Company recorded noninterest expense of $1,741,289 and $3,465,702 for the three- and six-month periods ended June 30, 2008, respectively, compared to $1,633,659 and $3,091,469, respectively, for the same periods in 2007, representing increases of $107,630 or 6.59% and $374,233 or 12.11%, respectively, The increases are mainly attributable to increased salaries and employee benefits of $255,607 for the first six months of 2008, which is primarily due to our new branch in Church Hill, which opened in August of 2007. All noninterest expenses increased as the result of increased cost of operations at all branches due to rising fuel and energy costs.

Income Tax Expense

The Company’s effective tax rate for the three- and six-month periods ended June 30, 2008 was 37.1% and 37.0%, respectively, when compared to 37.7% and 37.6% for the same period in 2007. The Company’s income tax expense was $284,808 and $817,423 for the three- and six-months ended June 30, 2008, respectively, compared to $607,152 and $1,328,780, respectively, for the same periods in 2007. The decreases of $322,344 or 53.09% and $511,357 or 38.48% for the three- and six-month periods ended June 30, 2008, respectively, when compared the same periods in 2007 were comparable to the percentage decreases in income before income taxes.

FINANCIAL CONDITION

Overview

Total assets at June 30, 2008 were $254,310,933, compared to $261,807,762 at December 31, 2007, representing a decrease of $7,496,829 or 2.86% over December 31, 2007.

Total liabilities at June 30, 2008 were $226,033,889, compared to $233,767,968 at December 31, 2007, representing a decrease of $7,734,079 or 3.31%.

Stockholders’ equity was $28,277,044 as of June 30, 2008, compared to $28,039,794 as of December 31, 2007, an increase of $237,250. The increase was due to net income for the period totaling $1,393,278 plus an increase in the unrealized gain on securities available for sale net of income taxes of $7,368, offset by stock repurchases of $480,000 and dividends paid to stockholders of $683,396. .

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Return on average equity for the six months ended June 30, 2008 was 9.65%, compared to 17.11% for the same period in 2007. Return on average assets was 1.09% for the six months ended June 30, 2008, compared to 1.79% for the same period in 2007.

Composition of Loan Portfolio

At June 30, 2008, loans, net of unearned income, were $214,783,650, a decrease of $5,642,075 since December 31, 2007. Because loans are expected to produce higher yields than investment securities and other interest-earning assets, the absolute volume of loans and the volume as a percentage of total earning assets is an important determinant of net interest margin. Average loans, net of the allowance for loan losses, were $216,254,646 and $211,233,573 during the first six months of 2008 and 2007, respectively, which constituted 89.15% and 89.90% of average interest-earning assets for the respective periods. For the six months ended June 30, 2008, our average loan to deposit ratio was 129.20%, compared to 133.72% for the six months ended June 30, 2007. The securities sold under repurchase agreements function like deposits, with the securities providing collateral in place of the FDIC insurance. Our ratio of average loans to deposits plus borrowed funds was 95.27% for the six months ended June 30, 2008, compared to 96.13% for the six months ended June 30, 2007. The Company extends credit primarily to customers located in and near the Maryland counties of Kent County, Queen Anne’s County, and Cecil County. There are no industry concentrations in our loan portfolio. A substantial portion of our loans are, however, secured by real estate, and the real estate market in the region will influence the performance of the Company’s portfolio and the value of the collateral securing the portfolio.

Loan Quality

The allowance for loan losses represents a reserve for potential losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on non-accruing, past due, and other loans that management believes require attention. The determination of the reserve level rests upon management's judgment about factors affecting loan quality and assumptions about the economy. Management believes that the allowance as of June 30, 2008 was adequate to cover possible losses in the loan portfolio identified as of that date; however, management's judgment is based upon a number of assumptions about future events, which are believed to be reasonable, but which may not prove valid. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the loan loss allowance will not be required. Because of the current economic conditions in our market area and a decline in local real estate values, management anticipates that it will add additional reserves to the allowance in the third and fourth quarters of 2008 to cover potential future losses that may be identified in those quarters.

For significant problem loans, management's review consists of evaluation of the financial strength of the borrowers and guarantors, the related collateral, and the effects of economic conditions. The overall evaluation of the adequacy of the total allowance for loan losses is based on an analysis of historical loan loss ratios, loan charge-offs, delinquency trends, and previous collection experience, along with an assessment of the effects of external economic conditions. This allowance may be increased to accommodate reserves for specific loans identified as substandard during management's loan review. Net recoveries and/or decreases in loans may cause the allowance as a percentage of gross loans to exceed our target. Historically, our regulators have discouraged negative provisions, however, management would consider a negative provision if warranted.

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The provision for loan losses is a charge to earnings in the current period to replenish the allowance and maintain it at a level management has determined to be adequate. As of June 30, 2008 and December 31, 2007, the allowance for loan losses compared to gross loans was 0.81% and 1.05%, respectively.

The following table sets forth activity in the allowance for loan losses for the periods indicated:

Allowance for Loan Losses

	Six months ended			Six months ended			Year ended
	June 30,			June 30,			December 31,
	2008			2007			2007
Balance at beginning of year	$	2,328,792		$	1,860,283		$	1,860,283
Loan losses:
Commercial		1,163,214			69,950			82,881
Mortgages		0			0			0
Consumer		11,410			11,538			31,882
Total loan losses		1,174,624			81,488			114,763
Recoveries on loans previously charged off
Commercial		1,000			0			0
Mortgages		0			2,271			2,271
Consumer		2,506			912			1,001
Total loan recoveries		3,506			3,183			3,272
Net loan losses		1,171,118			78,305			111,491
Provision for loan losses charged to expense		600,000			30,000			580,000
Balance at end of year	$	1,757,674		$	1,811,978		$	2,328,792
Allowance for loan losses to gross loans outstanding at end of period		0.81	%		0.84	%		1.05	%

As a result of management's ongoing review of the loan portfolio, loans are classified as nonaccrual when it is not reasonable to expect collection of interest under the original terms. These loans are classified as nonaccrual even though the presence of collateral or the borrower's financial strength may be sufficient to provide for ultimate repayment. Interest on nonaccrual loans is recognized only when received. A loan is generally placed in nonaccrual status when it becomes 90 days or more past due. When a loan is placed in nonaccrual status, all interest that had been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain.

The Company had loans past due 90 days or more including nonaccrual loans of $7,558,331 and $5,449,838 at June 30, 2008 and December 31, 2007, respectively. These loans are detailed below:

Risk Elements of Loan Portfolio

	June 30, 2008		December 31, 2007
Nonaccrual Loans
Commercial	$	1,095,781	$	2,462,002
Mortgage		2,342,853		415,000
Consumer		9,170		0
		3,447,804		2,877,002
Accruing Loans Past Due 90 Days or More
Commercial		0		396,003
Mortgage		4,091,341		2,162,828
Consumer		19,186		14,005
		4,110,527		2,572,836
	$	7,558,331	$	5,449,838

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Gross interest income of $217,363 for the first half of 2008, $59,586 for fiscal year 2007 and $494 for the first half of 2007 would have been recorded if nonaccrual loans had been current and performing in accordance with their original terms. Interest actually recorded on such loans was $42,395 for the first half of 2008, $663 for fiscal year 2007 and $399 for the first half of 2007.

Loans are classified as impaired when the collection of contractual obligations, including principal and interest, is doubtful. Management has identified all significant impaired loans as of June 30, 2008 and has made the appropriate charge to the bank’s loan loss reserve..

Deposits and Other Interest-Bearing Liabilities

Average interest-bearing deposits increased $6,510,785 or 5.11% to $133,871,162 for the six months ended June 30, 2008, from $127,360,377 for the same period in 2007. Average noninterest-bearing deposits increased $2,902,702 or 9.48% to $33,514,276 for the six months ended June 30, 2008, from $30,611,574 for the same period in 2007. Average total deposits have increased 5.96% or $9,413,487 to $167,385,438 for the six months ended June 30, 2008 from $157,971,951 for the same period in 2007. Borrowings, primarily from the Federal Home Loan Bank of Atlanta to fund loan demand, decreased to $46,000,000 from $53,000,000 at December 31, 2007, a decrease of 13.21%.

Deposits, particularly core deposits, and borrowed funds have been our primary source of funding and have enabled us to meet both our short-term and long-term liquidity needs. Management anticipates that deposits will grow and continue to be our primary source of funding for the foreseeable future. It should be noted, however, that investor confidence in alternatives to deposit accounts, which may pay yields that are higher than those paid on deposits, typically increases when the economy and stock markets perform well. Increased investor confidence in nondeposit investment products in future periods would likely have an adverse impact on our deposit growth. In addition, changes in governmental monetary policy, especially interest rates, may impact our ability to attract and retain deposits.

Short-Term Borrowings

The following table sets forth our position with respect to short-term borrowings for June 30, 2008 and December 31 2007.

	June 30, 2008					December 31, 2007
	Amount		Rate			Amount		Rate

Federal Home Loan Bank (daily re-price)	$	0		-	%	$	0		-	%
Retail Repurchase Agreements		8,481,263		2.14	%		9,041,476		2.85	%
Federal Funds Borrowed		0		-	%		0		-	%
Total	$	8,481,263				$	9,041,476

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The Company may borrow up to approximately 30% of total assets from the Federal Home Loan Bank (FHLB) through any combination of notes or line of credit advances. Both the notes payable and the line of credit are secured by a floating lien on all of our real estate mortgage loans. The Company was required to purchase shares of capital stock in the FHLB as a condition to obtaining the line of credit.

We provide collateral of 105% of the repurchase agreement balances by pledging U.S. Government Agency securities.

The Bank has lines of credit of $19,500,000 in unsecured overnight federal funds and $5,000,000 in secured overnight federal funds with correspondent banks at June 30, 2008.

Liquidity and Capital Resources

Liquidity describes our ability to meet financial obligations that arise out of the ordinary course of business. Liquidity is needed primarily to fund loans, meet depositor withdrawal requirements, and fund current and planned expenditures. The Company derives liquidity through increased customer deposits, maturities in the investment portfolio, loan repayments and income from earning assets. To the extent that deposits are not adequate to fund customer loan demand, liquidity needs can be met in the short-term funds markets through lines of credit totaling $24,500,000 from correspondent banks, namely, Bank of America, Community Bank and M & T Bank. The Bank is also a member of the Federal Home Loan Bank of Atlanta, which provides another source of liquidity through a secured line of credit in the amount of $49,533,006 of which $46,000,000 has been advanced as of June 30, 2008.

Bank regulatory agencies have adopted various capital standards, including risk-based capital standards, that apply to financial institutions like the Company. The primary objectives of the risk-based capital framework are to provide a more consistent system for comparing capital positions of financial institutions and to take into account the different risks among financial institutions’ assets and off-balance sheet items.

Risk-based capital standards have been supplemented with requirements for a minimum Tier 1 capital to assets ratio (leverage ratio). In addition, regulatory agencies consider the published capital levels as minimum levels and may require a financial institution to maintain capital at higher levels. A comparison of the Company’s capital ratios as of June 30, 2008 to the minimum ratios required by federal banking regulators is presented below.

	Actual			Minimum Requirements			To be well capitalized
Tier 1 risk-based capital		12.87	%		4.00	%		6.00	%
Total risk-based capital		13.69	%		8.00	%		10.00	%
Leverage ratio		10.82	%		4.00	%		5.00	%

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our primary market risk is to interest rate fluctuation and management has procedures in place to evaluate and mitigate this risk, both of which are discussed in Item 7 of Part II of the Annual Report of Peoples Bancorp, Inc. on Form 10-K for the year ended December 31, 2007 under the caption “Market Risk Management”. Management believes that there have been no material changes in our market risks or the procedures used to evaluate and mitigate these risks since December 31, 2007. The simulation models that we use to quantify the effect a hypothetical immediate plus or minus 200 basis point change in rates would have on net interest income and the fair value of capital produced the following results as of June 30, 2008 and December 31, 2007:

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	Immediate Change in Rates
	+200 Basis Points			+100 Basis Points			-100 Basis Points			-200 Basis Points			Policy Limit
June 30, 2008
% Change in Net Interest Income		5.34	%		2.71	%		-3.31	%		-7.95	%		± 10	%
% Change in Fair Value of Capital		5.81	%		3.15	%		-3.02	%		-5.98	%		±20	%
December 31, 2007
% Change in Net Interest Income		4.12	%		2.07	%		-2.55	%		-5.62	%		±10	%
% Change in Fair Value of Capital		5.89	%		2.88	%		-3.26	%		-6.50	%		±20	%

Item 4T. Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that Peoples Bancorp, Inc. files under the Securities and Exchange Act of 1934 with the Securities and Exchange Commission, such as this quarterly report, is recorded, processed, summarized and reported within the time periods specified in those rules and forms, and that such information is accumulated and communicated to management, including the President and Chief Executive Officer (the “CEO”), who also serves as the Chief Financial Officer (the “CFO”), to allow for timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

An evaluation of the effectiveness of these disclosure controls was carried out as of June 30, 2008 under the supervision and with the participation of management, including the CEO. Based on that evaluation, the Company’s management, including the CEO, has concluded that our disclosure controls and procedures are, in fact, effective at the reasonable assurance level.

During the second quarter of 2008, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

On or about June 26, 2008, Edwin and Rosalie Kuechler filed a complaint against the Bank in the Circuit Court for Kent County, Maryland. This suit relates to a commercial loan made by the Bank that was guaranteed by the plaintiffs, which guaranty is secured by an indemnity deed of trust on the plaintiffs’ personal residence. The commercial loan is in default and the Bank is attempting to seek recourse against the plaintiffs, as guarantors. The plaintiffs allege, among other things, various violations by the Bank of the federal Truth-in-Lending Act and that the plaintiffs are entitled to rescission of the guaranty, and to recover for illegal banking practices arising from the Bank’s demands for payment, intentional infliction of emotional distress arising from the Bank’s demands for payment, and professional negligence and intentional and negligent misrepresentation relating to alleged oral and written representations made to the plaintiffs by the Bank outside the written transaction documents. In addition to rescission, the plaintiff s are requesting compensatory and punitive damages in the amount of $950,000. The Bank removed this case to the United States District Court for the District of Maryland on or about July 3, 2008. Because this loan was a commercial loan, the Bank believes that (i) the federal Truth-in-Lending Act does not apply to the commercial loan or the guaranty or afford the plaintiffs any rights with respect thereto, (ii) the commercial loan documents, including the guaranty, permit the Bank to demand payment from the plaintiffs, and (iii) Maryland’s statute of frauds bars the plaintiffs’ claims relating to any oral or written representations not contained in the transaction documents. The Bank believes strongly that this suit is frivolous and was instituted in bad faith and it is vigorously defending these claims, although there can be no guaranty as to its outcome or its impact on the Bank.

Item 1A. Risk Factors.

The risks and uncertainties to which our Company’s financial condition and operations are subject are discussed in detail in Item 1A of Part I of the Annual Report of Peoples Bancorp, Inc. on Form 10-K for the year ended December 31, 2007. Management does not believe that any material changes in these risk factors have occurred since December 31, 2007.

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

The following table provides information about shares of common stock purchased by or on behalf of Peoples Bancorp, Inc. and its affiliates (as defined by Exchange Act Rule 10b-18) during the three-month period ended June 30, 2008:

	Total Number of Shares (or Units) Purchased (1)		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Period			Average Price Paid per Share (or Unit)
April 2008		0		0		0		0
May 2008		6,000	$	80.00		6,000		29,951
June 2008		0		0		0		0
Total		6,000	$	80.00		6,000		29,951

Note : (1) During June of 2007, 3,500 shares were purchased fro m Nylon Capital Shopping Center, Inc. pursuant to a stock repurchase program that was approved by the Board of Directors of the Company at its May 30, 2007 meeting. The repurchase program authorizes the Company to purchase up to 5% of its outstanding stock over the next 36 months, at times and prices determined by the President. The Company’s previous repurchase authorization expired on January 22, 2006. 5,000 shares were purchased from Nylon Capital Shopping Center, Inc. during May 2008.The husband of director Patricia Joan Ozman Horsey is the President, Treasurer and director of Nylon Capital Shopping Center, Inc.

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Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders.

At the Annual Meeting of Stockholders held on May 28, 2008, the stockholders of Peoples Bancorp, Inc. were asked to vote upon the election of 12 directors to serve on the Board of Directors of Peoples Bancorp, Inc. for one-year terms and until their successors are duly elected and qualify (“Proposal 1”). The stockholders also were asked to ratify the selection of Rowles & Company, LLP as our independent auditing and accounting firm for 2008 (“Proposal 2”). The Board of Directors submitted these matters to a vote through the solicitation of proxies.

The results of Proposal 1 were as follows:

Nominees (terms expire 2008)	For		Against		Abstain		Broker Non-Votes
E. Jean Anthony.		624,757		0		432		4,214
Robert W. Clark, Jr.		624,757		0		432		4,214
LaMonte E. Cooke		624,557		200		432		4,214
Gary B. Fellows		624,757		0		432		4,214
Herman E. Hill, Jr.		624,757		0		432		4,214
Patricia Joan Ozman Horsey		624,157		600		432		4,214
P. Patrick McClary		624,557		200		432		4,214
Alexander P. Rasin, III		622,735		2,022		432		4,214
Stefan R. Skipp		624,757		0		432		4,214
Thomas G. Stevenson		623,857		900		432		4,214
Elizabeth A. Strong		624,757		0		432		4,214
William G. Wheatley		624,757		0		432		4,214

The results of Proposal 2 were as follows: 625,023 votes for the proposal; 2,358 votes against the proposal; 630 abstentions; and 4,214 broker non-votes.

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits filed or furnished with this report are listed in the Exhibit Index that immediately follows the signatures, which Index is incorporated herein by reference.

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SIGNATURES

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

	PEOPLES BANCORP, INC.

Date: August 11, 2008	By:	/s/ Thomas G. Stevenson
		Thomas G. Stevenson
		President/Chief Executive Officer
		& Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.		Description

31.1		Certifications of the CEO/CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1		Certifications of the CEO/CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)