**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, 2006





o
            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.
                EmployerIncorporation
                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, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
      accelerated filer o Accelerated
      filer o Non-accelerated
      filer x





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 stock, as
      of the latest practicable date: 789,012 shares of common stock issued and outstanding as of August 1,
      2006








**PEOPLES
      BANCORP, INC.**





**FORM
      10-Q**


**INDEX**





Page





Part
                I - Financial InformationItem
                1.
            Financial
                Statements
            3Consolidated
                Balance Sheets at June 30, 2006 (unaudited)and
                December 31, 2005
            3Consolidated
                Statements of Income (unaudited) for three and six monthsended
                June 30, 2006 and 2005
            4Consolidated
                Statements of Changes in Stockholders’ Equity (unaudited)for
                the six months ended June 30, 2006 and 2005
            5Consolidated
                Statements of Cash Flows (unaudited) for six monthsended
                June 30, 2006 and 2005
            6Notes
                to Financial Statements (unaudited)
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial ConditionAnd
                Results of Operations
            9Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            17Item
                4.
            Controls
                and Procedures
            18Part
                II - Other InformationItem
                1.
            Legal
                Proceedings
            18Item
                1A.
            Risk
                Factors
            18Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            19Item
                3.
            Defaults
                Upon Senior Securities
            19Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            19Item
                5.
            Other
                Information
            20Item
                6.
            Exhibits
            20Signatures
            20Exhibit
                Index and Exhibits
            21




-2-


**PART
      I - FINANCIAL INFORMATION**





**Item
              1.**
            **Financial
                Statements.**




**PEOPLES
        BANCORP, INC. AND SUBSIDIARY**


**Consolidated
        Balance Sheets**




June
                30,
            
            December
                31,2006
            
            2005**ASSETS**
            
            (unaudited)Cash
                and due from banks
            
            $
            5,575,545
            
            $
            4,709,890Federal
                funds sold
            
            
            2,367,362
            
            
            2,099,705Securities
                available for sale
            
            
            8,814,333
            
            
            10,439,293Securities
                held to maturity (approximate fairvalue
                of $10,677,459 and $9,800,311)
            
            
            10,906,647
            
            
            9,465,210Federal
                Home Loan Bank stock, at cost
            
            
            2,533,100
            
            
            2,282,400Loans,
                less allowance for loan lossesof
                $1,888,461 and $1,649,420
            
            
            206,553,045
            
            
            203,143,629Premises
                and equipment
            
            
            3,812,982
            
            
            3,812,831Accrued
                interest receivable
            
            
            1,374,780
            
            
            1,268,377Deferred
                income taxes
            
            
            353,792
            
            
            304,888Other
                assets
            
            
            972,272
            
            
            765,214**Total
                Assets**
            
            $
            243,263,858
            
            $
            238,291,437**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**DepositsNoninterest-bearing
            
            $
            32,431,969
            
            $
            33,509,679Interest-bearing
            
            
            127,235,281
            
            
            130,451,691159,667,250
            
            
            163,961,370Securities
                sold under repurchase agreementsand
                federal funds purchased
            
            
            14,158,548
            
            
            9,251,240Federal
                Home Loan Bank advances
            
            
            43,700,000
            
            
            40,700,000Accrued
                Interest payable
            
            
            358,297
            
            
            319,987Income
                taxes payable
            
            
            0
            
            
            100,786Other
                liabilities
            
            
            464,276
            
            
            389,833218,348,371
            
            
            214,723,216Stockholders'
                equityCommon
                stock, par value $10 per share, authorized 1,000,000shares,
                issued and outstanding 789,012 shares
            
            
            7,890,120
            
            
            7,890,120Additional
                Paid in Capital
            
            
            2,920,866
            
            
            2,920,866Retained
                earnings
            
            
            14,188,795
            
            
            12,763,90324,999,781
            
            
            23,574,889Accumulated
                other comprehensive income
            
            
            (84,294
            )
            
            (6,668
            )24,915,487
            
            
            23,568,221**Total
                Liabilities and Stockholders’ Equity**
            
            $
            243,263,858
            
            $
            238,291,437




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


-3-


**PEOPLES
      BANCORP, INC. AND SUBSIDIARY**


**Consolidated
      Statements of Income (unaudited)**




For
                the three months ended
            
            For
                the six months endedJune
                30
            
            June
                302006
            
            2005
            
            2006
            
            2005Interest
                and dividend revenueLoans,
                including fees
            
            $
            3,742,675
            
            $
            3,128,658
            
            $
            7,352,713
            
            $
            6,011,922Government
                Agencies Securities
            
            
            208,548
            
            
            184,446
            
            
            411,966
            
            
            369,407Deposits
                in other banks
            
            
            745
            
            
            579
            
            
            1,952
            
            
            825Federal
                funds sold
            
            
            24,235
            
            
            11,943
            
            
            48,783
            
            
            20,359Equity
                securities
            
            
            32,730
            
            
            12,351
            
            
            58,382
            
            
            17,401Total
                interest and dividend revenue
            
            
            4,008,933
            
            
            3,337,977
            
            
            7,873,796
            
            
            6,419,914Interest
                expenseDeposits
            
            
            762,547
            
            
            614,706
            
            
            1,469,812
            
            
            1,192,618Borrowed
                funds
            
            
            593,316
            
            
            324,613
            
            
            1,160,136
            
            
            496,543Total
                interest expense
            
            
            1,355,863
            
            
            939,319
            
            
            2,629,948
            
            
            1,689,161Net
                interest income
            
            
            2,653,070
            
            
            2,398,658
            
            
            5,243,848
            
            
            4,730,753Provision
                for loan losses
            
            
            120,000
            
            
            120,000
            
            
            240,000
            
            
            240,000Net
                interest income afterprovision
                for loan losses
            
            
            2,533,070
            
            
            2,278,658
            
            
            5,003,848
            
            
            4,490,753Noninterest
                revenueService
                charges on deposit accounts
            
            
            218,503
            
            
            198,756
            
            
            426,703
            
            
            377,772Other
                noninterest revenue
            
            
            58,966
            
            
            63,664
            
            
            172,855
            
            
            141,442Total
                noninterest revenue
            
            
            277,469
            
            
            262,420
            
            
            599,558
            
            
            519,214Noninterest
                expensesSalaries
                and employee benefits
            
            
            709,549
            
            
            692,835
            
            
            1,370,903
            
            
            1,365,118Occupancy
            
            
            66,535
            
            
            63,633
            
            
            130,152
            
            
            118,713Furniture
                and equipment
            
            
            60,617
            
            
            44,805
            
            
            112,333
            
            
            97,577Other
                operating
            
            
            377,118
            
            
            338,742
            
            
            718,093
            
            
            648,143Total
                noninterest expenses
            
            
            1,213,819
            
            
            1,140,015
            
            
            2,331,481
            
            
            2,229,551Income
                before income taxes
            
            
            1,596,720
            
            
            1,401,063
            
            
            3,271,925
            
            
            2,780,416Income
                taxes
            
            
            600,794
            
            
            526,619
            
            
            1,231,604
            
            
            1,045,887Net
                income
            
            $
            995,926
            
            $
            874,444
            
            $
            2,040,321
            
            $
            1,734,529Earnings
                per common share
            
            $
            1.26
            
            $
            1.11
            
            $
            2.59
            
            $
            2.20





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





-4-





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


**SIX
        MONTHS ENDED JUNE 30, 2006 and 2005**




AccumulatedAdditional
            
            
            
            otherpaid-in
            
            Retained
            
            comprehensive
            
            ComprehensivePar
                value
            
            capital
            
            earnings
            
            income
            
            income**Balance,
                December 31, 2004**
            
            $
            7,890,120
            
            $
            2,920,866
            
            $
            10,309,734
            
            $
            86,598Net
                income
            
            
            -
            
            
            -
            
            
            1,734,529
            
            
            -
            
            $
            1,734,529Unrealized
                loss on investmentsecurities
                available for sale netof
                income taxes of $42,065
            
            
            -
            
            
            -
            
            
            -
            
            
            (66,770
            )
            
            (66,770
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,667,759Cash
                dividend, $0.73 per share
            
            
            -
            
            
            -
            
            
            (575,979
            )
            
            -**Balance,
                June 30, 2005**
            
            $
            7,890,120
            
            $
            2,920,866
            
            $
            11,468,284
            
            $
            19,828**Balance,
                December 31, 2005**
            
            $
            7,890,120
            
            $
            2,920,866
            
            $
            12,763,903
            
            
            ($6,668
            )Net
                income
            
            
            -
            
            
            -
            
            
            2,040,321
            
            
            -
            
            $
            2,040,321Unrealized
                loss on investmentsecurities
                available for sale netof
                income taxes of $48,904
            
            
            -
            
            
            -
            
            
            -
            
            
            (77,626
            )
            
            (77,626
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,962,695Cash
                dividend, $0.78 per share
            
            
            -
            
            
            -
            
            
            (615,429
            )
            
            -**Balance,
                June 30, 2006**
            
            $
            7,890,120
            
            $
            2,920,866
            
            $
            14,188,795
            
            $
            (84,294
            )




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





-5-





**PEOPLES
        BANCORP, INC. AND SUBSIDIARY**
 **Consolidated
        Statements of Cash Flows (unaudited)**


For
                the six months endedJune
                30**2006**
            
            **2005****CASH
                FLOWS FROM OPERATING ACTIVITIES**Interest
                received
            
            $
            7,607,472
            
            $
            6,242,190Fees
                and commissions received
            
            
            599,558
            
            
            519,214Cash
                paid to suppliers and employees
            
            
            (2,354,758
            )
            
            (2,118,759
            )Interest
                paid
            
            
            (2,591,639
            )
            
            (1,656,462
            )Taxes
                paid
            
            
            (1,332,390
            )
            
            (1,121,564
            )1,928,243
            
            
            1,864,619**CASH
                FLOWS FROM INVESTING ACTIVITIES**Cash
                paid for premises, equipment, and software
            
            
            (109,488
            )
            
            (108,427
            )Loans
                made, net of principal collected
            
            
            (3,507,600
            )
            
            (21,844,595
            )Proceeds
                from maturities and calls of securitiesAvailable
                for sale
            
            
            3,500,000
            
            
            2,500,000Held
                to maturity
            
            
            623
            
            
            1,189Purchase
                of securities Available for Sale
            
            
            (2,434,605
            )
            
            0Purchase
                of securities held to maturity
            
            
            (990,920
            )
            
            (2,500,617
            )Purchase
                of FHLB Stock
            
            
            (250,700
            )
            
            (1,147,600
            )(3,792,690
            )
            
            (23,100,050
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Net
                increase (decrease) inTime
                deposits
            
            
            1,857,037
            
            
            3,204,633Other
                deposits
            
            
            (6,151,157
            )
            
            (357,623
            )Securities
                sold under repurchase agreements
            
            
            4,907,308
            
            
            (4,305,439
            )Advances
                under (repayments of) notes payable
            
            
            3,000,000
            
            
            24,500,000Dividends
                paid
            
            
            (615,429
            )
            
            (575,979
            )2,997,759
            
            
            22,465,592**NET
                INCREASE (DECREASE) IN CASH**
            
            
            1,133,312
            
            
            1,230,161CASH
                AND EQUIVALENTS AT BEGINNING OF PERIOD
            
            
            6,809,595
            
            
            5,912,835CASH
                AND EQUIVALENTS AT END OF PERIOD
            
            $
            7,942,907
            
            $
            7,142,996**RECONCILIATION
                OF NET INCOME TO NET CASH PROVIDED****FROM
                OPERATING ACTIVITIES**Net
                income
            
            $
            2,040,321
            
            $
            1,734,529**ADJUSTMENTS**Depreciation
                and amortization
            
            
            109,337
            
            
            90,492Provision
                for loan losses
            
            
            240,000
            
            
            240,000Security
                discount accretion, net of premium amortization
            
            
            (18,105
            )
            
            (2,699
            )Decrease
                (increase) inAccrued
                interest receivable
            
            
            (106,403
            )
            
            (155,975
            )Other
                assets
            
            
            (207,058
            )
            
            (39,305
            )Increase
                (decrease) inDeferred
                origination fees and costs, net
            
            
            (141,816
            )
            
            (19,050
            )Accrued
                Interest payable and other liabilities
            
            
            112,753
            
            
            92,304Income
                taxes payable
            
            
            (100,786
            )
            
            (75,677
            )$
            1,928,243
            
            $
            1,864,619





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




-6-


**Peoples
      Bancorp, Inc. and Subsidiary**


**Notes
      to Financial Statements (unaudited)**





1.
            Basis
                of Presentation





The
      accompanying unaudited consolidated financial statements of Peoples Bancorp,
      Inc. (the “Company”) and its subsidiary, The Peoples Bank (the “Bank”), have
      been prepared in accordance with generally accepted accounting principles 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 footnotes
      required by generally accepted accounting principles for complete financial
      statements. In the opinion of management, all adjustments (consisting of normal
      recurring accruals) considered necessary for a fair presentation have been
      included. Operating results for the three and six months ended June 30, 2006
      are
      not necessarily indicative of the results that may be expected for the year
      ending December 31, 2006 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,
      2005.





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, 2006 and 2005, total comprehensive income, net of
      taxes, was $1,962,695 and $1,667,759, 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, 2006. The Company is
      not
      party to any other off-balance sheet arrangements.





At
                June 30, 2006Revolving
                Home Equity Lines
            
            $
            3,837,159Commercial
                Real Estate
            
            $
            4,793,283Other
                Unused Commitments
            
            $
            16,834,367Commercial
                Letters of Credit
            
            $
            4,655,935





-7-





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 789,012 for the three- and six-month periods ended June 30,
      2006
      and 2005, respectively .





6.
            Pension





The
      Company maintains a defined benefit pension plan covering substantially all
      employees. 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 Company’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, 2006 and 2005, the Company recognized net periodic
      costs for this plan of $95,000 and $70,000, respectively. During the six months
      ended June 30, 2006, the Company contributed $45,000 to the plan. The Company
      expects to contribute a total of $180,000 to the plan during 2006.





-8-


**Item
              2.**
            **Management’s
                Discussion and Analysis or Plan of
                Operation.**





Peoples
      Bancorp, Inc. is a Maryland corporation and a bank holding company registered
      under the Bank Holding Company Act of 1956, as amended, located in Chestertown,
      Kent County, Maryland. Peoples Bancorp, Inc. was incorporated on December 10,
      1996 to serve as the holding company of The Peoples Bank of Kent County,
      Maryland (the “Bank”), a Maryland commercial bank, which it acquired on March
      24, 1997. On June 15, 2006, the Bank changed its name to The Peoples
      Bank.





The
      Bank
      was incorporated on April 13, 1910 and operates five branches located in Kent
      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.





When
      used
      in this report, the terms “Company”, “we”, “us” and “our” refer to Peoples
      Bancorp, Inc. and, unless the context clearly requires otherwise, the
      Bank.





**Application
      of Critical Accounting Policies**





Our
      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.





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”.





-9-


The
      following discussion is designed to provide a better understanding of our
      financial condition and results of operation and should be read in conjunction
      with the June 30, 2006 Consolidated Financial Statements and Notes thereto
      included elsewhere in this report, and in conjunction with the December 31,
      2005
      audited Consolidated Financial Statements and Notes thereto and Management’s
      Discussion and Analysis or Plan of Operation set forth in the Annual Report
      of
      Peoples Bancorp, Inc. on Form 10-K for the year ended December 31, 2005.





**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
      annual 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 Item 1A
      of
      Part I of the Annual Report of Peoples Bancorp, Inc. on Form 10-K for the year
      ended December 31, 2005, as updated in Item 1A of Part II of this report. 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.





**RESULTS
      OF OPERATIONS**





**General**





For
      the
      three- and six-month periods ended June 30, 2006, we reported net income of
      $995,926, or $1.26 per share, and $2,040,321, or $2.59 per share, respectively,
      compared to $874,444, or $1.11 per share, and $1,734,529, or $2.20 per share,
      respectively, for the same periods in 2005. The increases for the three months
      (13.89%) and six months (17.63%) ended June 30, 2006 over the same periods
      last
      year resulted primarily from increases in net interest income and noninterest
      revenue offset by an increase in noninterest expense.





-10-


**Net
      Interest Income**





Our
      primary source of income 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.





Net
      interest income for the three-month period ended June 30, 2006 was $2,653,070,
      which represents an increase of $254,412 or 10.61% over net interest income
      for
      the same period in 2005. Net interest income for the six-month period ended
      June
      30, 2006 was $5,243,848, which represents an increase of $513,095 or 10.85%
      over
      the net interest income for the first six months of 2005. During 2005 and
      continuing though the second quarter of 2006, short-term interest rates have
      steadily risen, while long-term interest rates have remained relatively
      stable.





Interest
      revenue for the three and six months ended June 30, 2006 totaled $4,008,933
      and
      $7,873,796, respectively, compared to $3,337,977 and $6,419,914, respectively,
      for the same periods last year, representing increases of $670,956 or 20.10%
      and
      $1,453,882 or 22.65%, respectively. These increases are attributable primarily
      to increases in loan income of $1,340,791, income from federal funds sold of
      $28,424 and equity security income of $40,981.





Interest
      expense for the three- and six-month periods ended June 30, 2006 totaled
      $1,355,863 and $2,629,948, respectively, compared to $939,319 and $1,689,161,
      respectively, for the same periods last year, representing increases of $416,544
      or 44.35% and $940,787 or 55.70%, respectively. To fund loan demand, we
      increased borrowings during the first six months of 2006 from $40,700,000 at
      December 31, 2005 to $43,700,000 at June 30, 2006, resulting in a $663,593
      increase to borrowed funds interest expense during the first six months of
      2006
      when compared to the same period last year.





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. Our net interest margin for the six-month period ended
      June 30, 2006 was 4.66%, compared to 4.67% for the same period in 2005. 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.





-11-


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





**Average
      Balances, Interest, and Yield**




For
                the Six Months Ended
            
            For
                the Six Months EndedJune
                30, 2006
            
            June
                30, 2005Average
            
            
            
            
            
            AverageBalance
            
            Interest
            
            Yield
            
            Balance
            
            Interest
            
            Yield**Assets**Federal
                funds sold
            
            $
            2,118,621
            
            $
            48,783
            
            
            4.64
            %
            $
            1,532,866
            
            $
            20,359
            
            
            2.68
            %Interest-bearing
                deposits
            
            
            87,109
            
            
            2,047
            
            
            4.74
            %
            
            59,891
            
            
            865
            
            
            2.91
            %Investment
                securities:U.
                S. government agency
            
            
            19,828,988
            
            
            431,905
            
            
            4.39
            %
            
            20,079,011
            
            
            387,288
            
            
            3.89
            %Other
            
            
            2,474,042
            
            
            61,210
            
            
            4.99
            %
            
            1,439,245
            
            
            18,244
            
            
            2.56
            %Total
                investment securities
            
            
            22,303,030
            
            
            493,115
            
            
            4.46
            %
            
            21,518,256
            
            
            405,532
            
            
            3.80
            %Loans:Demand
                and time
            
            
            40,535,791
            
            
            1,778,068
            
            
            8.85
            %
            
            36,074,800
            
            
            1,325,368
            
            
            7.41
            %Mortgage
            
            
            160,546,226
            
            
            5,396,300
            
            
            6.78
            %
            
            143,154,172
            
            
            4,507,709
            
            
            6.35
            %Installment
            
            
            5,072,721
            
            
            202,207
            
            
            8.04
            %
            
            5,000,464
            
            
            200,310
            
            
            8.08
            %Total
                loans
            
            
            206,154,738
            
            
            7,376,575
            
            
            7.22
            %
            
            184,229,436
            
            
            6,033,387
            
            
            6.60
            %Allowance
                for loan losses
            
            
            1,736,832
            
            
            
            
            
            
            
            
            1,291,494Total
                loans, net of allowance
            
            
            204,417,906
            
            
            7,376,575
            
            
            7.28
            %
            
            182,937,942
            
            
            6,033,387
            
            
            6.65
            %Total
                interest-earning assets
            
            
            228,926,666
            
            
            7,920,520
            
            
            6.98
            %
            
            206,048,955
            
            
            6,460,143
            
            
            6.32
            %Non-interest-bearing
                cash
            
            
            4,748,028
            
            
            
            
            
            
            
            
            4,161,198Premises
                and equipment
            
            
            3,815,583
            
            
            
            
            
            
            
            
            3,800,057Other
                assets
            
            
            2,124,921
            
            
            
            
            
            
            
            
            1,657,890Total
                assets
            
            $
            239,615,198
            
            
            
            
            
            
            
            $
            215,668,100Liabilities
                and Stockholders’ EquityInterest-bearing
                DepositsSavings
                and NOW deposits
            
            $
            41,999,824
            
            $
            116,745
            
            
            0.56
            %
            $
            44,932,459
            
            $
            75,680
            
            
            0.34
            %Money
                market and supernow
            
            
            17,587,922
            
            
            96,268
            
            
            1.10
            %
            
            19,154,254
            
            
            50,748
            
            
            0.53
            %Other
                time deposits
            
            
            69,694,719
            
            
            1,256,799
            
            
            3.64
            %
            
            66,122,789
            
            
            1,066,190
            
            
            3.25
            %Total
                interest-bearing deposits
            
            
            129,282,465
            
            
            1,469,812
            
            
            2.29
            %
            
            130,209,502
            
            
            1,192,618
            
            
            1.85
            %Borrowed
                funds
            
            
            54,239,014
            
            
            1,160,136
            
            
            4.31
            %
            
            33,103,277
            
            
            496,543
            
            
            3.02
            %Total
                interest-bearing liabilities
            
            
            183,521,479
            
            
            2,629,948
            
            
            2.89
            %
            
            163,312,779
            
            
            1,689,161
            
            
            2.09
            %Noninterest-bearing
                deposits
            
            
            31,096,183
            
            
            
            
            
            
            
            
            29,623,268214,617,662
            
            
            
            
            
            
            
            
            192,936,047Other
                liabilities
            
            
            685,506
            
            
            
            
            
            
            
            
            878,329Stockholders’
                equity
            
            
            24,312,030
            
            
            
            
            
            
            
            
            21,853,724Total
                liabilities and stockholders equity
            
            $
            239,615,198
            
            
            
            
            
            
            
            $
            215,668,100Net
                interest spread
            
            
            
            
            
            
            
            
            4.09
            %
            
            
            
            
            
            
            
            4.23
            %Net
                interest income
            
            
            
            
            $
            5,290,572
            
            
            
            
            
            
            
            $
            4,770,982Net
                margin on interest-earning assets
            
            
            
            
            
            
            
            
            4.66
            %
            
            
            
            
            
            
            
            4.67
            %Interest
                on tax-exempt loans and investments are reported on fully taxable
                equivalent basis (a non GAAP financial measure).





-12-


**Noninterest
      Revenue**





Noninterest
      revenue for the three- and six-month periods ended June 30, 2006 totaled
      $277,469 and $599,558, respectively, which represent increases of 5.73% and
      15.47% over $262,420 and $519,214, respectively, for the same periods in 2005.
      The increases recognized for the first six months of 2006 over the comparable
      periods last year resulted primarily from increases in service charges,
      including an increase in debit card income of $13,861 and an increase in
      activity service charges of $34,489. The use of debit cards and volume of
      overdrafts have increased.





**Noninterest
      Expense**





The
      Company recorded noninterest expense of $1,213,819 and $2,331,481 for the three-
      and six-month periods ended June 30, 2006, respectively, compared to $1,140,015
      and $2,229,551, respectively, for the same periods in 2005, representing
      increases of $73,804 or 6.47% and $101,930 or 4.57%, respectively. These
      increases are mainly attributable to increased directors fees of $9,652,
      additional maintenance fees of $10,120 and data processing fees charged by
      outside processors of $7,065.





**Income
      Tax Expense**





Our
      effective tax rate for the three- and six-month periods ended June 30, 2006
      and
      2005 was 37.6%. Our income tax expense was $600,794 and $1,231,604 for the
      three- and six-months ended June 30, 2006, respectively, compared to $526,619
      and $1,045,887, respectively, for the same periods in 2005. The increases of
      $74,175 or 14.09% and $185,717 or 17.76% for the three- and six-month periods
      ended June 30, 2006, respectively, when compared the same periods in 2005 were
      comparable to the percentage increases in income before income
      taxes.





**FINANCIAL
      CONDITION**





**Overview**





Total
      assets at June 30, 2006 were $243,263,858, compared to $238,291,437 at December
      31, 2005, representing an increase of $4,972,421 or 2.09% over December 31,
      200.





Total
      liabilities at June 30, 2006 were $218,348,371, compared to $214,723,216 at
      December 31, 2005, representing an increase of $3,625,155 or 1.69%.





Stockholders’
      equity was $24,915,487 as of June 30, 2006, compared to $23,568,221 as of
      December 31, 2005, an increase of $1,347,266. The increase was due to
      comprehensive income for the period totaling $1,962,695 offset by dividends
      paid
      to stockholders of $615,429.





Return
      on
      average equity for the six months ended June 30, 2006 was 16.92%, compared
      to
      16.00% for the same period in 2005. Return on average assets was 1.72% for
      the
      six months ended June 30, 2006, compared to 1.62% for the same period in
      2005.





-13-


**Composition
      of Loan Portfolio**





At
      June
      30, 2006, loans, net of unearned income, were $206,553,045, an increase of
      $3,409,416 since December 31, 2005. 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 $204,417,906 and $182,937,942 during the first
      six months of 2006 and 2005, respectively, which constituted 89.29% and 88.78%
      of average interest-earning assets for the respective periods. For the six
      months ended June 30, 2006, our average loan to deposit ratio was 127.46%,
      compared to 114.46% for the six months ended June 30, 2005. 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 95.25% for the six months ended June 30,
      2006, compared to 94.82% for the six months ended June 30, 2005. We extend
      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 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, 2006 is
      adequate to cover possible losses in the loan portfolio; 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.





For
      significant problem loans, management's review consists of evaluation of the
      financial strengths 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. The allowance may be increased to accommodate reserves for specific
      loans identified as substandard during management's loan review. Generally,
      however, neither net recoveries nor a decrease in loans will require a negative
      provision to reduce the allowance. Therefore, net recoveries and/or decreases
      in
      loans may cause the allowance as a percentage of gross loans to exceed our
      target.





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, 2006 and December 31, 2005, the allowance for loan
      losses compared to gross loans was 0.91% and 0.81%, respectively.





-14-


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
                endedJune
                30,
            
            June
                30,
            
            December
                31,2006
            
            2005
            
            2005Balance
                at beginning of year
            
            $
            1,649,420
            
            $
            1,204,274
            
            $
            1,204,274Loan
                losses:Commercial
            
            
            3,243
            
            
            0
            
            
            0Mortgages
            
            
            0
            
            
            0
            
            
            0Consumer
            
            
            1,997
            
            
            11,877
            
            
            37,762Total
                loan losses
            
            
            5,240
            
            
            11,877
            
            
            37,762Recoveries
                on loans previously charged offCommercial
            
            
            0
            
            
            0
            
            
            0Mortgages
            
            
            0
            
            
            0
            
            
            0Consumer
            
            
            4,281
            
            
            2,264
            
            
            2,908Total
                loan recoveries
            
            
            4,281
            
            
            2,264
            
            
            2,908Net
                loan losses
            
            
            959
            
            
            9,613
            
            
            34,854Provision
                for loan losses charged to expense
            
            
            240,000
            
            
            240,000
            
            
            480,000Balance
                at end of year
            
            $
            1,888,461
            
            $
            1,434,661
            
            $
            1,649,420Allowance
                for loan losses to loans outstandingat
                end of period
            
            
            0.91
            %
            
            0.74
            %
            
            0.81
            %





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.




At
      June
      30, 2006 and December 31, 2005, we had loans past due 90 days or more including
      nonaccrual loans of $710,851 and $383,540, respectively. These loans are
      detailed below:




**Risk
      Elements of Loan Portfolio**


**June
                30,**
            
            **December
                31,****2006**
            
            **2005**Nonaccrual
                Loans
            
            $
            10,030
            
            $
            368,204Accruing
                Loans Past Due 90 Days or More
            
            
            700,821
            
            
            15,336





Loans
      are
      classified as impaired when the collection of contractual obligations, including
      principal and interest, is doubtful. Management has identified no significant
      impaired loans as of June 30, 2006 or December
      31 ,
      2005.


-15-


**Deposits
      and Other Interest-Bearing Liabilities**





Average
      interest-bearing deposits decreased $927,037 or 0.71% to $129,282,465 for the
      six months ended June 30, 2006, from $130,209,502 for the same period in 2005.
      Average noninterest-bearing deposits increased $1,472,915 or 4.97% to
      $31,096,183 for the six months ended June 30, 2006, from $29,623,268 for the
      same period in 2005. Average total deposits have increased 0.34% or $545,878
      to
      $160,378,648 for the six months ended June 30, 2006 from $159,832,770 for the
      same period in 2005. Borrowings, primarily from the Federal Home Loan Bank
      of
      Atlanta to fund strong loan demand, increased to $43,700,000 from $40,700,000
      at
      December 31, 2005, an increase of 7.37%.





Deposits,
      particularly core deposits, 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 such deposits will continue to grow and be our primary source
      of funding for the foreseeable future. It should be noted, however, that the
      economy and the stock markets continue to show signs of improvement, and renewed
      investor confidence in alternatives to deposit accounts, which may pay yields
      that are higher than those paid on deposits, could impact the growth of deposits
      in future periods.





**Short-term
      Borrowings**




The
      following table sets forth the our position with respect to short-term
      borrowings for June 30, 2006 and December 31 2005.





**June
                30, 2006**
            
            **December
                31, 2005****Amount**
            
            **Rate**
            
            **Amount**
            
            **Rate**Federal
                Home Loan Bank (daily re-price)
            
            $
            3,000,000
            
            
            5.57
            %
            $
            2,000,000
            
            
            4.44
            %Retail
                Repurchase Agreements
            
            
            9,258,548
            
            
            3.44
            %
            
            6,531,240
            
            
            2.04
            %Federal
                Funds Borrowed
            
            
            4,900,000
            
            
            5.21
            %
            
            2,720,000
            
            
            2.63
            %Total
            
            $
            17,158,548
            
            
            
            
            $
            11,251,240





We
      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. We were 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 $17,400,000 in unsecured overnight federal funds and
      $3,000,000 in secured overnight federal funds with correspondent banks at June
      30, 2006.





**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.
      We
      derive 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 $20,400,000 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 $71,480,000 of which $43,700,000 has
      been advanced as of June 30, 2006.





-16-


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
      Bank’s capital ratios as of June 30, 2006 to the minimum ratios required by
      federal banking regulators is presented below.




**Minimum**
            
            **To
                be well****Actual**
            
            **Requirements**
            
            **capitalized**Tier
                1 risk-based capital
            
            
            12.36
            %
            
            4.00
            %
            
            6.00
            %Total
                risk-based capital
            
            
            13.31
            %
            
            8.00
            %
            
            10.00
            %Leverage
                ratio
            
            
            10.24
            %
            
            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, 2005 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, 2005. 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, 2006 and December 31, 2005:




**Immediate
                Change in Rates****+200**
            
            **+100**
            
            **-100**
            
            **-200**
            
            **Policy****Basis
                Points**
            
            **Basis
                Points**
            
            **Basis
                Points**
            
            **Basis
                Points**
            
            **Limit****June
                30, 2006**%
                Change in Net Interest Income
            
            
            4.01
            %
            
            2.04
            %
            
            -2.47
            %
            
            -
                5.93
            %
            
            +10
            %%
                Change in Fair Value of Capital
            
            
            7.97
            %
            
            4.00
            %
            
            -4.29
            %
            
            -9.24
            %
            
            +20
            %**December
                31, 2005**%
                Change in Net Interest Income
            
            
            4.17
            %
            
            2.12
            %
            
            -2.94
            %
            
            -
                7.41
            %
            
            +10
            %%
                Change in Fair Value of Capital
            
            
            6.42
            %
            
            3.27
            %
            
            -3.77
            %
            
            -
                7.96
            %
            
            +20
            %





The
      change in our interest rate sensitivity profile since December 31. 2005 resulted
      from an decrease in our excess assets repricing within one year from $82,587,000
      as of December 31, 2005 to $73,144,000 at June 30, 2006.





-17-


**Item
              4.**
            **Controls
                and Procedures.**





We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our reports filed 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, who also serves as the Chief Financial Officer (the “CEO”),
      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, 2006 under the supervision and with the participation of management,
      including the CEO. Based on that evaluation, management, including the CEO,
      has
      concluded that our disclosure controls and procedures are
      effective.





During
      the second quarter of 2006, 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.





**PART
      II - OTHER INFORMATION**





**Item
              1.**
            **Legal
                Proceedings.**





None.





**Item
              1A.**
            **Risk
                Factors.**





The
      risks
      and uncertainties to which our 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, 2005. The following
      discussion updates a risk factor that was contained in the Annual Report to
      reflect the recent issuance of proposed regulatory guidance.





-18-


**The
      majority of our business is concentrated in Maryland; a significant amount
      of
      our business is concentrated in real estate lending.**





Because
      most of our loans are made to Maryland borrowers located primarily in Maryland’s
      upper Eastern Shore, a decline in local economic conditions may have a greater
      effect on our earnings and capital than on the earnings and capital of larger
      financial institutions whose loan portfolios are geographically diverse.
      Further, we make many real estate secured loans, which are in greater demand
      when interest rates are low and economic conditions are good. Even when economic
      conditions are favorable and interest rates are low, this demand may not
      continue. Further, the market values of the real estate securing these loans
      may
      deteriorate, and we may lose money if a borrower fails to repay a real estate
      loan. Additionally, the Board of Governors of the Federal Reserve System and
      the
      Federal Deposit Insurance Corporation, along with the other federal banking
      regulators, issued proposed guidance on January 13, 2006 entitled
“Concentrations in Commercial Real Estate Lending, Sound Risk Management
      Practices” directed at institutions that have particularly high concentrations
      of commercial real estate loans within their lending portfolios. This guidance
      suggests that institutions whose commercial real estate loans exceed certain
      percentages of capital should implement heightened risk management practices
      appropriate to their concentration risk and may be required to maintain higher
      capital ratios than institutions with lower concentrations in commercial real
      estate lending. The comment period ended on April 13, 2006. We are evaluating
      our concentration and risk management strategies in light of this proposed
      guidance. If this guidance becomes final, we may be subject to additional
      regulatory requirements, including, without limitation, increased capital
      requirements. Management cannot predict the extent to which this guidance,
      if it
      becomes final, will impact our operations or capital requirements. We also
      cannot guarantee that any risk management strategy we implement or maintain
      will
      be effective to prevent losses relating to our commercial real estate portfolio.





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




None.





**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 17, 2006, the stockholders of Peoples
      Bancorp, Inc. were asked to vote upon the election of 13 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 2006 (“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 2007)**
            
            **For**
            
            **Against**
            
            **Abstain**
            
            **Broker**
              **Non-Votes**E.
                Jean Anthony.
            
            610,631
            
            0
            
            0
            
            1,401Robert
                W. Clark, Jr.
            
            610,631
            
            0
            
            0
            
            1,401LaMonte
                E. Cooke
            
            610,421
            
            210
            
            0
            
            1,401Gary
                B. Fellows
            
            610,631
            
            0
            
            0
            
            1,401Herman
                E. Hill, Jr.
            
            610,631
            
            0
            
            0
            
            1,401Patricia
                Joan Ozman Horsey
            
            610,631
            
            0
            
            0
            
            1,401P.
                Patrick McClary
            
            610,409
            
            222
            
            0
            
            1,401Robert
                A. Moore
            
            610,631
            
            0
            
            0
            
            1,401Alexander
                P. Rasin, III
            
            610,631
            
            0
            
            0
            
            1,401Stefan
                R. Skipp
            
            610,631
            
            0
            
            0
            
            1,401Thomas
                G. Stevenson
            
            610,631
            
            0
            
            0
            
            1,401Elizabeth
                A. Strong
            
            610,631
            
            0
            
            0
            
            1,401William
                G. Wheatley
            
            610,631
            
            0
            
            0
            
            1,401





-19-


The
      results of Proposal 2 were as follows: 608,773 votes for the proposal; 2,290
      votes against the proposal; 0 abstentions; and 1,401 broker
      non-votes.





**Item
              5.**
            **Other
                Information.**





None.





**Item
              6.**
            **Exhibits.**





3.1
            Articles
                of Incorporation of the Company, as corrected and amended (incorporated
                by
                reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed
                on January 24, 2005)


3.2
            Bylaws
                of the Company, as amended (incorporated by reference to Exhibit
                3.2 of
                the Company’s Annual Report on Form 10-K for the year ended December 31,
                2004)


10.1
            Changes
                to Director Compensation Arrangement (incorporated by reference to
                Exhibit
                10.1 of the Company’s Current Report on Form 8-K filed on August 10,
                2005)


31.1
            Certifications
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 2002 (filed
                herewith)


32.1
            Certifications
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
                herewith)





**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, 2006
            By:
            /s/
              Thomas G. StevensonThomas
              G. StevensonPresident/Chief
                Executive Officer
              &
                Chief Financial Officer




-20-




**EXHIBIT
      INDEX**





Exhibit
              No.
            Description





3.1
            Articles
                of Incorporation of the Company, as corrected and amended (incorporated
                by
                reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed
                on January 24, 2005)


3.2
            Bylaws
                of the Company, as amended (incorporated by reference to Exhibit
                3.2 of
                the Company’s Annual Report on Form 10-K for the year ended December 31,
                2004)


10.1
            Changes
                to Director Compensation Arrangement (incorporated by reference to
                Exhibit
                10.1 of the Company’s Current Report on Form 8-K filed on August 10,
                2005)


31.1
            Certifications
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 2002 (filed
                herewith)


32.1
            Certifications
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
                herewith)






-21-