**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  March
      31,
      2007





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 equity,
      as of the latest practicable date: 789,012 shares of common stock issued and outstanding as of May 1,
      2007








**PEOPLES
      BANCORP, INC.**





**FORM
      10-Q**


**INDEX**


PagePart
                  I - Financial InformationItem
                  1. Financial Statements
              
              3Consolidated
                  Balance Sheets at March 31, 2007 (unaudited) and December 31,
                  2006
              
              3Consolidated
                  Statements of Income (unaudited) for the three months ended March
                  31, 2007
                  and 2006
              
              4Consolidated
                  Statements of Changes in Stockholders’ Equity (unaudited) for the three
                  months ended March 31, 2007 and 2006
              
              5Consolidated
                  Statements of Cash Flows (unaudited) for the three months ended
                  March 31,
                  2007 and 2006
              
              6Notes
                  to Financial Statements (unaudited)
              
              8Item
                  2. Management’s Discussion and Analysis of Financial Condition and Results
                  of Operations
              
              11Item
                  3. Quantitative and Qualitative Disclosures About Market
                  Risk
              
              19Item
                  4. Controls and Procedures
              
              20Part
                  II - Other InformationItem
                  1. Legal Proceedings
              
              20Item
                  1A. Risk Factors
              
              20Item
                  2. Unregistered Sales of Equity Securities and Use of
                  Proceeds
              
              20Item
                  3. Defaults Upon Senior Securities
              
              20Item
                  4. Submission of Matters to a Vote of Security Holders
              
              20Item
                  5. Other Information
              
              21Item
                  6. Exhibits
              
              21Signatures
              
              22Exhibit
                  Index
              
              23


-2-




**PART
      I - FINANCIAL INFORMATION**





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




**PEOPLES
      BANCORP, INC. AND SUBSIDIARIES** **Consolidated
        Balance Sheets**


March
                31, 2007
            
            December
                31, 2006(unaudited)**ASSETS**


Cash
                and due from banks
            
            $
            4,465,141
            
            $
            5,990,866Federal
                funds sold
            
            
            1,789,103
            
            
            1,474,544Securities
                available for sale
            
            
            7,981,371
            
            
            7,937,008Securities
                held to maturity (approximate fairvalue
                of $10,957,976 and $10,887,433)
            
            
            10,974,412
            
            
            10,928,766Federal
                Home Loan Bank stock, at cost
            
            
            2,852,600
            
            
            2,533,100Loans,
                less allowance for loan lossesof
                $1,794,920 and $1,860,283
            
            
            212,164,501
            
            
            206,077,157Premises
                and equipment
            
            
            5,334,567
            
            
            3,991,077Goodwill
            
            
            832,932
            
            
            -Accrued
                interest receivable
            
            
            1,563,170
            
            
            1,445,833Deferred
                income taxes
            
            
            915,152
            
            
            918,012Other
                assets
            
            
            853,381
            
            
            1,008,419**Total
                Assets**
            
            $
            249,726,330
            
            $
            242,304,782DepositsNon-interest-bearing
            
            $
            31,457,036
            
            $
            29,900,976Interest-bearing
            
            
            128,627,356
            
            
            125,284,608160,084,392
            
            
            155,185,584Securities
                sold under repurchase agreementsand
                federal funds purchased
            
            
            8,167,646
            
            
            15,573,593Federal
                Home Loan Bank advances
            
            
            51,700,000
            
            
            43,700,000Other
                borrowings
            
            
            444,774
            
            
            -Accrued
                Interest payable
            
            
            506,752
            
            
            469,747Income
                taxes payable
            
            
            373,492
            
            
            -Other
                liabilities
            
            
            1,961,376
            
            
            1,768,702223,238,432
            
            
            216,697,626Stockholders'
                equityCommon
                stock, par value $10 per share authorized 1,000,000Shares
                issued, and 789,012 shares outstanding
            
            
            7,890,120
            
            
            7,890,120Additional
                paid-in capital
            
            
            2,920,866
            
            
            2,920,866Retained
                earnings
            
            
            16,509,167
            
            
            15,632,96527,320,153
            
            
            26,443,951Accumulated
                other comprehensive income (loss)Unrealized
                gain (loss) on available for sales securities
            
            
            (11,721
            )
            
            (16,261
            )Unfunded
                liability for defined benefit plan
            
            
            (820,534
            )
            
            (820,534
            )26,487,898
            
            
            25,607,156**Total
                Liabilities and Stockholders’ Equity**
            
            $
            249,726,330
            
            $
            242,304,782




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




-3-


**PEOPLES
        BANCORP, INC. AND SUBSIDIARIES**
 **Consolidated
        Statements of Income (unaudited)**


For
                  the three months ended March 31,2007
              
              2006Interest
                  and dividend revenueLoans,
                  including fees
              
              $
              3,958,196
              
              $
              3,610,038U.
                  S. government agency securities
              
              
              216,896
              
              
              203,418Deposits
                  in other banks
              
              
              4,888
              
              
              1,207Federal
                  funds sold
              
              
              23,248
              
              
              24,548Other
                  securities
              
              
              127
              
              
              -Federal
                  Home Loan Bank Stock Income
              
              
              37,670
              
              
              25,652Total
                  interest and dividend revenue
              
              
              4,241,025
              
              
              3,864,863Interest
                  expenseDeposits
              
              
              885,817
              
              
              707,265Borrowed
                  funds
              
              
              678,882
              
              
              566,820Total
                  interest expense
              
              
              1,564,699
              
              
              1,274,085Net
                  interest income
              
              
              2,676,326
              
              
              2,590,778Provision
                  for loan losses
              
              
              -
              
              
              120,000Net
                  interest income afterprovision
                  for loan losses
              
              
              2,676,326
              
              
              2,470,778Noninterest
                  revenueService
                  charges on deposit accounts
              
              
              219,778
              
              
              208,200Insurance
                  commissions
              
              
              401,790
              
              
              -Other
                  noninterest revenue
              
              
              81,241
              
              
              113,889Total
                  noninterest revenue
              
              
              702,809
              
              
              322,089Noninterest
                  expensesSalaries
                  and employee benefits
              
              
              948,441
              
              
              661,354Occupancy
              
              
              79,363
              
              
              63,617Furniture
                  and equipment
              
              
              43,214
              
              
              51,716Other
                  operating
              
              
              386,792
              
              
              340,975Total
                  noninterest expenses
              
              
              1,457,810
              
              
              1,117,662Income
                  before income taxes
              
              
              1,921,325
              
              
              1,675,205Income
                  taxes
              
              
              721,628
              
              
              630,810Net
                  income
              
              $
              1,199,697
              
              $
              1,044,395Earnings
                  per common share-basic and diluted
              
              $
              1.52
              
              $
              1.32




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




-4-


**PEOPLES
        BANCORP, INC. AND SUBSIDIARIES**
 **Consolidated
        Statements of Changes in Stockholders’ Equity
        (unaudited)**
  **THREE
          MONTHS ENDED MARCH 31, 2006 and 2005**


AccumulatedAdditional
            
            
            
            Otherpaid-in
            
            Retained
            
            Comprehensive
            
            ComprehensivePar
                value
            
            capital
            
            Earnings
            
            Income
            
            income**Balance,
                December 31, 2005**
            
            $
            7,890,120
            
            $
            2,920,866
            
            $
            12,763,903
            
            
            ($6,668
            )Net
                income
            
            
            -
            
            
            -
            
            
            1,044,395
            
            
            -
            
            $
            1,044,395Unrealized
                  loss on investment
                securities
                  available for sale net
                of
                  income taxes of $17,133
            
            
            -
            
            
            -
            
            
            -
            
            
            (27,230
            )
            
            (27,230
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,017,165Cash
                dividend, $0.39 per share
            
            
            -
            
            
            -
            
            
            (307,714
            )
            
            -**Balance,
                March 31, 2006**
            
            $
            7,890,120
            
            $
            2,920,866
            
            $
            13,500,584
            
            $
            (33,898
            )**Balance,
                December 31, 2006**
            
            $
            7,890,120
            
            $
            2,920,866
            
            $
            15,632,965
            
            
            ($836,795
            )Net
                income
            
            
            -
            
            
            -
            
            
            1,199,697
            
            
            -
            
            $
            1,199,697Unrealized
                gain on investmentsecurities
                available for sale netof
                income taxes of $2,856
            
            
            -
            
            
            -
            
            
            -
            
            
            4,540
            
            
            4,540Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,204,237Cash
                dividend, $.41 per share
            
            
            -
            
            
            -
            
            
            (323,495
            )
            
            -**Balance,
                March 31, 2007**
            
            $
            7,890,120
            
            $
            2,920,866
            
            $
            16,509,167
            
            $
            (832,255
            )




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




-5-


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


For
                the three months ended March 31,**2007**
            
            **2006****CASH
                FLOWS FROM OPERATING ACTIVITIES**Interest
                received
            
            $
            4,097,710
            
            $
            3,699,521Fees
                and commissions received
            
            
            702,809
            
            
            322,089Cash
                paid to suppliers and employees
            
            
            (1,050,555
            )
            
            (1,147,766
            )Interest
                paid
            
            
            (1,527,694
            )
            
            (1,261,449
            )Taxes
                paid
            
            
            (348,136
            )
            
            (268
            )1,874,134
            
            
            1,612,127**CASH
                FLOWS FROM INVESTING ACTIVITIES**Cash
                paid for premises, equipment, and software
            
            
            (910,374
            )
            
            (56,434
            )Loans
                made, net of principal collected
            
            
            (6,076,507
            )
            
            (1,482,688
            )Proceeds
                from maturities and calls of securitiesAvailable
                for sale
            
            
            0
            
            
            1,000,000Held
                to maturity
            
            
            1,001,201
            
            
            312Purchase
                of securities available for sale
            
            
            (1,038,461
            )
            
            0Purchase
                of securities held to maturity
            
            
            0
            
            
            (990,920
            )Acquisition
                of Insurance agency, net
            
            
            (884,634
            )
            
            0Acquisition
                of FHLB Stock
            
            
            (319,500
            )
            
            (250,700
            )(8,228,275
            )
            
            (1,780,430
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Net
                increase (decrease) inTime
                deposits
            
            
            1,203,269
            
            
            145,784Other
                deposits
            
            
            3,695,539
            
            
            (3,964,298
            )Securities
                sold under repurchase agreements
            
            
            (7,405,947
            )
            
            (787,204
            )Advances
                under (repayments of) notes payable
            
            
            7,973,610
            
            
            5,000,000Dividends
                paid
            
            
            (323,495
            )
            
            (307,714
            )5,142,976
            
            
            86,568**NET
                INCREASE (DECREASE) IN CASH**
            
            
            (1,211,166
            )
            
            (81,735
            )CASH
                AND EQUIVALENTS AT BEGINNING OF PERIOD
            
            
            7,465,410
            
            
            6,809,595CASH
                AND EQUIVALENTS AT END OF PERIOD
            
            $
            6,254,244
            
            $
            6,727,860




-6-




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




**RECONCILIATION
                OF NET INCOME TO NET CASH PROVIDED****FROM
                OPERATING ACTIVITIES**Net
                income
            
            $
            1,199,697
            
            $
            1,044,395**ADJUSTMENTS**Depreciation
                and amortization
            
            
            46,884
            
            
            53,982Provision
                for loan losses
            
            
            0
            
            
            120,000Security
                discount accretion, net of premium amortization
            
            
            (15,141
            )
            
            (9,917
            )Decrease
                (increase) inAccrued
                interest receivable
            
            
            (117,338
            )
            
            (61,572
            )Other
                assets
            
            
            331,330
            
            
            (9,073
            )Increase
                (decrease) inDeferred
                origination fees and costs, net
            
            
            (10,837
            )
            
            (93,852
            )Accrued
                interest payable and other liabilities
            
            
            66,046
            
            
            (62,378
            )Income
                taxes payable
            
            
            373,492
            
            
            630,542$
            1,874,134
            
            $
            1,612,127Supplemental
                DisclosureFair
                value of assets acquired
            
            $
            686,499
            
            $
            0Fair
                value of liabilities assumed
            
            
            (634,797
            )
            
            0Purchase
                price in excess of assets acquired
            
            
            832,932
            
            
            0Net
                cash paid for acquisition
            
            $
            884,634
            
            $
            0





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





-7-





**Peoples
      Bancorp, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**





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
      Subsidiary”) ,
      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 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 months ended March 31, 2007 are not
      necessarily indicative of the results that may be expected for the full year
      ending December 31, 2007 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,
      2006.





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
      three months ended March 31, 2007 and 2006, total comprehensive income, net
      of
      taxes, was $1,204,237 and $1,017,165, 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 March 31, 2007


At
                  March 31, 2007Revolving
                  Home Equity Lines
              
              $
              3,641,062Commercial
                  Real Estate
              
              $
              7,855,493Other
                  Unused Commitments
              
              $
              18,849,514Commercial
                Letters of Credit
              
              $
              5,673,683




-8-




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 three-month periods ended March 31, 2007 and 2006,
      respectively.





6.
              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 three months ended March 31, 2007 and 2006, the Bank recognized net periodic
      costs for this plan of $70,064 and $48,767, respectively. The Bank did not
      contribute to the plan during the three-month period ended March 31
      2007. ****





The
      Insurance Subsidiary does not maintain a defined benefit pension plan covering
      its employees.


7.
                Segment
                    Reporting





The
      Company operates two primary businesses: Community Banking and Insurance
      Products. Through the Community Banking business, the Company provides services
      to consumers and small businesses on the upper Eastern Shore of Maryland through
      its 5-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.





-9-





Selected
      financial information by line of business for the three months ended March
      31
      2007,is included in the following table:




**Insurance****Community**
            
            **products**
            
            **Intersegment**
            
            **Consolidated****2007**
            
            **banking**
            
            **and
                services**
            
            **Transactions**
            
            **Total**Net
                interest income
            
            $
            2,681,437
            
            
            -$5,111
            
            $
            0
            
            $
            2,676,326Provision
                for loan losses
            
            
            0
            
            
            0
            
            
            0
            
            
            0Net
                interest income after provision
            
            
            2,681,437
            
            
            -5,111
            
            
            0
            
            
            2,676,326Noninterest
                revenue
            
            
            301,019
            
            
            401,790
            
            
            0
            
            
            702,809Noninterest
                expense
            
            
            1,244,996
            
            
            212,814
            
            
            0
            
            
            1,457,810Income
                before income taxes
            
            
            1,737,460
            
            
            183,865
            
            
            0
            
            
            1,921,325Income
                taxes
            
            
            650,619
            
            
            71,009
            
            
            0
            
            
            721,628Net
                income
            
            $
            1,086,841
            
            $
            112,856
            
            $
            0
            
            $
            1,199,697Average
                assets
            
            $
            245,081,869
            
            $
            1,132,479
            
            
            -$93,357
            
            $
            246,120,991


8.
                  Insurance
                      Agency Acquisition


On
      January 2, 2007, the Company completed the acquisition of the Insurance Agency,
      a Maryland insurance agency with an office located in Chestertown, Maryland.
      Under the terms of the acquisition agreement, the Company acquired all of the
      outstanding common stock of the Insurance Agency for approximately
      $1,000,000.





In
      the
      acquisition, the Company acquired approximately $821,000 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 $300,000 of goodwill, which will
      not be amortized, and $514,000 of intangible assets, which will be amortized
      on
      a straight-line basis over 10 years. Pre-acquisition operating results of the
      Insurance Agency are not readily determinable.





-10-





**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 (the “Bank”), a
      Maryland commercial bank, which it acquired on March 24, 1997.





During
      2006, we operated in only one business segment: community banking. On January
      2,
      2007, the Company acquired the Insurance Subsidiary and began operating in
      the
      insurance products and services business segment.





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.





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 Subsidiary 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 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.





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.




-11-




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 the Company’s allowance
      for loan losses. Such agencies may require the Company 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
      March 31, 2007 Consolidated Financial Statements and Notes thereto included
      elsewhere in this report, and in conjunction with the December 31, 2006 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, 2006.





**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 manage 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.




-12-




**RESULTS
      OF OPERATIONS**





**General**





For
      the
      three-month period ended March 31, 2007, the Company reported net income of
      $1,199,697 or $1.52 per share, compared to $1,044,395 or $1.32 per share for
      the
      same period of 2006, which represents an increase of $155,302 or 14.87%. This
      increase resulted primarily from increases in loan interest income offset by
      an
      increase in interest expense on deposits and borrowed funds. The Insurance
      Subsidiary received its annual contingent sales commission during the first
      quarter of 2007, which raised noninterest revenue substantially this quarter.
      We
      expect the insurance subsidiary to generate lower revenue and net income during
      the remaining quarters of 2007.





**Net
      Interest Income**





The
      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.





Net
      interest income for the three-month period ended March 31, 2007 was $2,676,326,
      which represents an increase of $85,548 or 3.30% over net interest income for
      the same period of 2006. The primary contributor to this increase was higher
      average loans outstanding during the quarter. During 2006 and continuing through
      the first quarter of 2007, market interest rates rose moderately .





Interest
      revenue for the three months ended March 31, 2007 totaled $4,241,025, compared
      to $3,864,863 for the same period last year, representing an increase of
      $376,162 or 9.73%. This increase is attributable primarily to an increase in
      loan income of $348,158 for the first three months of 2007 over the same time
      period in 2006. This has resulted from continued strong loan demand in the
      Company’s primary market area.





Interest
      expense for the three-month period ended March 31, 2007 totaled $1,564,699,
      compared to $1,274,085 for the same period last year, representing an increase
      of $290,614 or 22.81%. Although deposits have increased slightly during the
      first three months of 2007, the Company increased its Federal Home Loan Bank
      (“FHLB”) borrowings during the first quarter of 2007 to fund strong loan demand
      from $43,700,000 at December 31, 2006 to $51,700,000 at March 31, 2007,
      resulting in an increase in borrowed funds interest expense during the first
      quarter of 2007 of $187,106 when compared to the same period last year. Advances
      from the FHLB were $45,700,000 at March 31, 2006. The Company assumed
      approximately $450,000 of debt in connection with the acquisition of the
      Insurance Subsidiary.





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 three-month
      period ended March 31, 2007 was 4.69%, compared to 4.66% for the same period
      in
      2006. 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.




-13-




A
      table
      of the Company’s average balances, interest and yields follows.





**Average
      Balances, Interest, and Yield**




For
                the Quarter Ended
              March
                31, 2007
            
            For
                the Quarter Ended
              March
                31, 2006Average
                Balance
            
            Interest
            
            Yield
            
            AverageBalance
            
            Interest
            
            Yield**Assets**Federal
                funds sold
            
            $
            1,663,397
            
            $
            23,248
            
            
            5.67
            %
            $
            2,042,954
            
            $
            24,548
            
            
            4.87
            %Interest-bearing
                deposits
            
            
            466,642
            
            
            5,111
            
            
            4.44
            %
            
            110,353
            
            
            1,265
            
            
            4.65
            %Investment
                securities:U.
                S. government agency
            
            
            18,821,495
            
            
            227,395
            
            
            4.90
            %
            
            19,882,732
            
            
            213,264
            
            
            4.35
            %Other
            
            
            27,095
            
            
            127
            
            
            1.90
            %
            
            0
            
            
            0
            
            
            -
            %FHLB
                of Atlanta Stock
            
            
            2,711,850
            
            
            39,495
            
            
            5.91
            %
            
            2,414,328
            
            
            26,895
            
            
            4.52
            %Total
                investment securities
            
            
            21,560,440
            
            
            267,017
            
            
            5.02
            %
            
            22,297,060
            
            
            240,159
            
            
            4.37
            %Loans:Demand
                and time
            
            
            42,154,773
            
            
            956,626
            
            
            9.20
            %
            
            39,046,898
            
            
            832,027
            
            
            8.64
            %Mortgage
            
            
            165,022,455
            
            
            2,916,616
            
            
            7.17
            %
            
            160,475,060
            
            
            2,688,320
            
            
            6.79
            %Installment
            
            
            4,797,875
            
            
            101,353
            
            
            8.57
            %
            
            5,121,205
            
            
            101,167
            
            
            8.01
            %Total
                loans
            
            
            211,975,103
            
            
            3,974,595
            
            
            7.60
            %
            
            204,643,163
            
            
            3,621,514
            
            
            7.18
            %Allowance
                for loan losses
            
            
            1,850,157
            
            
            
            
            
            
            
            
            1,679,505Total
                loans, net of allowance
            
            
            210,124,946
            
            
            3,974,595
            
            
            7.67
            %
            
            202,963,658
            
            
            3,621,514
            
            
            7.24
            %Total
                interest-earning assets
            
            
            233,815,425
            
            
            4,269,971
            
            
            7.41
            %
            
            227,414,025
            
            
            3,887,486
            
            
            6.93
            %Non-interest-bearing
                cash
            
            
            4,319,660
            
            
            
            
            
            
            
            
            4,853,969Premises
                and equipment
            
            
            4,625,087
            
            
            
            
            
            
            
            
            3,808,072Other
                assets
            
            
            3,360,819
            
            
            
            
            
            
            
            
            2,060,762Total
                assets
            
            $
            246,120,991
            
            
            
            
            
            
            
            $
            238,136,828Liabilities
                and Stockholders’ EquityInterest-bearing
                DepositsSavings
                and NOW deposits
            
            $
            38,036,322
            
            $
            53,851
            
            
            0.57
            %
            $
            42,504,641
            
            $
            58,656
            
            
            0.56
            %Money
                market and supernow
            
            
            16,756,913
            
            
            61,195
            
            
            1.48
            %
            
            18,093,090
            
            
            44,074
            
            
            0.99
            %Other
                time deposits
            
            
            72,918,559
            
            
            770,771
            
            
            4.29
            %
            
            68,867,484
            
            
            604,535
            
            
            3.56
            %Total
                interest-bearing deposits
            
            
            127,711,794
            
            
            885,817
            
            
            2.81
            %
            
            129,465,215
            
            
            707,265
            
            
            2.22
            %Borrowed
                funds
            
            
            60,414,514
            
            
            678,882
            
            
            4.56
            %
            
            53,871,106
            
            
            566,820
            
            
            4.27
            %Total
                interest-bearing liabilities
            
            
            188,126,308
            
            
            1,564,699
            
            
            3.37
            %
            
            183,336,321
            
            
            1,274,085
            
            
            2.82
            %Noninterest-bearing
                deposits
            
            
            30,240,866
            
            
            
            
            
            
            
            
            30,053,833218,367,174
            
            
            
            
            
            
            
            
            213,390,154Other
                liabilities
            
            
            2,111,420
            
            
            
            
            
            
            
            
            777,205Stockholders’
                equity
            
            
            25,642,397
            
            
            
            
            
            
            
            
            23,969,469Total
                liabilities and stockholders equity
            
            $
            246,120,991
            
            
            
            
            
            
            
            $
            238,136,828Net
                interest spread
            
            
            
            
            
            
            
            
            4.04
            %
            
            
            
            
            
            
            
            4.11
            %Net
                interest income
            
            
            
            
            $
            2,705,272
            
            
            
            
            
            
            
            $
            2,613,401Net
                margin on interest-earning assets
            
            
            
            
            
            
            
            
            4.69
            %
            
            
            
            
            
            
            
            4.66
            %Interest
                on tax-exempt loans and investments are reported on fully taxable
                equivalent basis (a non GAAP financial measure).




-14-


**Noninterest
      Revenue**





Noninterest
      revenue for the three-month period ended March 31, 2007 totaled $702,809, which
      represents an increase of $380,720 or 118.20% over noninterest revenue for
      the
      same period of 2006. This increase resulted primarily from $401,790 of
      commission income earned by the Insurance Subsidiary during the first quarter
      of
      2007. We expect the
      insurance subsidiary to generate lower revenue and net income during the
      remaining quarters of 2007 .
      In
      addition, we experienced an increase in overdraft activity service charges
      of
      $11,578 or 5.56% during the first quarter of 2007 when compared to the same
      period of 2006. Management does not view the increased overdraft activity as
      an
      indication of problems within our loan portfolio, as we have continued to
      collect these overdrawn balances and the fees associated with them.





**Noninterest
      Expense**





The
      Company recorded noninterest expense of $1,457,810 for the three-month period
      ended March 31, 2007, compared to $1,117,662 for the same period in 2006, an
      increase of $340,148 or 30.43%. This increase is mainly attributable to
      increased salaries and employee benefits of $287,087, which is primarily due
      to
      the acquisition of the Insurance Subsidiary. Other operating costs for the
      first
      quarter of 2007 also increased when compared to the same period last year,
      primarily due to Insurance Subsidiary operations.





**Income
      Tax Expense**





The
      Company’s effective tax rate for the three-month period ended March 31, 2007 was
      37.6%, compared to 37.7% for the same period of 2006. The Company’s income tax
      expense was $721,628 for the three months ended March 31, 2007, compared to
      $630,810 for the same period of 2006, which represents an increase of $90,818
      or
      14.40%. Increases in income before income tax during the three-month period
      ended March 31, 2007 contributed to the increase in income tax expense when
      compared to the same period last year.





**FINANCIAL
      CONDITION**





**Overview**





Total
      assets of the Company at March 31, 2007 were $249,726,330, compared to
      $242,304,782 at December 31, 2006, representing an increase of $7,421,548 or
      3.06% over December 31, 2006.





Total
      liabilities at March 31, 2007 were $223,238,432, compared to $216,697,626 at
      December 31, 2006, representing an increase of $6,540,806 or 3.02%.





Stockholders’
      equity was $26,487,898 as of March 31, 2007, compared to $25,607,156 as of
      December 31, 2006, an increase of $880,742. The increase was due to net income
      for the period totaling $1,199,697 plus a decrease in the unrealized loss on
      securities available for sale net of income taxes of $4,540, offset by dividends
      paid to stockholders of $323,495.





Return
      on
      average equity for the quarter ended March 31, 2007 was 18.97%, compared to
      17.67% for the same period of 2006. Return on average assets was 1.98% for
      the
      quarter ended March 31, 2007, compared to 1.78% for the same period of
      2006.





-15-


**Composition
      of Loan Portfolio**





At
      March
      31, 2007, loans, net of unearned income, were $212,164,501, an increase of
      $6,087,344 since December 31, 2006. 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 $210,124,946 and $202,963,658 during the first
      quarters of 2007 and 2006, respectively, which constituted 89.87% and 89.25%
      of
      average interest-earning assets for the respective periods. For the quarter
      ended March 31, 2007, the Company’s average loan to deposit ratio was 133.03%,
      compared to 127.23% for the same period in 2006. The securities sold under
      repurchase agreements function like deposits, with the securities providing
      collateral in place of the FDIC insurance. The Company’s ratio of average loans
      to deposits plus borrowed funds was 96.23% for the quarter ended March 31,
      2007,
      compared to 95.11% for the same period of 2006. The Company extends loans
      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
      the Company’s loan portfolio. A substantial portion of the Company’s 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 March 31, 2007 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 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. 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 the
      Company’s target. Historically our regulators have discouraged negative
      provisions.





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 March 31, 2007 and December 31, 2006, the allowance for
      loan
      losses compared to gross loans was 0.84% and 0.90%, respectively.




-16-




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





**Allowance
      for Loan Losses**





Three
                months ended
            
            Three
                months ended
            
            Year
                endedMarch
                31,
            
            March
                31,
            
            December
                31,2007
            
            2006
            
            2006Balance
                at beginning of year
            
            $
            1,860,283
            
            $
            1,649,420
            
            $
            1,649,420Loan
                losses:Commercial
            
            
            62,941
            
            
            3,268
            
            
            4,947Mortgages
            
            
            0
            
            
            0
            
            
            15,000Consumer
            
            
            4,882
            
            
            1,575
            
            
            16,214Total
                loan losses
            
            
            67,823
            
            
            4,843
            
            
            36,161Recoveries
                on loans previously charged offCommercial
            
            
            0
            
            
            0
            
            
            25Mortgages
            
            
            2,271
            
            
            0
            
            
            0Consumer
            
            
            188
            
            
            777
            
            
            6,999Total
                loan recoveries
            
            
            2,459
            
            
            777
            
            
            7,024Net
                loan losses
            
            
            65,364
            
            
            4,066
            
            
            29,137Provision
              for loan losses charged to expense
            
            
            0
            
            
            120,000
            
            
            240,000Balance
                at end of year
            
            $
            1,794,919
            
            $
            1,765,354
            
            $
            1,860,283Allowance
                for loan losses to loans outstanding  at
                end of period
            
            
            0.84
            %
            
            0.86
            %
            
            0.90
            %





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
      $549,013 and $422,338 at March 31, 2007 and December 31, 2006, respectively.
      These loans are detailed below:




**Risk
                  Elements of Loan Portfolio****March
                  31,**
              
              **December
                  31,****2007**
              
              **2006**Non-Accrual
                  Loans
              
              $
              7,962
              
              $
              23,201Accruing
                  Loans Past Due 90 Days or More
              
              
              541,051
              
              
              399,137




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 March 31, 2007 or December
      31 ,
      2006.




-17-




**Deposits
      and Other Interest-Bearing Liabilities**





Average
      interest-bearing deposits decreased $1,753,421 or 1.35% to $127,711,794 for
      the
      three months ended March 31, 2007, from $129,465,215 for the same period of
      2006. Average noninterest-bearing deposits increased $187,033 or 0.62% to
      $30,240,866 for the three months ended March 31, 2007, from $30,053,833 for
      the
      same period of 2006. Average total deposits have decreased 0.98% or $1,566,388
      to $157,952,660 for the three months ended March 31, 2007 from $159,519,048
      for
      the same period of 2006. Borrowings, primarily from the FHLB, increased to
      $51,700,000 or 18.31% from $43,700,000 at December 31, 2006 to fund strong
      loan
      demand.





Deposits,
      particularly core deposits, and borrowed funds have been the Company’s primary
      source of funding and have enabled the Company to meet both its short-term
      and
      long-term liquidity needs. Management anticipates that deposits will grow and
      be
      the Company’s primary source of funding for the foreseeable future. It should be
      noted, however, 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.





**Short-term
      Borrowings**




The
      following table sets forth the Company’s position with respect to short-term
      borrowings for March 31, 2007 and the year ended December 31
      2006.


**March
                  31, 2007**
              
              **December
                  31, 2006****Amount**
              
              ******Rate**
              
              ******Amount**
              
              ******Rate**Federal
                  Home Loan Bank (daily re-price)
              
              $
              0
              
              
              -
              %
              $
              0
              
              
              -
              %Retail
                  Repurchase Agreements
              
              
              6,867,646
              
              
              3.77
              %
              
              9,513,593
              
              
              2.85
              %Federal
                  Funds Borrowed
              
              
              1,300,000
              
              
              5.81
              %
              
              6,060,000
              
              
              1.60
              %Total
              
              $
              8,167,646
              
              
              
              
              $
              15,573,593


The
      Company may borrow up to approximately 30% of total assets from the 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 the Company’s 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.





The
      Company provides collateral of 105% of the repurchase agreement balances by
      pledging U.S. Government Agency securities.





The
      Bank
      has lines of credit of $19,400,000 in unsecured overnight federal funds and
      $5,000,000 in secured overnight federal funds with correspondent banks at March
      31, 2007.





**Liquidity
      and Capital Resources**





Liquidity
      describes the ability of the Company 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 $24,400,000 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 $71,450,000 of which
      $51,700,000 has been advanced as of March 31, 2007. There were no short term
      borrowings with the Federal Home Loan Bank of Atlanta for the total amount
      advanced.




-18-




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 March 31, 2007 to the minimum ratios required by
      federal banking regulators is presented below.


**Minimum**
              
              **To
                  be well****Actual**
              
              ******Requirements******
              
              ******Capitalized****Tier
                  1 risk-based capital**
              
              
              10.56
              %
              
              4.00
              %
              
              6.00
              %**Total
                  risk-based capital**
              
              
              13.29
              %
              
              8.00
              %
              
              10.00
              %**Leverage
                  ratio**
              
              
              12.43
              %
              
              4.00
              %
              
              5.00
              %




**Item
      3.**  **Quantitative
      and Qualitative Disclosures About Market Risk.**





The
      Company’s 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, 2006 under the caption “Market Risk
      Management”. Management believes that there have been no material changes in the
      Company’s market risks, the procedures used to evaluate and mitigate these
      risks, or the Company’s actual sensitivity position since December 31, 2006. The
      simulation models that the Company uses 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 March 31, 2007:


**Immediate
                  Change in Rates********+200**
                **Basis
                  Points**
              
              **+100**
                **Basis
                  Points**
              
              **-100**
                **Basis
                  Points**
              
              **-200**
                **Basis
                  Points**
              
              ******Policy****Limit****March
                  31, 2007**%
                  Change in Net Interest Income
              
              
              3.13
              %
              
              1.59
              %
              
              -1.95
              %
              
              -
                  4.54
              %
              
              ±10
              %%
                  Change in Fair Value of Capital
              
              
              6.60
              %
              
              3.30
              %
              
              -3.40
              %
              
              -7.10
              %
              
              ±20
              %**December
                  31, 2006**%
                  Change in Net Interest Income
              
              
              3.26
              %
              
              1.66
              %
              
              -2.15
              %
              
              -
                  5.03
              %
              
              ±10
              %%
                  Change in Fair Value of Capital
              
              
              6.79
              %
              
              3.44
              %
              
              -3.82
              %
              
              -
                  8.10
              %
              
              ±20
              %





The
      change in the Company’s interest rate sensitivity profile from December 31. 2006
      to March 31, 2007 resulted from an decrease in the Company’s excess assets
      repricing within one year from $71,576,000 as of December 31, 2006 to
      $62,591,000 at March 31, 2007.




-19-




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





The
      Company maintains disclosure controls and procedures that are designed to ensure
      that information required to be disclosed in the Company’s 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 the Company’s
      management, including the President and Chief Executive Officer, who also serves
      as the Company’s 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 March 31, 2007 under the supervision and with the participation of the
      Company’s management, including the CEO. Based on that evaluation, the Company’s
      management, including the CEO, has concluded that the Company’s disclosure
      controls and procedures are, in fact, effective at the reasonable assurance
      level.





During
      the first quarter of 2007, there was no change in the Company’s internal control
      over financial reporting that has materially affected, or is reasonably likely
      to materially affect, the Company’s internal control over financial
      reporting.





**PART
      II - OTHER INFORMATION**




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




None.




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




The
      risks
      and uncertainties to which the 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, 2006.
      Management does not believe that any material changes in these risk factors
      have
      occurred since December 31, 2006.





**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.**




None.




-20-




**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.




-21-




**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: May
              10,
              2007
            By:
            /s/ Thomas
              G.
              StevensonThomas
                G. Stevenson
              President/Chief
                Executive Officer
              &
                Chief Financial Officer




-22-




**EXHIBIT
      INDEX**




Exhibit
              No.
            
            Description3.1
            
            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-KSB 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 May 24, 2006)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)





-23-